Financing Education In India –

Issues and Priorities

Presented by
Dr. Tarun Das, Prof (Public Policy)
Institute for Integrated Learning in
Management, New Delhi

Financing Education by Dr. Tarun Das 1

 1. Plan-Budget Interface
 Fiscal Federalism- Centre, States and
Local Governments
 Education appears on concurrent list
 But, states play a major role and incur
significant expenditure for the
development of education,
particularly for primary and secondary
education
 Five-Year and Annual Plans of the
Centre and States

Financing Education by Dr. Tarun Das 2

2. Channels of Central
budgetary support
(a) Finance Commission constituted every
five years u/a 280 of the Constitution
makes vertical and horizontal sharing of
taxes & duties. It also recommends grants
in aid to the States u/a 275(1). Govt has
accepted recommendations of the Twelfth
Finance Commission.
(b) Planning Commission makes allocation
of Plan Funds+-
(c )Finance Ministry makes allocations of
non-plan expenditure and grants.

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3. Classification of Expenditure
 Revenue and capital expenditure
 Plan and non-plan expenditure
 Developmental and non-
developmental
 Education Expenditure in 2003-04
by all states (Rupees crore).
Classification Plan Non-plan
(14.3%) (85.7%)
Rev. Expenditure 90,461 606,246
(98.5%) (12.8%) (85.7%)
Cap. Expenditure 10,483 78
(1.5%) (1.5%) (0.01%)
Financing Education by Dr. Tarun Das 4
 4. Education Expenditure
by the Centre and all
States
C omposition (per cent to total)
of expenditure 2003-042003-042003-04
(general govt) Plan Non-Plan Total
1.Rev.exp on edu. 12.8 85.7 98.5
2.C ap.exp. on edu. 1.5 0.0 1.5
3.Total exp. on edu. 14.3 85.7 100.0
4.Edu.fees/ edu.exp (%)8.9 1.5 1.3
5.Edu.exp./ total rev. 2.6
(%) 15.8 18.5

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5. National Policy on Education
1986
 Para 11.4 of NPE 1986 states that “the
investment on education be gradually
reached to 6% of National Income”.
 As against this target, the combined
total expenditure on education by
Centre and States was only 2.8% of
GDP in 2005-06 (BE).
 The Tenth 5-Year Plan (2002-07) has
given a high priority to education by
increasing allocation by 76% to
Rs.43,825 crore from Rs.24,908 crore
in the Ninth Plan.
Financing Education by Dr. Tarun Das 6
 6. Allocation in Union Budget 2006-
07
• The total Central plan allocation on
education has been raised by 31.5%
from Rs.18,336 crore in 2005-06 (RE)
to Rs. 24,115 crore in 2006-07 (BE),
• Rs.17,133 crore (71%) allocated for
Elementary Education,
• Rs.6,982 crore (29%) allocated for
Secondary & Higher Education
• In addition, Rs.4,813 crore is
earmarked for the Mid-day Meal
scheme under the NCMP.

Financing Education by Dr. Tarun Das 7

 7. Education Cess of 2% on
Taxes
• An education cess of 2% on all direct and indirect
Central taxes has been imposed through the
Finance (No.2) Act, 2004.
• Through a Bill introduced in Parliament on July 8,
2004, a separate and dedicated Fund named as
Prathmik Shiksha Kosh has been created under
the Department of Elementary Education &
Literacy.
• The proceeds would be available for the schemes
of basic Education and the Mid-Day Meal Scheme.

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 8. Education Cess of 2% on
Taxes
• The National Advisory Council (NAC) has
estimated a collection of Rs.27, 000
crore from education cess for five years.
• Requirement for Sarva Shiksha Abhijan
(SSA) and Mid Day Meals (MDM) in five
years will be Rs.39, 000 crore.
• This does not include requirements of
the secondary sector which will be
flooded with students as enrolment and
retention ratio improves in elementary
schools with improvement in general
levels of living.

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 9. Performance of Education
Cess in 2005-06 and 2006-07
• Sarva Siksha Abhiyan: 93% of children in age
group 6-14 years are in school, number of children
not in school has come down to about one crore;
outlay to increase from Rs.7,156 crore to Rs.10,041
crore in 2006-07; 500,000 additional class rooms to
be constructed and 150,000 more teachers to be
appointed;
• Rs.8,746 crore to be transferred to the Prarambhik
Siksha Kosh from revenues through education cess.
• Mid-day Meal Scheme: 12 crore children now
covered; allocation to be enhanced from Rs.3,010
crore in 2005-06 to Rs.4,813 crore in 2006-07.

