Budget Explainer: How India Funds Public School Education

One of the results of this underspending on public education is that over one million government schools, where over half (52%) of India's nearly 248 million children study, have remained poorly funded. This is among the reasons why learning outcomes in India have been so poor, say experts.

In this pre-budget explainer, we outline how funds are allocated for government-run schools, how the money is spent, and what more needs to be done for effective financing of the sector. (While the education budget is divided between school and higher education, this explainer concentrates on early childhood and school education, which is considered the most critical stage of learning and a key to higher incomes and better health in later life.)

What the government spends on

In India, government spending on school education is mostly for government schools (over one million) and a small proportion goes to government-aided schools (84,623). Private schools (326,228) do not receive government funding but they do receive funds for every student enrolled in Grades I to VIII who is from an economically weaker family, under the Right To Education Act, which mandates that schools reserve 25% of positions for disadvantaged students.

Both the central and state governments spend on education.

Central spending, full and partial

The central government contributes to education in two ways: through centrally sponsored schemes and central sector schemes. The first category includes schemes such as the Samagra Shiksha Abhiyan, a central government programme for school education and teacher training, which are mostly funded in the ratio of 60:40 by the Centre and the state. In northeastern states, 90% of the funding for centrally sponsored schemes comes from the Union government.

Central sector schemes--scholarships for Scheduled Castes and Tribes, the Navodaya school network for exceptionally talented children in rural areas, and the Kendriya Vidyalayas for the children of government employees--are completely funded by the Centre. But these form a small proportion (1-2%) of education funding in India, as per Mridusmita Bordoloi, senior researcher at the Delhi-based research group Accountability Initiative. The central government also funds the National Council of Educational Research and Training, the government body responsible for designing and publishing textbooks and teacher training.

"If you look at only the Union budget, the education story in India is incomplete," Bordoloi said, pointing out that the bulk of funds for government schools come from the state government. The central government contributes partially to programmes such as those for teacher training and mid-day meals.

State funding

States contribute the most education funds. A state like Maharashtra, for instance, banks on the Centre for only about 7-10% of its school education spending. But Bihar would get 40-50% of its education funding from the central government, said Bordoloi of Accountability Initiative.

Other than contributing to centrally sponsored schemes, states also have their own schemes, such as Bihar's incentives for girls in secondary school. Many times, other state departments, such as the tribal ministry, may contribute too.

States vary greatly in how much they spend on education. Spending, as a share of gross state domestic product (GSDP) in 2017-18, ranged between 4.3% in Bihar and 1.8% in Maharashtra and Tamil Nadu, found a June 2020 analysis of eight states by Accountability Initiative.

Spending as a proportion of total state government spending varied from 12% in West Bengal and 15% in Bihar, Maharashtra and Himachal Pradesh, the analysis found. Education expenditure, as a percentage of total government expenditure, declined in six states--Kerala, Maharashtra, Odisha, Madhya Pradesh, Rajasthan and Himachal Pradesh--between 2014-15 and 2019-20, according to budget documents, IndiaSpend reported in September 2019.

Per-student expenditure, a more accurate measure of a state's education spending, also varies, as figures below show.

Outlay has remained flat

While spending on education has increased in absolute terms since 2014-15, it has remained stagnant at around 10.5% of the total government budget and has only increased from 2.8% of GDP in 2014-15 to 3.1% in 2019-20, as per the government's 2019-20 Economic Survey.

In 2019-20, India allocated Rs 6.43 lakh crore ($88 billion) of public funds for education, per the Economic Survey. Of this, the central government allocated Rs 56,537 crore ($7.74 billion) to school education--60%--and Rs 38,317 crore ($5.25 billion) to higher education. Put together, the Centre accounts for 15% of education spending. The rest came from the states and Union Territories.

Why this year's budget is crucial

Since March 24, 2020, schools across India have largely remained shut, with online education reaching only a few students. The government allowed phased re-opening of schools after October 15 but most states only began classes for grades IX and higher. As schools reopen and the government tries to implement the 2020 New Education Policy, India will have to spend more and reallocate how it spends funds, experts have told IndiaSpend.

For instance, because of the COVID-19 pandemic, government schools have had to incorporate digital learning, a challenge as only 28% of government schools in 2018-19 had computers and only 12% had an internet connection.

Further, the number of children attending government schools in India could rise because COVID-19 has reduced family incomes, IndiaSpend reported in December, and this could necessitate increased investments in public school networks, experts say.

COVID-19 had also impacted state budgets and the release of central government education funds to the states and union territories (UTs). In 2020-21, education budgets fell in 16 large states, according to an analysis by Accountability Initiative. The central government had released only 29% of the Samagra Shiksha budget to the states by November 24 and states had spent only 26% of their total approved budget by October 31.

In addition, the National Education Policy emphasises early learning for all children, a revamp of the curriculum to focus on foundational numeracy and literacy in early years, a move away from rote learning and a new assessment system that measures skills and learning rather than memorisation. This would need more spending, but experts have said it is unclear where the money will come from though available funds must be reallocated and used more efficiently.

Not nearly enough

"All the areas are underfunded in Indian education… our entire education budget pie is very small and stagnant for years," said Protiva Kundu, a researcher at the Centre for Budget and Governance Accountability (CBGA). Teacher salaries, for instance, make up the largest proportion of education spending across states; yet states do not have the funds to hire permanent teachers to fill vacant posts.

Further, little money is spent on teacher training, which could help improve classroom pedagogy and impact learning. Learning outcomes in India have been poor for years, with children unable to read text or complete activities at their grade level, as we said earlier. You cannot blame teachers for low learning outcomes if there aren't enough resources to train and prepare them," Kundu said.

Other major components of education spending include entitlements under the Right to Education Act, such as uniforms and textbooks, mid-day meals, construction and maintenance and incentives. These too vary widely across states, as figures below show.

Along with teacher training, monitoring and supervision and digital infrastructure are underfunded in India's budget, experts said. You cannot expect every teacher to own a good laptop and internet connection, even as COVID-19 has made online education more important, said Kundu.

"If you do everything but monitor teaching and learning in schools regularly, you can't expect a change in learning outcomes", because then it is hard to assess the impact of various interventions, Bordoloi pointed out.

Even though education is underfunded, states often do not fully utilise their funds. This could be because of several reasons, including delayed payments to states by the central government as well as conditional allocation by the state towards items that schools do not need to spend on every year. For instance, does a school need to be painted every year, asks Kundu. Also, if funds are allocated for specific activities, such as building new infrastructure or maintenance, but are not enough to cover the complete cost of that activity, schools might avoid undertaking that activity altogether and hence the funds remain unused, Kundu added.

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