Building social capital

India needs to spend more on education and health

The Economic Survey 2023-24, released last week, noted: “The realms of health and education are witnessing turning points in quality and access.” Universal access to health and education, the two most critical social sectors, is directly linked to human resource development and economic growth. Although general government spending on the overall social sector is rising in recent years, reflecting the sector’s growing importance, a closer analysis of government expenditure on specific sub-sectors reveals a more complex and nuanced picture.

In the Union Budget, presented last week, the Ministry of Health and Family Welfare received a significant increase in allocation of approximately 13 per cent over last year’s Revised Estimates, underscoring the government’s prioritisation of health care. However, the Ministry of Education’s Department of School Education and Literacy saw a modest increase of only 0.73 per cent. More strikingly, the allocation for higher education faced a substantial reduction of 16 per cent, leading to an overall net decrease of 7 per cent for the Ministry of Education. Further, under the Department of Higher Education, while the 

allocation to autonomous bodies saw a marginal improvement, the University Grants Commission (UGC), a statutory and regulatory body, faced a Budget cut of more than 50 per cent from the Revised Estimate of last year, potentially hampering the transfers to universities. This is particularly concerning, given the growing importance of higher education in an economy that is increasingly driven by knowledge and a skilled workforce.
 

As the Economic Survey showed, the social-sector expenditure of the general government — the Centre and the states combined — as a percentage of gross domestic product (GDP) has increased in recent years. This increase is driven largely by improved spending on health and health care facilities. The share of health expenses within social-services expenditure has risen by 3.5 percentage points in 2023-24 compared to 2017-18 levels. In contrast, the share of education within the social sector came down by 7.1 percentage points during the same period. Despite these changes, the shares of education and health expenditure, at 2.7 per cent and 1.9 per cent of GDP, respectively, are significantly lower than global benchmarks.

It is important to note that health and education are complementary sectors. They collectively contribute to improved living standards, increased productivity, and the enhanced efficiency of human capital. Improvements in these areas are the key to achieving steady economic growth, as underscored by endogenous growth models. Adequate allocation to health care is essential to tackle frequent health shocks, which affect productivity, and to position India as a leading destination for medical tourism. Equally important, however, is the requirement for substantial investment in education. The paradox within the Indian 

education system is stark. India rightly aspires to develop world-class educational institutions and universities. However, more than half the youth aged 14-18 years struggle with basic division, as highlighted by the recent Annual Status of Education Report (ASER) findings. This discrepancy points to significant gaps in the educational framework that need urgent attention. India must address foundational issues and invest strategically in both sectors to realise its ambitions for higher sustainable growth over the long run.