Funding Higher Education in India: Plan and Non-Plan Grants Explained

Every college or university you walk into – whether it’s a central university in Delhi or a state college in a small town – runs on public money. But not all public money works the same way. Historically, India’s education system was funded through two distinct budgetary streams: Plan grants and Non-Plan grants. Understanding how these two types of funding worked – and why the distinction mattered – is essential to understanding the financial architecture of Indian higher education, and why debates about university funding continue to this day.

What are plan and non-plan grants? 🔗

For decades, the Government of India divided its entire public expenditure into two broad buckets: Plan and Non-Plan. This classification shaped how money flowed into higher education institutions across the country.

Non-plan grants: keeping the lights on 🔗

Non-Plan grants were allocated for recurring, day-to-day operational expenses of universities and colleges. These covered teacher and staff salaries, administrative costs, library maintenance, laboratory upkeep, and other routine institutional needs. In short, Non-Plan funding was what kept an institution functioning from one academic year to the next. As the University Grants Commission (UGC) describes it, these grants help universities ensure smooth day-to-day functioning – meeting basic needs of students and faculty without depending heavily on other external sources.

The structural problem with Non-Plan grants was their inadequacy over time. As institutional costs rose – higher faculty salaries, more students, expanding infrastructure – the fixed nature of these grants left many universities perpetually underfunded for even their routine operations.

Plan grants: investing in the future 🔗

Plan grants, in contrast, were development-oriented. Tied to India’s Five-Year Plans, these grants funded new construction, modernisation of laboratories, expansion of research facilities, new academic programmes, and other growth-oriented activities. Unlike Non-Plan grants, Plan grants were time-bound, released against specific proposals, and monitored for outcomes. Universities had to demonstrate progress and submit utilization certificates to access further tranches of funding.

This outcome-linked approach encouraged institutions to set clear developmental goals. However, it also meant that institutions that lacked administrative capacity to prepare strong proposals were often left behind in the funding queue.

How UGC and states allocated funds 🔗

The UGC, established as a statutory body under an Act of Parliament in 1956, has historically been the primary channel through which the Central Government funds universities and colleges. According to the Department of Higher Education, the UGC not only disburses grants to eligible institutions but also advises both Central and State Governments on what measures are necessary for the development of higher education.

The UGC operates from its head office in New Delhi and through six regional offices – in Bangalore, Bhopal, Guwahati, Hyderabad, Kolkata, and Pune – ensuring coverage across different parts of the country.

Central universities vs. state institutions 🔗

The funding landscape was never uniform. Central universities were funded directly and more substantially by the UGC through the Central Government. State universities and affiliated colleges, on the other hand, received a share of funding from both the UGC and their respective State Governments. This dual dependency meant that the financial health of state institutions was partly determined by how much priority a state government placed on higher education in its own budget.

The variation here was significant. An analysis by Accountability Initiative found that education spending as a proportion of total state government expenditure varied considerably across states, and that spending declined between 2014-15 and 2019-20 in several states including Kerala, Maharashtra, Odisha, Madhya Pradesh, Rajasthan, and Himachal Pradesh. What happened at the state level had a direct bearing on the resources available to state universities.

Grant eligibility and the role of Section 12B 🔗

Not every university or college was eligible to receive UGC grants. Institutions had to be formally recognised and included under Section 12B of the UGC Act, 1956, to be entitled to receive central grants. This created a tiered system where newly established or non-recognised institutions operated without access to UGC funding, often pushing them toward higher student fees or private financing.

The abolition of the plan/non-plan distinction 🔗

A significant structural shift occurred in 2017, when the Union Budget abolished the Plan and Non-Plan classification altogether. This reform, which had been recommended by the Expert Group on Efficient Management of Public Expenditures chaired by C. Rangarajan as far back as 2013, was intended to allow policymakers to view each sector holistically – and to avoid the artificial distortions that had emerged between maintaining existing assets and creating new ones. In theory, the new approach would enable a more integrated view of how public money was being spent on education.

In practice, however, the abolition of the distinction did not resolve the underlying funding tensions. The question of how much money universities receive for development versus day-to-day functioning remains as pressing as ever.

Challenges in financial planning for higher education 🔗

The Plan/Non-Plan framework, for all its structural clarity, came with serious on-ground problems that weakened its effectiveness.

Chronic underfunding 🔗

According to India Development Review, India’s government spending on education stood at approximately 2.7% of GDP – far below what is needed. India’s total financial requirement to achieve Sustainable Development Goal 4 by 2030 works out to an average of USD 173 billion per year, against a current annual government education budget of just USD 51.5 billion. This structural shortfall means that even with Plan grants for development, universities are stretched thin.

The UGC itself has seen its allocations fall sharply in recent years. As reported by Janata Weekly, the allocation for UGC – which regulates higher educational institutions and provides grants to approximately 20,000 colleges and several hundred universities – was cut drastically from Rs. 6,409 crore in 2023-24 to Rs. 2,500 crore, a reduction of over 60%. In nominal terms, the allocation has fallen nearly 72% from what it was in 2014-15, meaning the real reduction is even steeper when inflation is accounted for.

