India's higher education sector, home to over 1,000 universities and 45,000 colleges, serves more than 43 million students with a gross enrollment ratio (GER) of around 28.4 percent as of 2026. This vast ecosystem relies on a mix of public funding, student fees, research grants, and private contributions to sustain operations, infrastructure, and innovation. While central and state governments provide the backbone through schemes like PM-USHA (Pradhan Mantri Uchchatar Shiksha Abhiyan), private institutions increasingly depend on tuition and industry partnerships. Understanding these sources is crucial for stakeholders navigating the push toward a 50 percent GER by 2035 under the National Education Policy (NEP) 2020.

The funding model reflects India's federal structure, with central universities receiving direct support from the Ministry of Education via the University Grants Commission (UGC), while state universities blend local budgets with central aid. Private and deemed universities, numbering over 400, operate largely on self-generated revenue, highlighting disparities in resource access. Recent Union Budget 2026-27 allocations of Rs 55,727 crore for higher education signal growth, yet challenges like underutilization of grants and low public spending persist.

Central Government Funding: The UGC Backbone

The University Grants Commission (UGC), established under the UGC Act 1956, coordinates and determines standards for higher education while disbursing funds to eligible institutions. Central universities, such as Jawaharlal Nehru University (JNU) and University of Delhi, receive 100 percent salary support and development grants from UGC. In 2026-27, UGC's budget stands at Rs 3,709 crore, up 11 percent from the previous year, focusing on equity and infrastructure.

Institutions of Eminence (IoEs), like IIT Delhi and IISc Bangalore, get special grants up to Rs 1,000 crore each over five years for world-class status. The Department of Higher Education (DHE) under the Ministry allocates for IITs (Rs 12,123 crore) and central universities (Rs 17,440 crore). This funding covers salaries, pensions, scholarships, and capital projects, ensuring operational stability but often criticized for bureaucratic delays.

State Government Roles and Contributions

State universities, numbering around 400, depend primarily on state budgets, supplemented by UGC grants for Section 12(B) eligible institutions. States like Uttar Pradesh and Maharashtra lead in allocations, with UP approving Rs 100 crore each for six universities under PM-USHA in 2026. However, funding varies widely; southern states like Tamil Nadu and Karnataka invest more per student due to stronger economies.

States handle salaries for 70-80 percent of faculty and non-teaching staff, but chronic underfunding leads to vacancies and infrastructure gaps. Recent reforms encourage performance-based grants, with states matching central contributions 40:60 under PM-USHA. For example, Jadavpur University received Rs 47 crore for infrastructure in 2025, boosting research facilities.

Tuition Fees: The Self-Financing Pillar

Tuition fees form the largest revenue source for private universities (70-90 percent) and are rising in public ones to offset govt cuts. Fee Regulatory Committees cap charges, but deemed and private institutions like Ashoka University charge Rs 8-15 lakh annually for undergrad programs. NEP 2020 promotes no-capitation-fee policies, yet management quotas persist.

Public universities generate 20-30 percent from fees, with scholarships like Post-Matric covering marginalized students. Fee hikes, approved by state panels, fund expansions but spark protests, as seen in 2025 Delhi University hikes. Endowments help stabilize, but India's average per-student funding lags global peers at Rs 1.2 lakh vs. Rs 10 lakh in the US.

Photo by Ashima Pargal on Unsplash

Research Grants: Fueling Innovation

Research funding from Department of Science and Technology (DST), Department of Biotechnology (DBT), and Indian Council of Medical Research (ICMR) supports projects. DST's SERB allocates Rs 2,500 crore annually for core research, with calls open till May 2026 for fellowships. DBT funds biotech via BIRAC, aiding startups from university labs.

IITs secure 40 percent of grants due to overheads (20-30 percent retained). Extramural Research (EMR) schemes provide Rs 50 lakh-2 crore per project. In 2026, DBT's BioCARe aids women scientists. Challenges include low success rates (10-15 percent) and delayed disbursals, pushing unis toward international collaborations.

Endowments and Alumni Donations: Growing Philanthropy

Alumni gifts are surging, with IIT Delhi receiving Rs 150 crore in 2026. Private universities like OP Jindal boast Rs 1,000 crore endowments. UGC's 2021 guidelines allow 6 percent interest-free loans from endowments for expansion. Tax benefits under Section 80G encourage donations, targeting Rs 50,000 crore by 2030.

Challenges: Low culture of giving (0.4 percent GDP vs. 2 percent US), but initiatives like IIT Madras' Rs 1,000 crore campaign show promise. Public unis lag, with JNU's endowment under Rs 100 crore.

Industry Partnerships and CSR Funding

Corporate Social Responsibility (CSR) mandates 2 percent profit allocation, with Rs 5,000 crore to education in 2025. Tata, Reliance fund chairs and labs. Public-Private Partnerships (PPP) under NEP build campuses; Azim Premji University exemplifies blended models.

Industry-sponsored research rose 20 percent in 2026, with Infosys funding AI centers. Challenges: IPR disputes, short-term focus.

Key Government Schemes: PM-USHA and RUSA

PM-USHA, launched 2023, allocates Rs 12,000 crore (2023-28), funding 108 universities and 409 colleges (Rs 7,046 crore disbursed by 2026). Components: Infrastructure (MERU), governance (GSU), equity. States match 40 percent; 78 unis approved recently.

RUSA 2.0 predecessor focused state unis; PM-USHA expands to townships near industry. Budget proposes 5 such clusters for skilling.

Photo by Ayaneshu Bhardwaj on Unsplash

Challenges: Underfunding and Utilization Gaps

India spends 0.7 percent GDP on higher ed (global avg 1.3 percent). Half state unis utilize <50 percent grants due to admin delays. Faculty vacancies (30 percent), regional disparities (south > north). Private unis face fee regulation, capitation bans.

NEP 2020 Reforms and Future Outlook

NEP targets 6 percent GDP on education, HECI for single regulator, multidisciplinary unis. Multidisciplinary Education and Research Universities (MERUs) via PM-USHA. Future: Alumni funds to Rs 1 lakh crore, PPPs, global rankings rise.

Outlook positive with 8 percent budget hike, but execution key for Viksit Bharat 2047.