Soumya Kanti Ghosh: The (ir)relevance of 6 per cent

Increased spending on education by the government is not the trick to improving literacy rates

The Common Minimum Programme (CMP) strives to raise public expenditure on education (by the Centre and states) to 6 per cent of GDP.

But this is nothing new, as the Kothari Commission had set the 6 per cent target as early as 1968. The relevance of a higher expenditure on education or, for that matter, health need not require any elaboration.

However, what is required is an elaboration of the (ir)relevance of higher spending when we are unable to properly utilise the funds already allocated for different education schemes. Equally important is the possible issue of a low correlation between a higher spending on education and educational achievement.

First, the issue of mobilisation of funds. In FY2002, the public expenditure on education was Rs 841.8 billion "" 4 per cent of GDP. Of this, the expenditure on elementary education was 2 per cent of GDP, whereas that on university and higher education was 0.9 per cent of GDP.

At this level, the ratio of public expenditure on education to total expenditure on all sectors has remained nearly flat at 13.2 per cent over FY1992 to FY2002.

Public expenditure on education as a percentage of GDP has never risen beyond 4.3 per cent since Independence. Interestingly, the total expenditure on education by the central government was not even 0.5 per cent of GDP during FY2004.

Now let us look at the central government's balance sheet in FY2005. The total revenue receipts is budgeted (according to the interim Budget) at Rs 2,909 billion. The new government has committed to spend nearly 8 per cent of GDP on health and education alone (6 per cent on education and 2 per cent on health). This translates into an expenditure of nearly Rs 2,000 billion.

Given that the central government's expenditure on education, health and family welfare was less than 1 per cent of GDP in FY2004, it is clear that the proposed increase in expenditure will require a sharp resource mobilisation effort on the part of the states, too. And given the current fiscal profligacy of the states, the outcome of such efforts is anybody's guess.

At another level, a target of 6 per cent of GDP in FY2002 would have meant at least an additional Rs 400 billion expenditure on education alone. Against this background, the 2 per cent cess on all taxes ""as has been outlined in the CMP "" will mean only a token amount of Rs 44 billion.

There is another aspect to this issue. There has been an emphasis in government circles that 6 per cent expenditure on education will be achieved over a period of five years.

If that is the case, assuming a nominal GDP growth of 12 per cent over the next five years, tax mobilisation of 15 per cent for the same period, the expansion in GDP will ensure that close to Rs 2,000 billion additional resources for education will be required to reach the 6 per cent level at the end of the fifth year.

Of this, the cess at the rate of 2 per cent for all five years will contribute to no more than Rs 350 billion. So, the problem of resource gap will remain, or rather, will become more acute.

Next, let us look at the pattern of expenditure on different education schemes. There has been always a downward revision from the budgeted amount in the expenditure on elementary education and literacy.

Take a look at some specific examples. Operation Black Board was launched as early as FY1988 to provide essential facilities in all primary schools.

However, there has been a progressive decline in funds allocated under this scheme over the years. The reason given for this is that this scheme has now been subsumed in the Shiksha Abhiyan (SA).

In a similar vein, the Education Guarantee Scheme has been subsumed under the Sarva Shiksha Abhiyan (SSA) or the Elementary Education Project.

However, I tend to disagree with the exact reasons given by the government in discontinuing the schemes mentioned.

A closer look at the Budget documents reveals that most of the successful programmes are being implemented with assistance from international agencies such as the Swedish International Development Corporation Agency (SIDA), the Department for International Development of the UK (DFID) and so on. Even the much-talked-about SSA scheme, launched in November 2000, has the World Bank's support.

For instance, in April 2004, the World Bank approved $ 500 million for the SSA. The SSA's aim is to reduce the number of children who are not in school by at least nine million, narrow gender and social gaps and improve the quality of education.

On the other hand, a programme like District Primary Education (the Budget document makes no mention of a contributory participation by international agencies), which is supposed to cover 18 states as a part of the strategy to make elementary education universal, has seen a sharp reduction in allocation over the years. Clearly, the government does not have enough money to fund such programmes on its own.

Talking of unspent funds, the new government must ensure that the budgeted amount initially earmarked is spent on the programmes. But who is to blame for this unspent provision on different education schemes?

In the Comptroller and Auditor General's (CAG's) report (2002), one of the reasons cited is non-release of grants by the central government, owing to the availability of unspent balances with state governments.

The central government is at fault, too: in FY2002, nearly 20 per cent of the grants-in-aid to the state governments in the Department of Elementary Education was allocated in March. In fact, the corresponding figure for higher education was as much as 80 per cent. Clearly, one cannot be educated overnight.

On the issue of low correlation, a recent Unesco study on education in south and east Asia reveals that India's expenditure on education as a percentage of GDP, at 4 per cent, is higher than the median for the region (3.6 per cent).

Thus, there is little reason to believe that a higher spending will lead to improved educational levels. In fact, the lack of association between public spending on education and, say, primary school completion, is substantiated by different studies.

We believe that a higher allocation for social services is not a panacea for all economic ills. What is important is to improve the quantity, quality and the delivery mode of such spending.

Conversely, even a higher expenditure on education may not imply improved living conditions. Thus, Kerala has been unable to reap the economic opportunities of social expansion.

In this context, given that the issues of education and employment cannot be considered in isolation, the status of urban and rural unemployment programmes in the Union Budget deserves a mention.

For the record, the ministry of rural development is supposed to release funds under the Blackboard Scheme for the construction of primary schools. As tables 2 and 3 show, there has been a decline in the revised estimates over the Budget estimates.

To conclude, there are two aspects worth noting. First, the expenditure on education by the states concerned. The compounded annual growth rate in total revenue expenditure on education (FY1980 to FY1997) reveals that some of the backward states like Rajasthan, Uttar Pradesh, Madhya Pradesh and even Bihar have witnessed a significant growth in expenditure (higher than Kerala and West Bengal "" the Left-ruled states). However, this has not translated into an increase in educational levels.

Second, the per capita expenditure on education was around Rs 812 in FY2002 (of which Rs 407 was spent on primary education). At this rate, to achieve 6 per cent expenditure on education, we need to spend an additional Rs 400 per capita.

With the enrolment in primary schools currently at 113.9 million (FY2002) and with the SSA targeting 192 million, the additional cost to provide primary education alone works out to Rs 184 billion "" equivalent to an 8 per cent cess. So, where is the money going to come from? Perhaps the Budget will offer some clues.

(The author is an economist at ICRA. These views are personal)