Education Ministry seeks extension of loan-based funding

New Delhi: The education ministry has requested the finance ministry to reconsider its recent decision to bar borrowing based funding to educational institutions. The education ministry said that the decision would have a major financial impact on premier institutes, which include new IITs, IIITs and health ministry institutions like new AIIMS.
Education minister Ramesh Pokhriyal has written to his colleague Nirmala Sitharaman and education secretary Amit Khare has also taken up the matter with the finance ministry pointing out that the sudden decision has brought all funding to a halt, ET has learnt.

With the option of raising supplementary grants distant, the issue has become pressing for several institutes. The ministry is learnt to have requested that the Higher Education Finance Agency (Hefa) based funding be permitted for the institutions at least for this financial year, officials confirmed.

As first reported by ET, the finance ministry conducted a review of the Hefa, red flagging concerns on its funding model last month. Hefa was set up in May 2017 as a non-profit, joint venture company by the education ministry and Canara Bank for mobilising extra-budgetary resources from the market for building crucial infrastructure in central higher education institutions. The entire principle is repaid by the institution over ten years, and the interest portion by the Centre, which provides additional grants to the institution. The idea was to replace the budgetary grants system with the HEFA model completely over the years and reduce the Centre’s financial obligation and make central institutes self-sustaining.

However, the finance ministry said in its September 7 order that Hefa has not been able to fulfill its basic mandate of leveraging the equity provided by the government in terms of debts and bonds and it was charging a higher interest rate from the government than the latter’s borrowing rate. It also found faults with the financing process for a certain category of projects, Window IV and V, and ruled that no further project approvals/borrowing will be given under them and all such projects would follow “normal appraisal and approval procedures of government projects”, implying there they would need to go back to the budgetary support mechanism.

Window IV refers to institutes that came up after 2014 and these include five new Indian Institute of Technology (IITs) that were set up in Jammu & Kashmir, Chhattisgarh, Goa, Andhra Pradesh and Kerala, one new National Institute of Technology besides a few Central Universities including one each in Andhra Pradesh and Telangana.

Window V includes health institutions like the four new All India Institutes of Management Studies (AIIMS) at in Andhra Pradesh, West Bengal, Vidarbha and Purvanchal besides Kendriya and Navodaya Vidyalayas.

All these institutes have typically relied on HEFA financing for construction of their permanent campus or infrastructure upgradation.

The categories of institutes affected also comprise a huge chunk of HEFA funding- projects worth over Rs 25,000 crore of the total Rs 40,195 crore.

While the finance ministry has advocated the usual budgetary route for funding, the Education ministry itself is running on hugely trimmed budget due to pandemic related cuts that were imposed for last two quarters and still persist.

They are also unable to raise supplementary grant proposals for these institutes immediately, as that will also only be taken up now in the Budget session of the Parliament.

This means that fund flow for all such institutes and their projects- as many as 50-60 Category IV institutions will remain impacted right until March next year.