Though public subsidisation of many social and economic services is a common feature of most countries of the world, of late with increasing budgetary constraints, many began raising questions on the rationale of government subsidies, and arguing in favour of drastic reduction, if not eliminating altogether of subsidies. Concentrating on education sector, this paper reviews some of the well known arguments in favour of, and counter arguments against public subsidies. Since much of the controversies are around subsidies in higher education, the paper focuses on the same, though discussion on lower levels of education is also included. The paper reviews the recent trends in public expenditures on education in India, and the available estimates on the rates of subsidy and cost recovery. Distribution of some specific subsidies in education, such as free education, fee exemptions, textbooks, noon meals, etc, is also briefly analysed. Some of the important issues on, for example, the size of the subsidy, targeting versus universalism, and methods of cost recovery are also briefly discussed. It has been shown that the level of subsidies in education in India is not particularly high, nor is the rate of cost recovery particularly low, in comparison with other developed and developing countries. It has also been found that some of the specific subsidies in education are fairly progressively distributed.