THE DELETERIOUS CONSEQUENCES OF NON-INVESTMENT OR INADEQUATE INVESTMENT IN EDUCATION ARE INDEED SERIOUS. NATIONAL POLICY ON EDUCATION (1986, P. 49).
The National Policy on Education 1986 has reiterated the nation's resolve, as recommended by the Education Commission (1966) and promised in the National Policy on Education 1968 by the Government of India, to invest six per cent of national income in education from the eighth Five Year Plan onwards. The Policy modified in 1992 also reiterated the same. The goal has now been postponed to the next Five Year Plan, i.e. , the ninth Five Year Plan. Realization of the goal, compared to about four per cent of gross national product (GNP) that is being invested in education Presently, requires scaling up of the allocation of resources substantially to education in the next few years.
Secondly, the new economic policies, particularly structural adjustment policies and globalization require increasingly more and
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more educated manpower. It is increasingly realized both by the Government and the international agencies that promote the structural adjustment policies that the success of the structural adjustment programme critically depends upon human resource development, particularly education (see Tilak, 1992). In other words, the new economic policies necessitate higher levels of investment in education.
Thirdly, the sustenance of the several programmes launched during the post 1986-Policy period requires significant increase in the allocation of resources to education. Some of the notable programmes in this context include the operation blackboard, and the District Primary Education Programme (DPEP) it case of elementary education, vocationalization of secondary education, and improvement of quality in higher education and development of open learning systems. All these programmes require increased allocation of plan as well as non-plan resources for education.
As education was brought into the concurrent list, and as the National Policy on Education 1986 promised "meaningful and challenging partnership" between the centre and the states in education, both the central government and the states have a responsibility to make special efforts to finance education and to realize the several goals, including the target of investing six per cent of national income in education.
The Role of the Finance Commission The centre-state shares in financing education (and other
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sectors) depend upon their respective fiscal capacities. The level of spending on education in a state depends upon the amount of resources transferred from the centre to the states, besides upon its own budgetary resources. Such transfers from the central government take place through the Planning Commission, and the Finance Commission, besides other grants. The Planning Commission is normally concerned with plan allocations only, and the Finance Commission with the non-plan expenditures only. Non-plan expenditure on education increases over the years, and presently forms more than 80 per cent of the total (plan plus non-plan) expenditure on education, and hence the role of the Finance Commission becomes increasingly important.
The Finance Commission has to recommend the allocation of resources to the states based on requirements of the states, as forecasted by the states themselves for already existing educational institutions. The states submit to the Finance Commission their requirements on the non-plan account for a five year period, keeping in view their own budgetary positions and the requirements of various sectors, including education sector. The Finance Commission receives these detailed estimates from the states, in general "distrusts the state estimates which are based on solid experience", scrutinizes them, and "provides their own estimates based on unspecified criteria differentially applied to different states" (Majumdar, 1987, p. 5).
It has been found that the Finance Commission has an important but restricted role to play in improving the mechanism of
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allocation of resources to the states (see Tilak, 1989) This does not mean that Finance Commission cannot consider equity, even though non- plan expenditure on educationally advanced states should be higher. Strengthening of the existing infrastructure and facilities, better maintenance of the existing schools and colleges, which are treated as non-plan activities, also contribute significantly to improvement in the educational levels of the states (Panchamukhi, 1989). The Sixth Finance Commission for instance, gave some weightage to the backward states, taking into account the unfinished tasks in elementary- education (Finance Commission, 1973). The Seventh Finance Commission considered poverty and the inverse of state domestic product. (SDP) per capita while making its reassessments (Finance Commission, 1978) The Eighth Finance Commission included the requirements for up- gradation of the standards of administration in education in its awards and allocated additional resources for clearing the backlog in the construction of school buildings and for providing teachers for single teacher schools (Finance Commission, 1983). The Ninth Finance Commission (1988) (in its first report referring to 198990) also provided for construction of school buildings in ten educationally backward states, according to the norms of the Operation Blackboard.' Thus' the Finance Commission could play a significant role in pursuing equity in education (see Tilak, 1989)
Earlier analyses (e.g., Tilak, 1989) have found that the
But no such provision was made in the second report that referred to the period 1990-95. See Finance Commission (1990).
