The Centre's flagship programme RUSA seeks to improve the access and quality of higher educational institutions.
According to the proposal, rampant rise in number of colleges affiliated to universities has deteriorated the quality of higher education "significantly".
"The active university resources and systems are being diverted towards management and conduction of exams with consequent dilution of focus on academic quality and research.
Osmania University, for example, has 901 colleges affiliated to it while 811 colleges are attached to Pune University.
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Rashtrusant Tukadoji Maharaj University Nagpur has 800 colleges with it while Rajasthan and Mumbai universities have 735 and 711 colleges attached to them respectively.
The average number of affiliated colleges per university is 300.
The scheme favours that states create more universities so that affiliation does not result in large number of colleges being tied academically to one university.
The Rs one lakh crore scheme when implemented will lead to setting up and upgrading of new colleges and universities.
Aiming to provide strategic funding to state higher and technical institutions, the scheme states that states will develop comprehensive state higher education plans that utilise an interconnected strategy to address issues of expansion, equity and excellence together.
Central funding will be linked to academic, administrative and financial reforms of state higher education.