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

Report on
A Policy Framework for Reforms in Education

7. PLANNING FOR THE FUTURE

7.1 Assumptions

In planning for the future, it is assumed, obviously, that the goal of an education policy would be to universalise primary education (age group 5-9) and upper primary education (age group 10-14 years). Apart from this, that a 75 % enrolment rate is to be achieved in higher secondary (age group 15–19) and 20 % enrolment in colleges and professional education (age group 20-24).

The age-wise population projections for 2015 of the US Census Bureau (Table 7.1) have been utilised to arrive at the school going population. In making these projections, all prices and costs are based on 1998-99 levels.

7.2 Enrolment of Students in 2015

The estimated enrolment of students by the year 2015 will be 1130 lakhs in primary school, 1130 lakhs in upper primary, 1130 lakhs in secondary and 220 lakhs in colleges/university. The number of students in each age group in the respective level of education is presented in Table 7.2.

7.3 Number of Education Institutions

To achieve the above enrolments, the number of schools and institutions needs to be increased manifold from the current levels. Based on 150 students in a primary school, the additional number of primary schools would be 7,32,000 schools, double the number today. Assuming 675 students in each secondary school, additional 23,600 schools would be required. At the tertiary level, additional 27,000 institutions, almost three times the existing number, would be required with 580 students in each institution. The details of the total educational institutions required are presented in Table 7.3.

 

7.4 Recurring Expenditure

Recurring expenditure is in the form of establishment expenses, teacher salaries, textbooks and training material. The annual recurring expenditure that would be required to meet the above objectives would be around 11% of the current GNP and 3.15 % of the projected GNP. This translates to Rs.1,80,000 crores each year. The compulsory and free education level (age group 5-14) would account for about 37 % (Rs. 65,850 crores) of the total expenditure. The public spending would be 1.98 % of the projected GNP. The details of the recurring expenditure are presented in Table 7.4.

7.5 Capital Expenditure

Capital expenditure pertains to cost of buildings, furniture and fixtures, toilets, communication equipment, computers etc. Capital costs to fund the incremental number of institutions required have been assumed taking an average cost of Rs. 10 lakhs for a primary institution, Rs. 20 lakhs for a secondary institution and Rs. 40 lakhs for a tertiary institution. On this basis, the total capital expenditure required will be Rs.88,900 crores.

It is reasonable to assume that this required capital investment would be met over the next 15 years. Thus the annual capital expenditure will be Rs. 5,900 crores. The computation of capital costs is presented in Table 7.5.

7.6 Public and Private Spend on Education

The total expenditure has been separated as those that would be spent by the government and that would be spent by the private sources. The percentages of public spending would be 90 % in the primary sector, 50 % in the secondary sector and 40 % in the tertiary sector. This would translate to a total public spending of Rs. 1,17,000 crores and a private spending of Rs. 68,900 crores. In effect this means that the government would spend 63 % of the total expenditure. The private sector would spend the rest. The government spend would be 1.98 % of the projected GNP. The details of the public and private investments in education are presented in Table 7.6.

7.7 Estimates of Manpower Requirements for Tertiary Education Planning

Three scenarios have been presented, one where India would achieve a GNP growth of 6 percent (pessimistic), 8 percent (most likely) and 10 percent (optimistic). The requirements of professionals in various sectors are based on the growth in GNP. In the case of engineers, the growth rate in manufacturing sector and its contribution to the economy is taken into consideration. The assumptions are that agriculture will constitute 20 percent of GDP, manufacturing and services will constitute 40 percent each. Estimates of GNP growth under the three scenarios are given in Table 7.7.

In the case of doctors, including dentists and veterinary doctors and nurses, who are involved in providing healthcare services, an idealistic target number of doctors and nurses per 1000 population based on international human development statistics were relied upon.

The estimates indicate that the total population that should have achieved tertiary education will between 5.6 % and 9.8 %. The total number of teachers in all the sectors would need to increase from the existing 49.25 lakhs to a range of 93.47 lakhs to 119.15 lakhs. The details are presented in Table 7.8.

7.8 Options in Financing and Management

Present systems for financing and managing education are often inappropriate for meeting the challenges of ensuring equity in education amongst disadvantaged groups, ensuring quality of education and for speeding up reforms in the education system. Public financing is growing more difficult as enrolments expand. Public intervention in education can be justified on several counts: it can reduce inequality, open opportunities for the poor and the disadvantaged, compensate for market failures in lending for education, and make information about the benefits and availability of education generally available. But public 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 the inability to pay.

