Prime Minister's Council on TRADE & INDUSTRY

Special Subject Group on
Policy Framework for Private Investment in
Education, Health and Rural Development

Report on
A Policy Framework for Reforms in Education


1. EDUCATION AND DEVELOPMENT

1.1 Social Development

Education imparts knowledge and skills and shapes values and attitudes. It is vital for population control, poverty reduction, economic growth, civic order, culture and citizenship. Education helps reduce poverty by increasing the productivity of the poor, reducing fertility rates, improving health and equipping people with the skills they need to participate fully in the economy and in society. More generally, education helps strengthen civil institutions, build national capacity and good governance. These are critical elements for progress of a civil society.

1.2 Economic Growth

Education contributes to economic growth, but by itself does not generate growth. Various empirical analyses estimate that education explains about twenty per cent of growth in a country. The single largest contributor to this growth is primary education.

Historically, investment in education was considered more of a social obligation rather than one that would give significant returns. However, more recently, evidence has been accumulating to demonstrate that countries with high levels of basic education, whether developed or developing, show better economic performance.

An analysis of 60 countries (basic data in Table 1.1) shows that there is a good correlation between the real per capita GDP of a country and its adult literacy rate. Also, that there is a better correlation between the real per capita GDP of a country and its first, second and third level gross enrolment ratio. (Table 1.2)

1.3 South East Asian Experience

South East Asian countries are not rich in natural resources. Fast developers in this region have invested heavily in education. Countries that achieved universal basic education first (Korea being a prime example) were also the first ones to experience substantial economic growth.

A World Bank study in 1993 studied eight South East Asian economies – Hong Kong, Indonesia, Japan, Korea, Malaysia, Taiwan, Singapore and Thailand – and found that the single largest contributor to economic growth was primary education. Primary school enrolment explained between 58 percent (Japan) and 87 percent (Thailand) of predicted growth. The analysis concludes that there is a strong correlation between high levels of education and economic growth.

Interestingly, in the wake of the financial crisis, South East Asian countries are shoring up their educational systems to make them even stronger. In Thailand, a constitutional overhaul is laying the foundation for a radical shake up. Indonesia has introduced an emergency scholarship system. Singapore has begun a campaign to teach innovative thinking. Malaysia is launching computerised smart schools. The accent of these countries is on a quantum leap on basic education and skill standards to regain labour force competitiveness, shift from rote learning to creative thinking, less state dominance of education and making education more responsive to local needs.

1.4 Rates of Return

Education is an excellent investment for society. In general, the social rates of return to investment in all levels of education exceed the long-term opportunity cost of capital. Rates of return to education are very high in low and middle-income countries. (Table 1.3). Rates of return in education are also better than rates of return in other sectors such as agriculture, industry and infrastructure. (Table 1.4). Since education is subsidised almost everywhere in the world, private returns to investment in education invariably exceed social rates of return.

1.5 Human Capital

Education is universally recognised as an important investment in building human capital. Human capital affects growth in two ways. First, human capital levels act as a driver of technological innovation. Second, human capital stocks determine the speed of absorption of technology. It is now widely accepted that human capital, and not physical capital, holds the key to persistent high growth in per capita income. This is because people, unlike machines, can learn. Investments that increase people skills and productivity, yield not diminishing returns, but constant or increasing returns.

1.6 Market Economy

Market economies now prevail in countries accounting for over 80 % of the world’s population. This is a huge increase from the 30% figure that prevailed a decade ago. (Table 1.5) Market based systems reward enterprise, risk taking, skill and agility, but offer less security and a constantly changing environment. In such a context, education is vital since those who compete best have an enormous advantage in the fast paced world economy.

Globalisation of markets and the factors that drive them - especially knowledge – is reinforcing these impacts. Global capital constantly seeks and flows to more favourable opportunities, including well trained, productive and attractively priced labour forces in a market friendly and politically stable business environment. Education will be at the centre stage in creating such an environment.

1.7 Knowledge Economy

Education is becoming even more vital in the new world of information. Knowledge is rapidly replacing raw materials and labour as the most critical input for survival and success.

Knowledge has become the new asset. More than half of the GDP in the major OECD countries is now knowledge based. About two thirds of the growth of world GDP is expected to come from technology-led businesses. (Table 1.6). This necessitates that education and knowledge are at the centre stage of any development process.