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allocations by the Finance Commissions properly correspond neither to the needs of the system, nor to the economic capacities of the states. The actual method adopted by the Finance Commission in recommending their awards is not generally known. But the general presumption is that the Finance Commission has had to work based on a very limited data base. The present paper attempts at filling up this gap to a significant extent, by providing a very detailed data set for about a decade beginning 1980-81 and ending with the most recent period for which reliable statistics are available, which is mostly 1991-92.
Generally , the Finance Commissions have been recommending their awards to fill the gap between the projected receipts of the states and the expenditures in revenue accounts of the states. In many cases these projections were mere extrapolations of the past trends. The Finance Commissions also seem to have followed no explicit criteria other than scrutinising these state forecasts, based on (a) the requirements of the state governments under the revenue account to meet expenditure on administration and non-plan commitments or liabilities, (b) provision for wages and salaries for government employees, (c) commitments on interest charges on debts, (d) transfer of resources to local organizations, (e) maintenance of capital assets, (f) maintenance of plan schemes completed in the earlier plan, and (g) requirement of the backward stages for upgrading standards in general education (Raghavan, 1982). However, the Ninth Finance Commission was required for the first time to adopt a "normative approach" on the requirements of
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various states and in the awards of the Finance Commission. Accordingly, the Ninth Finance Commission has made its recommendations in several sectors based on cost functions. The Tenth Finance Commission is also hoped to follow a normative approach. The exercise here is also in the same direction.
Sources of Data The main source of data on plan and non-plan expenditure on education in the states has been Analysis of Budget Expenditure on Education, published by the Ministry of Human Resource Development. In the present context, this is supplemented by published and unpublished data collected from the Department of Education, Ministry of Human Resource Development. The data on enrollments are collected from Education in India and Selected Educational Statistics. State domestic product (SDP) deflators are derived from data on SDP available in current and constant prices in National Accounts Statistics (Central Statistical Organization). Population projections are drawn from the Report of the Standing Committee of Experts on Population Projections (October 1989) , and other Census reports.
Trends in Expenditure on Education Table 1 presents the available statistics on the trends in expenditure on education -- plan, non-plan , and total in each of
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the 18 major states in India *2 by level of education, elementary, secondary, higher, technical, and all levels of education together. Mostly the data covered a period of 12 years, i.e. , 1980-81 to 1991- 92. It is clear from these tables that the trends in expenditure on education are not very smooth. Particularly in case of plan expenditure the trends are very much erratic, though non-plan expenditures do not show such serious erratic trends. The erratic trends indicate how the plan resources are allocated: small amounts are allocated during the initial years of a Five Year Plan period to save the plan resources on maintenance of the system during the plan period, and substantial amounts in the last one or two years of the Plan period in an attempt to exhaust the total Five Year Plan outlays; again at the beginning of the next Five Year Plan period, small amounts are being allocated. This was noted by researchers earlier (e.g., see Tilak, 1987) All this produces zig-zag trends in the growth in plan expenditure on education.
Secondly, data are not available for certain years in case of some states and particular levels of education. Or from the available figures; one is rather certain that the data referring to a particular year cannot but be wrong. In such cases which are fortunately not large in number, simple interpolations are made.
Very often most analyses on educational expenditure are based on expenditure in nominal (current) prices. But few dispute the
2 For the remaining states and union territories, the required data are not available.
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importance of analyzing the trends in real or constant prices. Trends in expenditures in current prices really present an exaggerated idea of the actual growth of the expenditures, and mislead the policy planners as well as the public. Table 1 here also gives the trends in expenditure on education in 1980-81 prices, along with expenditure in current prices.' This is made with the help of state income deflators, as other measures like price indices (whole-sale or consumer price indices) are not available for the several states covering as much time period. Unfortunately state income deflators are also not available for many states for the most recent period, i.e., 1990s. As a result, we have to confine our estimates on the trends in constant prices only upto 1988-89 or so in case of quite a few states.