The inefficiencies and inequities, along with expanding enrolments in public schools at all levels, have contributed to increasing the share of GNP devoted to public spending on education. The result is increasing pressure on public funds.

To merely increase efficiency in public spending on education may not be enough. The government will necessarily have to increase the quantum of public spending.

This can be done in several ways. Government can reallocate public spending to education from other publicly funded activities such as defence and inefficient public sector enterprises. Government can increase revenues and spend more on education. Government can also supplement public 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 and universities tend to draw their students from more advantaged socio-economic backgrounds, and thereby promote diversity and provide useful competition for public institutions, especially at higher levels of education.

7.9 Policy Options in Financing Education

Adverse macroeconomic conditions and keen inter-sectoral competition for public funds have reduced the Indian government's ability to continue expanding education. The lack of a credit market for education makes this problem worse. There are basically three policy options that could overcome some of the problems in financing education. These options are:

Recovering the public cost of higher education and reallocating government spending on education towards the level with the highest social returns

Developing a credit market for education, together with selective scholarships, especially in higher education

Decentralising the management of public education and encouraging the expansion of private and community-supported schools.

7.10 Public Investment in Education

The high rates of return estimated for basic education in most developing countries strongly suggest that investments to improve enrolments and retention in basic education should generally have the highest priority in India, which has not yet achieved universal basic education. A policy package in respect of the role of the public sector in education would consist of:

Free basic education, including cost-sharing with local communities and targeted stipends for children from poor households

Selective charging of fees for upper-secondary education, combined with targeted scholarships.

Fees for all public higher education, combined with loans, taxes, and other schemes to allow needy students to defer payment until they become income-earners, and a targeted scholarship scheme to overcome the reluctance of the poor to accumulate debt against uncertain future earnings.

Assurance of quality primary education for all children by making that level the top priority for public spending on education.

Improved access to quality general secondary education as the second priority, once all children are receiving good primary education.

7.11 Efficient Public Spending at the School and Institution Level

Public finance is the main instrument for implementing public priorities, and there is a strong rationale for public intervention in the financing of education. The high private rates of return to investments at all levels of education justify large investments by individuals. They also justify self-financing by families or students, through immediate or deferred cost sharing. Despite these high private returns and the justification for private finance, there is also a strong case for public intervention, especially for basic education, for reasons of income distribution, capital market imperfections, information asymmetries, and externalities. In fact most governments are heavily involved in all levels of education - an activity that takes up a significant portion of public expenditure. Education expenditure by source of funds in some important countries is given in Table 7.9.

7.12 Private Financing as an Incentive Mechanism

The general expectation is that the more a school depends on private financing, through fees collected from students or contributions from the local community, or both, the more the school is likely to use resources efficiently. When people share directly in the cost of a service, they are likely to monitor costs more closely and guard against waste. Even when public institutions charge no fees, allowing fee-charging private institutions to emerge and survive can generate the incentive for greater efficiency. Such institutions promote competition in the system and generate information for judging the performance of public institutions.

7.13 Financing Upper-Secondary Education and Higher Education

Since secondary school graduates will have higher earnings than those who leave school earlier, selectively charging fees for public secondary school can help to increase enrolments. Cost sharing with communities can be encouraged at the secondary level. There is considerable evidence that household demand for education is relatively price-inelastic, that is, unresponsive to increases in private costs, except among the poor. The relative inelasticity of demand could be a useful criterion for making decisions about charging fees. However, poorer families have difficulty in meeting the direct and indirect costs of children's school attendance. To offset this hardship, secondary school fees can be combined with scholarships and stipends to ensure equity in enrolment.

In general, fees are justified at public institutions for higher education. An optimal policy would be full cost recovery by public higher education institutions, with students paying fees out of parental income and out of their own future incomes, through a loan scheme or a graduate tax. Such a policy is very distant in India since existing fee levels are so low and experience with loan schemes has been relatively disappointing.

7.14 The Efficiency of Alternative Types of Higher Education

An extremely radical cost-saving intervention is distance education. Distance education is dramatically cheaper than conventional higher education. But lower unit costs do not necessarily imply greater efficiency in open universities, because completion rates often are also lower. One reason is that open universities tend to attract weaker students because entry is usually non-competitive. Another reason is that, with only a tenuous link to an institution, teachers and fellow students, a student's motivation and discipline to complete a course is poorly reinforced. Even though open universities produce graduates efficiently, the output is wasted unless graduates are productive in the labour market.