The global labour market is increasingly integrated for the highly knowledgeable and skilled – corporate executives, scientists and technologists – offering high mobility and wages. However, the market for unskilled labour is highly restricted by national and state barriers.

Weightless goods – with high knowledge content rather than material content – now accounts for some of the most dynamic sectors in several economies. The single largest export industry for the United States is neither aircraft nor automobiles, but entertainment. Education offers a fast track to knowledge based growth.

A knowledge-based economy is not restricted to mean computers and information technology. It is a society where knowledge transcends all economic and social activities.

The agriculture sector is in a particularly vulnerable situation in the post-quantitative rate regime that will be upon the country very shortly. India is far behind in yield and productivity of principal crops. Valid fears arise over the country's food security. The industrial sector too has not seen much improvement in technology, or productivity. It has been harshly exposed to global competition over the last eight years. The services sector has advanced only in parts, and much needs to be done in the banking and insurance sectors.

Moving towards a knowledge-based economy should necessarily have the objective of causing a fundamental upward shift in the competitiveness of these sectors. Greater reforms coupled with targeted investments in education will make a substantial contribution in achieving this objective.

1.8 Technology

Technology has a pivotal role to play in the future of education.

At one level it is through better use of existing communication technologies. Television and radio broadcasts offer important advantages to institutions involved in distance education. Broadcasting raises public awareness of the distance education institution, its programmes and in securing acceptance by the community at large of this alternative means of providing access to higher education. The programmes are also important in providing distance education institutions with the opportunity to demonstrate excellence in academic content and teaching quality. This helps secure acceptance by the academic community for this innovative approach to learning. An appraisal of communications-based teaching which does not take these and related advantages into account is likely to underestimate the role of broadcasting in distance education.

At another level is the spread of information technology for revolutionising content and delivery of education. The Internet is capturing people who have never been touched by education. It is expected to become the school and the university for the dot com generations. In the United Kingdom, British Telecom is designing the "classroom of the future". A range of "virtual universities" is putting the latest technology to innovative use.

Internet offers policy-makers additional alternatives for delivering education and training to learners of all ages. This technology can reduce costs, increase access and expand the range and quality of education and training options. It offers poorer nations the chance to catch up. In Egypt, a government-backed project is developing a "utopian school", where pupils take "the best courses from the best teachers from around the world".

An increasing number of countries are experimenting with various forms of new technologies to expand education and training options. This is because they are able to develop multimedia materials that reflect local values and culture, provide visual images of desired behaviours, collaborate across borders, and access information not previously available.

The world of the future will have much more education occurring outside of schools. It will draw on vastly more powerful technologies, like the two-way voice-activated, computer-assisted and self-paced learning. Such technologies will harness a much better understanding of how people learn and what they need to learn. Learners will be able to go beyond the classroom and obtain information in a variety of forms - text, data, sound, video - from all over the world, at any time of the day or night and at rapidly diminishing costs.

1.9 Cyber-age Education

Half of all spheres of human activity in the world have got wired into a connectivity that has transcended national frontiers, geographical boundaries and even cosmic contours. It is an age that has brought to one’s doorstep promises and prospects for unimaginable change and progress. Significant implications of the cyber age in the context of the potential role of education would be the following:

Knowledge will no longer be a static, finite mass bound by space and time. It will be perpetually self-multiplying and self-renewing in proportion to R & D investments.

The velocity of knowledge transmission will be incredibly fast.

Geographical barriers to access to knowledge will no longer be operative. Access, of course, will be influenced and determined by socio-cultural, politico-economic, and personal factors.

Generation, transmission, storage, retrieval, renewal and application of knowledge will not only be very largely helped and driven by technology, but will also be enhanced by it, in particular by technologies of information, communication and education.

The world, having now increasingly adopted a market driven economy, information will tend to be commodified, will command an economic value, and therefore, will tend to create social classes of "haves" and "have-nots".

Formal education will tend to be more a life long continuum, and dispersed rather than a one-shot limited period-centralised activity in respect of contents, instruction, materials, human resource, evaluation, accreditation, certification, and management.

A rush to blend cyber-age education into the traditional education process must not be at the cost of elementary education, cognitive learning, physical activity and overall development. It must be realised that cyber-age education presents an option that is layered on top of a traditional system with its benefits of co-operative learning.