Rates of growth are also estimated using semi-log regression equation of the form
Y = a b t ... Eqn. 1
where Y is the expenditure on education for which the rate of growth is estimated, t the time period, a and b are respectively the constant and regression coefficient estimated, b being defined as 1 + (r/100) , r being the rate of growth.
3 In case of Madhya Pradesh, as state income deflators could be derived only with the base year 1970-71, our figures on expenditure on education in constant prices in the state are also in 1970-71 prices.
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Rates of growth estimated based on such an equation are generally believed to be better than those estimated by alternative methods (see Gujarati, 1990).
The annual rates of growth are generally high both in current and constant prices in several states. As expected, rates of growth in constant prices are obviously less than rates of growth in current prices. But for this, there are no uniform patterns emerging. The growth in plan expenditure is not smooth; in fact rates of growth in plan expenditure in a few states are negative (e.g., higher education in Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, secondary and technical education in Kerala, and technical education in West Bengal) , while in a few other states rates of growth in the same (plan expenditure) are very high (e.g., 27 per cent in elementary education in Uttar Pradesh, and 39 per cent in Jammu and Kashmir).
The rates of growth in non-plan expenditure in constant prices are reasonably smooth and positive. In case of, elementary education, the rate of growth ranges between 2.46 per cent per annum in Kerala and 12.90 per cent in Tripura, and in case of all levels of education together, it ranges between 3.69 per cent in Kerala and 10.93 per cent in Tripura.
Projections Based on the available data given in Table 1 on plan, non- plan and total expenditure on various levels of education in the 18 states, two alternative types of projections of expenditure on
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education are attempted here:
First, assuming that the rate of growth realized during the 1980s continues during the 1990s, mere projections of likely trends in plan, non-plan and total expenditure on education are made until the end of the century, i.e., upto 1999-2000, and they are given in Table 2. These projections are also presented in current and constant prices, and both by levels of education. These projections, that can be treated as just extrapolations projecting the past into future, are obviously oblivious of the recent policy changes and their effects on education. Neither the unit costs of education, nor the enrollments do explicitly figure in these calculations. Hence these estimates may be viewed as the minimum levels the expenditure on education should grow to during the 1990S.
Alternatively, taking the unit costs of education explicitly, and the enrolment targets into account, the total requirements of expenditure on education can be estimated. For instance, the Ninth Finance Commission adopted a "normative approach" and estimated cost functions in making their awards. Following the same approach, the requirements of resources in each state are forecasted here, by estimating the following simple equation:'
4 The Ninth Finance Commission has fitted a multiple regression equation that includes, besides enrollments or enrolment ratios, student-teacher ratio, salary differences, price differences and density of population as independent variables.
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C = a + b (E) + e Eqn. 2
where C represents the unit costs, E the enrollments, a the intercept, b the regression coefficient, and e the error term.
Alternatively, total resource requirements can also be estimated with the help of the following equation
TC = a + b (E) + e' ... Eqn. 3
where TC represents the total costs of education, and others as mentioned in case of Equation 2 above.
The latter equation (Equation 3) gives the total requirements directly. Taking the values of a and b, and substituting the past enrollments in the equation by the enrolment targets, total costs can be estimated. On the other hand, in the Equation 2 the method is more elaborate. Both should yield same results. The Equation 2 is used here.
Table 3 gives the expenditures on education per student, which are treated here as unit costs of education, and Table 4 gives the enrollments along with enrolment targets in case of elementary education, and enrolment projections in case of secondary and
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higher education 5 As population projections are not available for a few states, viz., Himachal Pradesh, Jammu and Kashmir and Tripura, enrolment projections for elementary education and correspondingly resource requirements based on enrollments and cost functions are not made. Table 5 presents the estimates of total resource requirements by levels of education in the 18 major states. *6
First, it should be noted that these estimates on elementary education do not make any allowance for enrolment of over and under- age children in primary and upper primary schools, which is a very dominant phenomenon in the Indian education system. Earlier estimates revealed that the gross enrollments in primary education are about 25 per cent higher than net enrollments, and in case of upper primary education 40 per cent (see Kurrien, 1983). It means that the enrollments in primary education need to be adjusted by 25 per cent upwards, and the enrollments in upper primary education by about 40 per cent to make allowance for under and over-age children. Thus the projected requirements of expenditure on education given in Table 5 need to be adjusted upwards by 25-40 per cent to arrive at actual requirements of elementary education. *7
