In 1997, the union government placed higher education under the category of
Non-merit good
This question is about the classification of goods in public finance, and how that classification was applied to higher education policy in India.
In public economics, goods are often divided into merit goods — goods that generate large positive externalities for society (such as primary education and primary healthcare), which governments therefore justify subsidising heavily even though individuals might under-consume them if left purely to market pricing — and non-merit goods — goods where the direct beneficiary captures most of the private benefit (such as higher earning potential), making the case for heavy public subsidy weaker.
In 1997, as part of the government's subsidy-rationalisation exercise (following the Discussion Paper on Government Subsidies in India), the Union Government placed higher education in the category of a non-merit good. This reclassification meant that higher education was seen as conferring substantial private benefit to the individual student (in terms of future income), and it fed into subsequent debates around reducing public subsidy, encouraging cost recovery through fees, and promoting self-financing courses in Indian higher education.
Therefore, the correct answer is Non-merit good.
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