1.10 Funding

Government spending on education is often inefficient and inequitable. It is inefficient when it is misallocated among uses; it is inequitable when qualified potential students are unable to enrol in institutions because educational opportunities are lacking or because of their inability to pay.

A study of some developing countries in Africa and Middle East show that the Governments reallocate public spending to education from other publicly funded activities, such as defence and divestment of public enterprises. Other countries have, within their macroeconomic policies, increased the revenues of government and thereby increased the spend on education. Yet others have sought to supplement government funds for education with private funds.

Private financing can be encouraged either to fund private institutions or to supplement the income of publicly funded institutions. Private schools are usually financed through fees. In countries, which excessively regulate private schools, it is found that such restrictions discourage private spending on education that would otherwise have occurred and so increase the pressure on government funded schools. Another argument in favour of private schools and universities is that, even though they tend to draw their students from more advantaged socio-economic backgrounds, they promote diversity and provide useful competition for public institutions, especially at higher levels of education.

1.11 Government Role

There is a need to follow a mix of both public and private presence in the education sector. Public intervention in education has several advantages. It can reduce inequality, improve accessibility, compensate for market failures in lending for education and disseminate information about the benefits and availability of education.

Governments can help improve the quality of education by establishing standards, supporting inputs, adopting flexible strategies for the acquisition and use of inputs, and monitoring performance.

1.12 Equity

Achieving equity in education means that every citizen has the right to basic education that enables acquisition of basic knowledge and skills to function effectively in society. It also means that no qualified student is denied access to education because of an inability to pay. Ensuring equity in education requires both financial and administrative measures.

Financial measures, such as scholarships, are important at all levels to enable the poor to gain from education. Scholarships can cover fees and other direct costs, such as transport and uniforms and, when appropriate, can compensate families for the indirect costs of sending children to school - for example, loss of labour services for the household.

Administrative measures can increase enrolments of the poor, females and other deprived classes of society. Programs designed to demonstrate the importance of educating children can increase the demand for schooling among the poor.

1.13 Competition

There is evidence that competition among schools improves their performance. For choice to be effective, the student must have more than one possible school. The institutions should have some distinguishing characteristics. For example, what aspects of the curriculum are emphasised, in teaching styles, and, at higher levels, in course offerings. Finally, institutions need to enjoy considerable autonomy in how they teach. The availability of a variety of institutions enables parents and students to exercise choice and thus gives institutions an incentive to adapt to demand.

1.14 Autonomy

Quality of education can benefit when schools have the autonomy to use instructional inputs according to local school and community conditions and are accountable to parents and communities. Fully autonomous institutions have authority to allocate their resources and they are able to create an educational environment adapted to local conditions inside and outside the school.

Accountable autonomous institutions can be encouraged by both administrative and financial means. Administrative measures include giving school management the authority to allocate resources - for example, the authority to deploy personnel and to alter such things as the timing of the school day and year and the language of instruction to fit local conditions. Most critically, teachers need to have the authority to determine classroom practices, within limits set by a broad national curriculum.

1.15 Politics

Education is intensely political: it affects the majority of citizens, involves all levels of government, and makes up a significant component of government spending. There are also public subsidies that are biased in favour of the elite. Prevailing systems of education spending and management often protect the interests of teachers and the government rather than those of parents, students, communities and the poor. Teachers, administrators, textbook publishers – all have reasons to prefer things to remain as they are, or to change only gradually.

1.16 Democracy

The concept of democracy has spread rapidly in the last decade. Local governments are becoming more important. Citizens are gaining an increasing voice through civil society organisations, community groups, religious organisations and chambers of commerce. If democracy is to survive, citizens must develop capabilities that require them to be well informed, understand the impact of issues, make wise choices and hold elected officials accountable for the responsibility thrust on them. Education is the process of enlarging people’s choices. Choices that are created by expanding human capabilities– what people do and can do in their lives.

1.17 Directions for India

Implicit in the above discussion, the following are the broad directions for India.

Globalisation and a shift to a market-led, knowledge-based economy demands that education must become the cornerstone of development if India has to find a place at the top of the league of nations.

Building knowledge for a competitive, information-based society must be the core theme of reforms in education.

Education, for girls as well as for boys, therefore deserves the highest priority on the government agenda - not just those of the Ministry of Human Resources Development.

Education must shape adaptable, competitive workers who can readily acquire new skills and innovate. Education must also support the continued expansion of knowledge.

