Education expenditure: Dropping the ball in the states’ court

March 16, 2015 12:03 AM

The 14th Finance Commission has proposed for an enhanced devolution to the states, but bestowing the entire responsibility to set up 6,000 model schools in every state to the respective government leaves the outcome dependent on its willingness and ability


The slogan ‘Padhe Bharat, Badhe Bharat’ seems rational when this Budget announces an allocation of R1,000 crore to set an IIT in Karnataka, upgrade the Indian School of Mines to an IIT, open an IIM in Jammu & Kashmir and Andhra Pradesh, sets up the Student Financial Aid Authority to administer and monitor scholarship as well educational loan schemes through the Pradhan Mantri Vidya Lakshmi Karyakram (PMVLK).

There is no doubt that education is key to a better tomorrow and is aptly identified as the “priority of priorities”, but has this concern been adequately addressed in the Budget FY16 through the above announcements? More importantly, will it help India take a flight and reap the benefits of the demographic dividend from its huge pool of human resource by replenishing the human capital? It is both needed and also challenging to maintain the fiscal balance and reallocate resources to ensure (to the extent possible) equity and efficiency. There are also issues for fresh allocations. All these taken together are expected to reflect the direction and priorities of the government in terms of economic policies, leading to social welfare (assuming that the government is a social welfare maximising entity). Simply because the Budget all about “speaking numbers”.


Having said so, a close and minute analysis of the Budget FY16 would reveal that, in reality, this Budget has reduced allocation for the education sector. For example, contrary to the recommendations of the ministry of human resource development (MHRD) submitted to the 14th Finance Commission, this Budget has actually reduced the allocation for flagship schemes such as the Mid-Day Meal (reduced by 28.5%), Sarva Shiksha Abhiyan (reduced by 41%) compared to the 2014-15 Budget Estimates, leading to a lowering of the gross budgetary support to the states from the Centre. True, the 14th Finance Commission has proposed for an enhanced devolution to the states, but bestowing the entire responsibility to set up 6,000 model schools in every state to the respective state governments only leaves the outcome dependent on the willingness and the ability of the respective state governments. Ultimately suffixing a big question-mark regarding the future of these model schools and thereby challenging the broader goal of human capital formation.

This is not the end of the story. Hereafter, the state governments have to bear around 90% of the cost to finance the programmes falling under the Right to Education Act. Further, in recent times, in order to promote better education to all, the MHRD has floated around 20 new schemes such as Beti Bachao, Beti Padhao; Swachh Vidyalaya Campaign; Swami Vivekananda Single Girl Child Scholarship; Padhe Bharat, Badhe Bharat; Shaala Darpan; GIS mapping of schools; Udaan; Pragati … to name a few.

In Budget FY16, the total allocation for the Department of School Education and Literacy and Department of Higher Education together has been reduced by around 16.5% from 2014-15 (BE). In case the state fails, it will only add up to further frustration in the overall growth and development path of the education sector. Given the federal structure, the schemes of the Union government are either fully sponsored by the Union government or are shared with the state governments, as due to perennial resource crunch most states are not in a position to take up major schemes on their own. Now, given the precarious condition of most of the state exchequers and also the inherent preference of the political parties towards populism, will the states be able to generate the huge resources to finance these goals?

One may always question as to why worry about sharing responsibility with the states for major schemes, at least in the education sector, when the government is also sharing huge resources with the states!


There are valid reasons to worry about. First, simply promising in the Union Budget is not enough, the state governments need to compliment as well, where need be. For example, the setting up of an AIIMS in West Bengal is long due for reasons related to land availability. The realisation of the promise to set up six new IIMs in Bihar, Odisha, Maharashtra, Punjab, Himachal Pradesh and Andhra Pradesh is also not praiseworthy. Second, when it comes to resource mobilisation, the state governments are not in a reliable position to cater to this huge demand, even after the recommendations of the 14th Finance Commission to devolve 42% of the divisible central taxes to the states.

Indeed, it is true that given the federal structure of the country and in tune with the slogan of “cooperative federalism” of the current NDA government, this hike in resource sharing would encourage the states towards more autonomous functioning, at least in relation to expenditure priorities. But the real problem lies elsewhere.

True, that compared to the previous Budget, this year the total Union resources comprising of states’ share in central taxes, non-plan grants, central assistance to states and assistance for central and centrally-sponsored schemes has increased by R46,419 crore. However, when this rise is evaluated as a percentage of GDP, it has actually fallen from 2.6% to 1.4%—this is to say that the rise in allocation is not in sync with the rise in GDP. This fall in the central assistance in terms of GDP by 1.2 percentage points is actually going to hinder the spending capacity of the states despite the projected autonomy in terms of decision making.


Nonetheless, the Budget FY16 has also announced to formulate the New Education Policy (NEP). The last NEP was formulated in 1986.

Through this the government intends to enhance the quality, research and innovation in the educational sector in the coming days.

But, all’s well that ends well, and therein lies the key to success of all these “Modi-fied policies”. The challenge is even greater, as to realise the goals of cooperative federalism the notion of cooperation is primary. Here, the cooperation is sought mostly in terms of sharing the huge fiscal responsibility, now it’s a choice of the state to strike a balance between its willingness to cooperate and its ability to support the willingness. Given the absolute majority in Parliament of the NDA government, as common man, we have a distinct choice this time, wait and watch till the next Parliamentary elections.

(In 2014-15 (BE) the total central assistance was R7,81,947 crore, which has now increased to R8,28,366 crore, an increase of R46,419 crore)

By Debdulal Thakur

The author, a former economist at the National Institute of Public Finance and Policy, New Delhi, is assistant professor, Department of Economics, BITS Pilani (KK Birla Goa Campus). Views are personal

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