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 10. Expenditure on Education by
centre and States as % of the total
expenditure
Y ears 1 9 9 0 - 9210 0 0 - 0210 0 5 - 0 6
S o cial S ervices
2 0 .3 2 2 .1 2 0 .9
E d u catio n 1 0 .4 1 1 .3 1 0 .1
H ealth 4 .5 4 .7 4 .9
O th ers 5 .4 6 .2 5 .9

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 11. Composition of Social Services
Expenditure in Centre and States
(in percentage)

Years 1990-91 2000-01 2005-06

Education 51.4 50.9 48.5
Health 22.0 21.2 23.0
Others 26.6 27.9 28.5
Total 100 100 100

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 12. Education expenditure as % of
GNP and total expenditure of
general govt.
Year Edu. Expend. as Edu. Expend.
% Of Total Exp. As % of GNP

1951-52 7.9 0.8

1985-86 8.6 2.8
1990-91 10.4 3.0
1995-96 10.7 2.8
2000-01 11.3 3.2
2004-05 RE 9.9 2.8
2005-06 BE 10.1 2.8
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 13. Education expenditure by Centre and
States in 2003-04 (RE) as % of:
As % of As % of As % of
Dev. Exp. Total exp. Total Rev.
Centre and 25 9 16
States
Centre 8 3 4

States 30 14 22

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 14. Education Exp as % of Revenue Exp
States Primary Sec. Higher Total
Edu Edu. Edu.
Andhra Prad. 10.9 7.5 2.8 21.2
Assam 14.0 6.5 2.1 22.6
Bihar 13.6 3.8 2.1 19.5
Gujarat 21.2 6.8 1.7 29.7
Haryana 6.0 4.3 1.7 21.1
Karnataka 17.0 8.9 2.2 28.1
Kerala 9.3 6.1 2.3 17.7
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 15. Education Exp as % of Revenue Exp
States Primary Sec. Higher Total
M.P 10.2 3.4 1.9 15.5
Maharashtra 16.7 8.0 1.7 26.4
Orissa 10.8 5.1 3.2 19.1
Punjab 4.0 7.1 1.7 12.8
Rajasthan 18.9 7.8 1.6 28.3
Tamil Nadu 8.4 6.6 1.7 16.7
Uttar Pradesh 9.6 4.7 1.3 15.6
West Bengal 6.4 9.6 2.5 18.5
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 16. Source of income of educational Institutes
Year 1950- 1970- 1980- 1990- 1992-
51 71 81 91 93
Centre/States 57.1 75,7 81.7 87.9 89.5
Local bodies 10.9 4.3 4.7 8.2 5.0
University 0.0 1.4 1.4 0.0 0.0
Sub-Total 68.0 81.4 87.8 93.4 94.5
Fees 20.4 12.8 8.2 3.6 2.9
Others 11.6 5.8 4.0 3.0 2.6
Total 100 100 100 100 100
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 17. Central govt exp on
education as % of total
expenditure in 1999
India 3.0 USA 1.8
China 1.9 Japan 6.0
Indonesia 6.7 Denmark 12.7
Korean Rep. 20.5 Netherlands 10.0
Malaysia 22.8 U.K. 3.7
Sri Lanka 11.0 U.A.E. 17.3
Thailand 17.3 Argentina 5.8
Kenya 20.2 Brazil 4.5
Zambia 14.5 Columbia 20.3
Russia 1.7Financing Education by Dr. Tarun Das 18
 18. Recommendations of the
Twelfth Finance Commission (1)
 Fiscal deficit to GDP for the Centre and
States be targeted at 3%.
 Revenue deficit of the Centre and States be
reduced to zero by 2008-09.
 State’s recruitment policy must ensure that
salary bill as % of revenue exp, net of interest
payments, is within 35%.
 Each State must enact Fiscal Responsibility
bill to reduce fiscal deficit to SDP ratio to 3%
and revenue deficit to zero by 2008-09.

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 19. Recommendations of the
Twelfth Finance Commission (2)
 States’ share in net proceeds of shareable
central taxes be increased from 29.5% to
30.5%.
 Indicative amount of overall transfers to
States be fixed at 38% of the Centre’s gross
revenue receipts.
 A grant of Rs.20,000 crore for Panchayati Raj
Institutions and Rs.5,000 crore for urban local
bodies to be given to States for the period
2005-2010.

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 20. TFC Recommendations on
Education
 The present system of Central assistance for state
plans, comprising grants and loans, be discontinued. In
stead, Centre should confine itself to extending plan
grants and leaving states to determine their borrowings.
 Non-plan revenue deficit grant of Rs.56,856 crore
recommended for 15 states in 2005-2010. Grants
amounting to Rs.10,172 crore recommended for
education for 8 states. Grants amounting to Rs.5,887
crore recommended for health for 7 states. Grants for
education and health are in addition to the normal
expenditure of the states.

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 21 Concluding Remarks
(1)
 Making primary education free is not enough.
There is Constitutional commitment to com-pulsory
education for children up to 14 years.
 Need for decentralizing education manage-ment.
Financing and management of primary and
secondary education may be devolved to the
Panchayats in the rural areas.
 Govt may focus on literacy, primary and secondary
education leaving higher and professional
education to private sector.
 An Education Development Fund with private
donation exempted from tax may be created for
financing higher education.

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 22. Concluding Remarks
(2)
 Progressively reduce the funding for
Universities and make them self
financing. A credit market for private
financing of education may be
developed.
 Create environment which attracts
foreign students to join Indian
Universities.
 Allow foreign investment in higher
education particularly for IT, S&T,
medical and management.
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 THANK YOU
Have a Good Day

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