It is important that skills, as a result of education, have economic value beyond their intrinsic merit. Equally, it is important that there is diversity in order to avoid an abundance in any one skill and consequent poor rewards. To illustrate, although computer skills are valuable, if too many computer specialists are produced, rewards for them will be weak.

An increase in aggregate spending on education is intuitively appealing, but should be treated cautiously as appreciable changes in education outcomes result only with relatively large shifts in spending. The accent must be on promoting efficient use of resources as much as on expanding the overall resource envelope.

Efficiency is achieved by making public investments where they will yield the highest returns. This is in the area of primary education. Consequently, government investments to improve enrolments and retention in primary education must have the highest priority in intersectional allocation of educational resources.

Decisions about public education priorities beyond basic education must be taken within a broad sectoral approach. Once we have largely achieved universal primary and secondary education, then we can consider higher education as a priority.

There must be a concerted effort to free up resources for primary education through concomitant changes in other sectors and subsectors. This will mean reallocation of public spending to education from other sectors such as defence and inefficient public sector enterprises. It will also imply a gradual move to full cost recovery in higher education and encouraging the emergence of a largely self-financing private sector.

To achieve equity, the government must ensure that no qualified student is denied access to education because of an inability to pay.

Because the gap between private and social returns is larger for higher education than for basic education, students and parents must bear part of the costs of higher education.

Governments must encourage private financing by taking on some of the risks that makes financial institutions reluctant to lend for higher education.

A credit market for education, together with selective scholarships, especially in higher education, must be nurtured.

Concerted steps must be taken to harness new technology opportunities in content and delivery of education. Prudent steps must be taken to use already existing technology options, such as in communications, more effectively. Education systems must also gear for an era of cyber-age education without sacrificing the basic principles of elementary education and cognitive learning.

A climate of competition among educational institutions must be fostered.

Decentralising the management of public education and encouraging the expansion of private and community educational institutions must be given thrust.

 

 

 

 

 

 

Table 1.1

BASIC DATA RELATING TO EDUCATION PERTAINING TO 60 COUNTRIES

Country

Real per capita GDP

Adult literacy rate

Combined first-, second- and third-level gross enrolment ratio

Public education expenditure

 

