State level universities are setup by an act of State Legislature.

As per section 12(B) of the UGC Act, State Universities established after 17th June, 1972 shall not be eligible to receive any grant from the Central Government, UGC or any other Organisation receiving funds from the Govt. of India, unless the Commission satisfies itself, as per the prescribed norms and procedures, that such a university is fit to receive grants.

There are 251 State Universities of which, the UGC has been making budgetary plan allocation for only 123 state universities. It does not allocate plan funds to exclusive medical and agriculture universities. Special grants are being provided to other State Universities including Agricultural Universities having Engineering and Technology Departments. Although development of State Universities is primarily the concern of State Governments, development grants, including grants under special schemes, are provided to all eligible state universities. Such grants facilitate the creation, augmentation and upgradation of infrastructural facilities that are not normally available from the State government or other sources of funds.