Misallocation and proposal-driven bias 🔗

The proposal-based nature of Plan grants, while theoretically merit-driven, introduced a systemic bias in practice. Institutions with better administrative infrastructure – typically older, more established universities in urban areas – were far better positioned to prepare compelling grant proposals and navigate the UGC’s requirements. Newer or smaller institutions in underserved regions, which arguably needed development funds the most, often lacked the administrative bandwidth to compete effectively for Plan funding.

Delays in fund disbursal 🔗

Delays in the actual release of funds have been a persistent problem in the Indian education funding ecosystem. IndiaSpend reported that during 2020-21, COVID-19 severely disrupted fund releases, with the central government having released only 29% of education scheme budgets to states by late November, and states having spent only 26% of their approved budgets by October. While this was an extreme case, delays in disbursal – even in normal years – create cash flow crises for institutions that cannot defer salary payments or essential maintenance.

Inadequate non-plan support for growing costs 🔗

The rising cost of running a modern university – from digital infrastructure and online learning platforms to internationally competitive faculty salaries – has consistently outpaced what Non-Plan (or their equivalent recurring) grants cover. Institutions caught in this gap are often forced to increase student fees, restrict enrolment, or reduce the quality of facilities – undermining the very purpose of public higher education.

Future reforms in education financing 🔗

The challenges of the old grant structure – and the new questions raised by the post-2017 unified budget framework – have pushed policymakers, educators, and researchers to rethink how India finances its universities.

The 6% GDP target: long overdue 🔗

The National Education Policy (NEP) 2020 reaffirmed the decades-old recommendation of increasing public investment in education to 6% of GDP – a target first set by the National Policy on Education in 1968 and consistently missed since. In 2017-18, actual public spending on education (Centre and states combined) was budgeted at just 4.43% of GDP. Closing this gap is the single most important lever for sustainable higher education funding.

Higher Education Financing Agency (HEFA) 🔗

To supplement government grants for infrastructure development, the Higher Education Financing Agency (HEFA) was established to provide funding for capital expenditure in higher education institutions. Recommendations from NEP implementation reviews suggest that HEFA should diversify its funding sources beyond government allocations, exploring partnerships with private sector organisations, philanthropic foundations, and international financial institutions.

Performance-linked and outcome-based funding 🔗

There is growing policy consensus that grants – whether for development or maintenance – should be tied more firmly to institutional performance. NEP 2020 proposes that institutions performing well in accreditation and rankings become eligible for graded autonomy, which includes greater financial independence. As outlined by the government’s NEP progress reports, institutions with strong outcomes can independently launch new programmes, form international collaborations, and manage their own finances – reducing the bottleneck of centralised grant approval.

Diversifying revenue sources 🔗

The UGC’s own resource mobilisation guidelines have long encouraged universities to actively seek funding from alumni associations, industry and business partnerships, individual and NRI donors, professional associations, and CSR contributions. Under the incentive scheme, the UGC agreed to contribute up to 25% of amounts that universities successfully raised from external sources – rewarding institutional initiative rather than simply rewarding institutional size.

Equitable funding for disadvantaged groups 🔗

NEP 2020 also calls on both Union and State Governments to allocate sufficient funds specifically to support Socially and Economically Disadvantaged Groups (SEDGs) in higher education, with clear targets for Gross Enrolment Ratio improvements among these groups. Any sustainable funding reform must ensure that better-resourced institutions are not the only ones benefiting from new financing models.

The HECI framework: separating funding from regulation 🔗

One of the more significant structural proposals in NEP 2020 is the creation of the Higher Education Commission of India (HECI), which would separate the functions of funding, regulation, accreditation, and academic standard-setting into distinct, independent bodies. As Wikipedia’s summary of NEP 2020 notes, this separation is intended to eliminate conflicts of interest and avoid concentration of power – problems that critics have long identified in the UGC’s combined role as both funder and regulator.

What do you think? Given that India’s public spending on higher education has remained well below the 6% of GDP target for over five decades, what structural changes – in policy, governance, or funding mechanisms – do you believe would make the biggest difference? And as the line between Plan and Non-Plan spending has been formally erased, how should universities be held accountable for ensuring that development funds actually reach those institutions and students who need them most?

References

1. https://www.ugc.gov.in/
2. https://www.education.gov.in/en/university-grants-commission
3. https://www.indiaspend.com/budget/budget-explainer-how-india-funds-public-school-education-718488
4. https://www.nipfp.org.in/media/medialibrary/2017/03/WP_2017_191.pdf
5. https://idronline.org/funding-education-with-impact/
6. https://janataweekly.org/union-budgets-2014-to-2024-article-10-the-education-budget/
7. https://prsindia.org/articles-by-prs-team/the-national-education-policy-2020-recommendations-and-the-current-situation
8. https://www.drishtiias.com/daily-updates/daily-news-analysis/national-education-policy-2020-in-higher-education
9. https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154950&ModuleId=3&reg=3&lang=2
10. https://www.ugc.gov.in/oldpdf/xplanpdf/incentive_resource_mobilisation.pdf
11. https://en.wikipedia.org/wiki/National_Education_Policy_2020