PPP$

%

%

% of GDP

Algeria

4,460

60.3

68.0

5.2

Angola

1,430

45.0

27.0

1.0

Argentina

10,300

96.5

79.0

3.5

Australia

20,210

99.0

100.0

5.6

Bangladesh

1,050

38.9

35.0

2.9

Belgium

22,750

99.0

100.0

3.2

Bhutan

1,467

44.2

12.0

1.0

Brazil

6,480

84.0

80.0

5.2

Burkina Faso

1,010

20.7

20.0

3.6

Burundi

630

44.6

23.0

3.2

Canada

22,480

99.0

99.0

7.0

Central African Republic

1,330

42.4

26.0

1.0

Chad

970

50.3

29.0

1.0

China

3,130

82.9

69.0

2.3

Denmark

23,690

99.0

89.0

8.2

Egypt

3,050

52.7

72.0

1.0

Ethiopia

510

35.4

24.0

4.0

France

22,030

99.0

92.0

6.1

Germany

21,260

99.0

88.0

4.8

Greece

12,769

96.6

79.0

3.0

Hong Kong

24,350

92.4

65.0

2.9

Hungary

7,200

99.0

74.0

4.7

India

1,670

53.5

55.0

3.4

Indonesia

3,490

85.0

64.0

1.4

Iran

5,817

73.3

72.0

1.0

Iraq

3,197

58.0

51.0

1.0

Italy

20,290

98.3

82.0

4.7

Japan

24,070

99.0

85.0

3.6

Korea

13,590

97.2

90.0

3.7

Malaysia

8,140

85.7

65.0

5.2

Mali

740

35.5

25.0

2.2

Mexico

8,370

90.0

70.0

4.9

Mozambique

740

40.5

25.0

1.0

Myanmar

1,199

83.6

55.0

1.2

Nepal

1,090

38.1

59.0

3.1

Nigeria

920

59.5

54.0

0.9

Norway

24,450

99.0

95.0

7.5

Pakistan

1,560

40.9

43.0

3.0

Philippines

3,520

94.6

82.0

2.2

Portugal

14,270

90.8

91.0

5.5

Russian Federation

4,370

99.0

77.0

4.1

Rwanda

660

63.0

43.0

1.8

Senegal

1,730

34.6

35.0

3.5

Sierra Leone

410

33.3

30.0

1.0

Singapore

28,460

91.4

73.0

3.0

South Africa

7,380

84.0

93.0

7.9

Spain

15,930

97.2

92.0

4.9

Sri Lanka

2,490

90.7

66.0

3.4

Sudan

1,560

53.3

34.0

1.0

Sweden

19,790

99.0

100.0

8.3

Tanzania

580

71.6

33.0

1.0

Thailand

6,690

94.7

59.0

4.1

Uganda

1,160

64.0

40.0

2.6

United Kingdom

20,730

99.0

100.0

5.4

United States

29,010

99.0

94.0

5.4

Uruguay

9,200

97.5

77.0

3.3

Venezuela

8,860

92.0

67.0

1.0

Vietnam

1,630

91.9

62.0

2.7

Yemen

810

42.5

49.0

6.1

Zambia

960

75.1

49.0

2.2

Source: World Development Indicators 1999, The World Bank

Table 1.2

CORRELATION COEFFICIENTS ON EDUCATION DATA

PERTAINING TO 60 COUNTRIES

(inpercentage)

Particulars

Real per capita GDP

Adult literacy rate

Combined first-, second- and third-level gross enrolment ratio

Public education expenditure as % of GNP

Real per capita GDP

100.00

     
Adult literacy rate

71.78

100.00

   
Combined first-, second- and third-level gross enrolment ratio

77.03

86.91

100.00

 
Public education expenditure as % of GNP

59.68

47.80

64.98

100.00

Source: Business Intelligence Unit, Chennai

Table 1.3

RATES OF RETURN TO INVESTMENT IN EDUCATION

BY REGION AND LEVEL OF SCHOOLING

(in percentage)

Region

Social

Private

 

Primary

Secondary

Higher

Primary

Secondary

Higher

Sub-Saharan Africa

24.3

18.2

11.2

41.3

2

6.6

27.8

Asia

19.9

13.3

11.7

39

18.9

19.9

Europe, Middle-East and North Africa

15.5

11.2

10.6

17.4

15.9

21.7

Latin America and the Caribbean

17.9

12.8

12.3

26.2

16.8

19.7

OECD countries

n.a.

10.2

8.7

n.a.

12.4

12.3

Source: Priorities and strategies for education - A World Bank review 1995

Table 1.4

RATES OF RETURN TO INVESTMENTS IN

DIFFERENT SECTORS OF THE ECONOMY

(inpercentage)

Educational investments

1974 to 1982

Primary

20

Secondary

14

Higher

11

World Bank projects

1983-92

Agriculture

11

Industry

12

Infrastructure

16

All projects

15

Source: Priorities and strategies for education

- A World Bank review 1995

 

Table 1.5

COUNTRIES WHICH HAVE MOVED TO

MARKET BASED ECONOMIES

Country

Population 1996 (Millions)

Algeria

29

Armenia

4

Azerbaijan

8

Bangladesh

122

Belarus

10

Bulgaria

8

China

1215

Croatia

5

Czech Republic

10

Estonia

1

Georgia

5

Hungary

10

India

945

Kazakhstan

16

Kyrgyz Republic

5

Latvia

2

Lithuania

4

Macedonia FYR

2

Nigeria

115

Poland

39

Romania

23

Russian Federation

148

Slovak Republic

5

Slovenia

2

Tajikistan

6

Turkmenistan

5

Ukraine

51

Uzbekistan

23

Yugoslavia

11

Total population of these countries

2829

World population

5754

Percent

49.17%

Source: World Bank

Table 1.6

GLOBAL GROWTH OF TECHNOLOGY LED BUSINESSES

(in USD Billion)

Sector

Year 2000

Year 2010

Aerospace

70

160

Pharmaceuticals

300

1,100

Geomatics

10

60

Advanced Materials

450

880

Computer equipment

189

630

Internet

843

1,300

Software

785

2,300

Telecom services

270

630

Telecom equipment

250

500

Robotics and Automation

5

10

Total

3,172

7,560

Increase  

4388

World GDP

30,000

36,600

Increase  

6,600

%

11

21

% increase in share  

66

Source: Reliance Research

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