7.15 Creating a Credit Market for Education

Without well-functioning commercial credit markets, people must often borrow funds from relatives, friends and moneylenders. These sources of credit are inefficient since the ability to borrow depends on whom the borrower knows and whether willing lenders can be found.

Extensive financial regulation generally limits total supply of loans in the economy, and private banks may be unwilling to lend to students. Education is a particularly long-term investment, and risks are high because few students have acceptable collateral. Graduates may be unable to repay loans if they are ill or unemployed. India also lacks the legal and administrative framework to enforce financial contracts effectively.

The government can play an important role in alleviating students' difficulties in obtaining educational credit. The government is big enough to absorb risks that private lenders cannot or will not bear, by insuring commercially loaned funds from banks. If loans are under government authority, employers may also be willing to make deduction from former students' salaries for loan repayment. Some types of loans, especially for medical studies, could be repaid through national service in deprived areas of the country. The extensive network of more than 66,000 branches of commercial banks could be used effectively for government-guaranteed student loan administration.

7.16 Student Loan Schemes

Introducing loans for higher education adds benefits on almost all counts. Loans mobilise more resources for higher education by tapping graduates' future earnings, even when default rates and administrative costs of loan schemes are high. They improve resource allocation because students will tend to enrol in the courses with the highest returns. When augmented by selective scholarships, loans improve student selection and equity by allowing talented students from poor families to compete for places in higher education.

Student loan schemes are an essential complement to cost recovery and the charging of fees. Many students are unable to afford the cost of higher education out of their families' current income, and loan schemes permit them to pay out of their future earnings. About fifty countries, industrial and developing, have such schemes. In most countries, loans are repaid according to a fixed schedule; in a few, including Australia and Sweden, they are repaid as a proportion of a graduate's income each year. In the United States, student loan programmes guaranteed by the government enable borrowing from abroad also. Loan schemes can be made financially sustainable, as the experiences of Canada and Colombia demonstrate. They require the public sector to bear some of the risk, since banks and financial institutions are generally unwilling to accept students' likely future earnings as collateral. Sustainable loan schemes require an effective collection agency with incentives to minimise evasion and default. Income-contingent and graduated annual payment schemes are needed to encourage repayment commensurate with the students' future earnings, which will rise over time.

7.17 Involvement of Non-Governmental Organisations (NGOs) in Education

The contribution that NGOs can make to efforts to expand access and improve the quality of education is immense. The Bangladesh Rural Advancement Committee (BRAC) is a shining instance of an NGO playing a national role in the country's health and population programmes. In 1992, BRAC had more than 8,000 schools operating, and plans are being made to expand to 50,000 schools. The education programme is free to students, except for community contributions for school construction. Internationally, BRAC is a model for the potential of the NGO sector in education expansion. It also illustrates how a combination of targeting, school design, flexibility and follow-through can dramatically increase girls' primary school participation rates. NGOs have greater flexibility than government bureaucracies and may be able to reach target groups more effectively. Furthermore, as BRAC's expansion programme illustrates, NGOs need not necessarily be limited to small pilot projects, but can also carry out large-scale delivery programmes.

NGOs have long been pioneers in the area of early child development. Save the Children, for instance, is an international NGO that has worked with at-risk children and families since 1932 and is now active in forty countries world-wide. The Aga Khan Foundation is working in parts of Pakistan and with Muslim communities on the coast of Kenya. The Soros Foundation focuses a large share of its resources on pre-school education in Eastern Europe and Central Asia.

7.18 Revenue Diversification

Encouraging public educational institutions to diversify their sources of revenue and allowing them to keep such revenues can encourage autonomy. The scope for this is greatest in higher education. The practice of attracting resources from alumni and private industry is standard among private schools and universities, and is beginning to spread to public ones. In Chile, Indonesia, Thailand and Venezuela, private industry provides scholarships or subsidised loans for talented university students. Structured tax regimes can encourage such donations.

Public schools and universities can also use their facilities to provide income. Universities in Uganda and Senegal generate 4 to 5 percent of annual expenditure by renting out facilities. China and Vietnam encourage schools to run short-term courses, and provide services to industry.

7.19 Quality of Education and Education Expenditure

Schooling within formal education systems plays an important role in the expansion of human capital. However, there is a big difference between children sitting in a classroom and an increase in human capital. The quality of education is a deep concern in India. If the quality deficiencies were due merely to the lack of inputs the policy prescription would be obvious: increase resources. However, empirical evidence shows that resources are only tenuously related to measured achievement. Budgets do not account for performance, how well a budget is spent plays an important role. There is clear evidence that the enormous inefficiencies in education spending arise due to relatively high spending on teacher inputs.