5 Tables 3 and 4 in this draft are however, confined to elementary and secondary education.
6 Except for elementary education, estimates on future requirements of other levels of education are not included in this draft.
7 One may expect the difference between gross and net enrollments would decline over the years as we march closer towards universalization of elementary education.. See, for example, NSSO (1991). But the recent estimates Also showed a
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This is not attempted here. But it is sufficient to note that the actual requirements of' resources would be 25-40 per cent higher than estimates made here.
Secondly, in general it seems that the estimates of requirements based on cost function (given in Table 5) are higher than the projections given in Table 2 which are based on rates of growth realized in the recent past (Table 1) in as many as eight states, viz., Bihar, Haryana, Kerala, Maharashtra, Orissa, Punjab, Uttar Pradesh, and West Bengal. It means that if the allocation of resources follow the past trends, they will not be adequate to meet the educational objectives, particularly the universalization of elementary education in these states. It may be underlined that the estimates based on cost function are based on more objective criteria of enrolment targets and unit costs of education, and such a norm based approach should be preferred to other approaches, based on no specific criteria.
In Andhra Pradesh, Assam, Gujarat, Karnataka, Madhya Pradesh, Tamil Nadu and Rajasthan the projections based on recent rates of growth are higher than the requirements estimated through cost function, suggesting that these states performed well in the recent past, and if the same trends continue, the resource position of the elementary education system would be very good. This. is also shown in the set of graphs in Figure 3 in which the two curves one depicting the projections based on realized rates of growth
difference of similar magnitude. See for instance, Mehta (1994).
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(referred to, for brevity, as extrapolations') and one depicting the requirements estimated on the basis of cost function (referred to as 'requirements') are presented for fifteen states. Thus for some states the requirements are higher than extrapolations, and for some other states, the extrapolations are higher than the cost based requirements.'
Table 4 that gives the trends in enrollments during the 1980s, and the required growth in the enrollments in the near future also makes this point clear. In several states, the rate of growth required during the remaining period of the decade is higher than the rate of growth realized during 1980-81 and 1991-92. However, there are a few important exceptions, such as Assam, Gujarat, Karnataka, Madhya Pradesh, and Tamil Nadu. The task is stupendous in case of Bihar and Haryana where the required rate of growth is nearly four times the rate of growth experienced in the past, Punjab where the rate of growth has to be 26 times higher. The situation in Punjab seems to have been severely affected during the 1980s by the social and political unrest. Even in Kerala, the rate of growth in enrollments has to be significantly reversed, from negative rate of, growth of -0.18 per cent per annum during the 1980s, to 5.05 per cent during 1992-93 to 1999-2000. Compared to the levels of expenditure made towards the end of the 1980s, the levels of expenditure on elementary education need to be significantly stepped in many states in the next couple of years
8It is interesting to note that the Finance Commission (1988) also found similar differences between 'normative' and actual expenditures on education, for more or less the same states.
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and the trends need to be sustained. Particularly in case of Haryana, Madhya Pradesh, Punjab and West Bengal, the expenditures have to be nearly doubled, and so is the case of Uttar Pradesh, where it has to be significantly increased.
A few estimates need a special comment, as the requirements of resources estimated fall into a pattern that cannot be easily explained.
According to the estimates of the Standing Committee on Population Projections, the population, particularly the 6-13 age group population, in Tamil Nadu is likely to decline. The declining trend is to continue even after the turn of the century. So with the target of universalization of elementary education, the projected trends in enrollments show a negative rate of growth (see Table 4.15). This has produced a declining trend in plan, non-plan and total expenditure on elementary education (Table 5.15).