Public expenditure on education in India: recent trends and outcomes

Abstract

It is widely accepted that there is an acute shortage of resources in the education sector in India. Economic reforms and associated requirements of fiscal discipline have aggravated the situation. By contrast, however, official sources claim that significant progress has been made in financing education. This paper examines whether, and in what ways, this is so. It analyses major trends in public financing of education in India, including expenditures by the central government, state governments, other local bodies and the NGO sector. Foreign aid, which is transferred primarily through central government budgets, is also included. The paper examines the level and composition of public expenditure on education and the mechanisms of resource sharing, allocation and utilization, in aggregate as well as separately for the centre and the states. It finds that while expenditure in real terms increased during the 1990s it has stagnated since then. As a proportion of GDP the share of public expenditure on education has been less than 4 per cent. But there have been major changes in the composition and modalities of expenditure. Initially, education was the responsibility of individual states, but in 1976 it became the joint responsibility of both central and state governments. The analysis finds that the centre has been playing an increasingly important role in state education finance. Centrally sponsored schemes, which are partly funded by external aid, have been a critical part of centre-to-state transfers. Expenditure trends in seven states are studied to explore the possible impact of expenditure on education outcomes. It indicates that for the less developed states recent changes in education expenditure have improved access, but retention and learning achievements remain very low.