The HRD minister needs to bring about a new policy framework for higher education in India. Thousands of young Indians, unable to find a decent university education in India, are flocking to universities abroad. Of the multitude of students coming out of schools, a substantial fraction want a university education. The license raj in university education has stalled the growth in university seats of even a minimum acceptable quality. The affluent struggle to find the money to send their children to study abroad, and the poor struggle to access the 10,000 seats at the Indian Institutes of Technology. Sibal’s focus must be to create a policy framework whereby a large number of high quality universities spring up.

The existing framework for running universities in India has been tried for many decades, and has been shown to have failed. In striking contrast, China has been able to get far ahead of India in building universities. If progress has to be made in India, every assumption of the HRD ministry now needs to be questioned. In addition to removing entry barriers against new private or foreign universities, the four new ideas that need to be brought in are: autonomy of universities (including on budget); reduced core funding combined with more competitive research grants; a flexible salary structure; end of government interference in recruitment of staff and students.

The best universities in India, those that we are particularly proud of, are not well rated by international standards. The Times of London’s Higher Education Supplement ranks universities around the world. In 2008, their data showed IIT Delhi at rank 154 and IIT Bombay at rank 174 globally. No other university in India made this top 200 list. By way of comparison, China has universities at ranks 50, 56, 113, 141, 143 and 144. In other words, China has six universities which are superior to IIT Delhi and IIT Bombay.

Last week, the NBER Digest carried an article by Linda Gorman summarising a research paper by Philippe Aghion, Mathias Dewatripont, Caroline M. Hoxby, Andreu Mas-Colell and Andre Sapir which investigates the sources of success in building universities. The paper is immensely useful in thinking about how to build universities in India; it should be on the top of Kapil Sibal’s reading list.

The paper finds that the first element that pulls down the rank of a university is the process of budgetary approval from the government. The average European university that sets its own budget has a rank of 200 while the average European university that needs approval from the government has a rank of 316. In other words, giving a university autonomy to set its own budget on average yields an improvement of 116 ranks. The message for India: in order to obtain high-quality universities, we need to give universities autonomy.

The second important feature is the role of government in funding universities. They find that each percentage point of the university’s budget that comes from core government funds reduces the rank of the university by 3.2 points. The message for India: in order to obtain high-quality universities, we need to give them less money through core funding from the government.

The third issue is inequality in wages. European universities which pay the same wages to all faculty of the same seniority and rank have an average rank of 322. Universities which vary wages for each faculty member and pay different salaries to two people of the same seniority and rank, have an average rank of 213. In other words, flexible HR policies yield an improvement of 109 ranks. The message for India: freeing up HR policies is essential to building high-quality universities.

The fourth issue is the recruitment process for students. Universities which are free to recruit undergraduate students as they like have a rank 156 points higher than those where the government determines the composition of students. The message for India: universities should have full freedom to recruit students as they like, without interference from the government.

The fifth issue is competition. Each percentage point of a university’s budget that comes from a competitive research grants process yields an improvement in its ranking by 6.5. The message for India: the “core funding” money that is taken away from universities should be turned into a competitive process through which a panel of Nobel laureates choose which universities are the most deserving for getting research funding. Defence, space and atomic energy contracts are also ideal sources of meritocratic research funding, because these customers care about results and will not throw money towards a process of political patronage.

Variation across state governments in the United States shows that the best universities come up in states which allow more autonomy, such as independent purchasing systems, no state approval of the university budget, and complete control of personnel hiring and pay.

There is only one university in India which has autonomy on budget setting, recruits its own students, has flexible HR policies, etc., and this is the Indian School of Business. It is perhaps logical that, in 2008, ISB was ranked the 20th best MBA programme by The Financial Times, and in 2009 this rank was improved to 15. None of the IIMs feature anywhere. This is a striking contrast between enormous state expenditures on the IIMs failing to yield measurable results when compared with an alternative which has landed India in the top rankings of the world.

Universities will not be built overnight. But the framework that can lay the foundations for this change can be laid under UPA II over the next 100 days.

The writer is a senior fellow at the National Institute of Public Finance and Policy, Delhi express@expressindia.com