In a study made in Northeast Brazil, it was found that cost effectiveness of teacher salaries (normalised to one) is by far the lowest. Material inputs that provide amenities to the school and teachers, such as teacher tables, toilets, bookcases, have a cost effectiveness on average 7.7 times larger than teacher salaries. Instructional materials have cost effectiveness ratios between 17 and 34 times as large as the impact of additional spending on teacher salary increases.

A World Bank study in India covering eight states has come to similar conclusions. The cost effectiveness of spending on improving physical facilities is higher than that of teacher salaries (1.2 times higher), however that for increasing just classroom size is between 1.7 and 4 times higher. The cost effectiveness of spending on instructional inputs is between 4 and 14 times higher than that of increasing teacher salaries.

 

 

 

7.20 Universal Basic Education is Possible

Every time the country talks of improving the quality of education or universalising elementary education, it is suggested that a shortage of resources is a strong obstacle to progress. The truth is different. It is not a matter of resources but of priorities.

Poorer countries than India have achieved much more in education. War-torn Vietnam with a per capita income of under $300 has achieved a literacy rate of 94 per cent. Kenya, with a per capita income of $340 has achieved a literacy rate of 75 percent. India with a per capita income of $390 has a literacy rate of 62 per cent.

India also needs to improve the efficiency of public spending on education. It spends around 3.5 per cent of its gross national product (GNP) on education - a much higher share than China and Sri Lanka - but its educational achievements are lower. Sri Lanka, which spends only 3.1 percent of its GNP on education, has ensured that 90 percent of adults are literate and that 98 percent of children complete primary school. China spends only 2.3 percent of its GNP on education, and 82 per cent of its adults are literate, while 94 percent of those who enter school complete primary schooling. Vietnam spends only 2.6 percent of its GNP on education, yet, as already mentioned, the literacy level is 94 percent.

7.21 Industry - University Partnership

The universities must be strongly encouraged to form partnerships with industry. Such a linkage would entail several benefits for the university. It would give the university opportunities to attract additional funds for teaching and research thereby facilitating financial autonomy, access to latest technology, improved employment prospects for students, continuous upgradation and adaptation of curriculum and improved motivation in students.

The industry would also stand to benefit through reduction in recruiting costs, access to pre-screened, high achieving students, cost effective productivity, better communications with the higher learning centres and collaborative research opportunities.

Students stand to gain in the form of real life practical experience, contact with practising professionals, and application of theoretical knowledge and enhancement of oral and written skills.

7.22 Network and Infrastructure Planning

Planning networks and establishing networks among neighbourhood villages offer a potent possibility in this era of modern communications facilities and the Internet. It is physically and economically viable to link villages using wide area networks and provide community Internet centres. All teaching can originate from the 'hub' villages for dissemination simultaneously to a number of villages. The advantages of such a network are basically two. One, the pupil-teacher ratio can be raised to a new high, without unduly affecting the quality of education. Two, timing can be kept flexible so as to involve the entire household in the education process.

 

 

 

 

 

 

Table 7. 1

INDIA’S POPULATION PROFILE

(in Million)

Source: US Census Bureau

Table 7.2

ESTIMATED DEMAND FOR EDUCATION BY YEAR 2015

(in Million)

Based on Population Profile

 

 

Table 7.3

ESTIMATED DEMAND FOR SCHOOLS/INSTITUTIONS

BY THE YEAR 2015

(numbers)

Source: Reliance Research

 

 

Table 7.4

ESTIMATED RECURRING EXPENDITURE

IN 2015 AT 1998-99 PRICES

(Rs. crores)

Source : Reliance Research

Table 7.5

ESTIMATED CAPITAL COSTS AT 1998-99 PRICES

Source: Reliance Research

 

Table 7.6

ESTIMATED BREAKUP OF PRIVATE AND PUBLIC

SECTORS INVESTMENTS (2015)

Source: Reliance Research

Table 7.7

GNP FORECAST OF INDIA

(REAL TERMS AT 1998-99 PRICES)

(Rs. billion)

Source: Base figure: Economic Survey 2000;

Estimates: BIU, Chennai

Table 7.8

PROJECTION OF MANPOWER FOR TERTIARY EDUCATION

Source: Base figures: Institute of Applied Manpower Research; estimates: BIU, Chennai

Table 7.9

EDUCATION EXPENDITURE BY SOURCE OF FUNDS, ALL

LEVELS OF EDUCATION COMBINED (1991)

 

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