Draft NEP's Suggestions on Financing Education Need a Much Closer Look

The present draft NEP gives the distinct impression that the committee may have not been inclined to link the education policy with the fiscal policy of the country.

In the 2014 general elections, the Bharatiya Janata Party’s manifesto promised a new education policy that would “meet the changing dynamics of the population’s requirement…”. After five years, on June 1, the Dr K. Kasturirangan Committee submitted a draft of the New Education Policy (NEP), 2019 to the Ministry of Human Resource Development (MHRD).

The NEP has immense significance as it comes after a gap of nearly 30 years (the last national education policy was in 1986, modified in 1992) and will be a key document providing direction to the education sector in the coming years and will have a direct impact on almost 50% of India’s population. 

The policy is presented as a ‘single organic continuum from pre-school to higher education’, the foundation of which is based on five pillars: access, equity, quality, affordability and accountability. The draft policy attempts to revamp all aspects of education. Financing is one of those areas which has been accorded substantive attention in the policy document.

Unlike the previous draft reports by the T.S.R. Subramanian Committee, and ‘Some Inputs for Draft National Education Policy, 2016 by MHRD’, the draft NEP of 2019 has introduced a full section on ‘Financing’ for the sector. 

Also read: What Do Those in the Education Sector Think of the Draft NEP?

The policy suggestions on financing follows from two key principles; first, financing for education is not ‘expenditure’ but an investment for the future of India’s children and second, education is a ‘not-for-profit activity and enterprise in society’. In this market-oriented neoliberal setting, the approach of the NEP towards education is a welcome step and demands applause. 

Issues rightly identified

The policy has acknowledged the need for higher investment in education and rightly envisioned that to reap maximum benefits from this investment; financing should be largely from public sources.

It has rightly identified that under-allocation of resources is leading to under-utilisation. The inefficiencies in financing are being generated from deficiencies in decentralised planning, systemic weaknesses primarily due to shortage of human resources, lack of investment in human capacity building and bottlenecks in budgetary processes in the form of delayed fund flows.

The committee has also indicated some possible avenues for generating additional resources for the sector and draws roadmaps on how optimally the additional resources can be utilised to have larger impact on the ground. 

Policy suggestions for increase in public investment needs review

With a need for higher public investment, the policy recommended increasing the overall public expenditure (Centre and state) on education from current 10% to 20% in a 10-year period. 

For the last five years, public spending on education has hovered around 3% of the Gross Domestic Product (GDP), which is much lesser than 6% of GDP, a norm accepted for the national outlay on education by all previous national education policies. The draft NEP also reaffirms this benchmark as minimum required public investment for education. Thus, to increase the additional 3% of GDP, the committee suggested a gradual increase in the share of education expenditure in the total budget by 1% every year, that will double the current expenditure on education over a 10-year period. 

The draft NEP hinges upon the assurance that economy growth will result in higher spending on education. Photo: The Wire

The committee has made this recommendation anticipating two developments in the economy – a rapid pace of economic growth and an increase in tax-GDP ratio, resulting in an enhanced resource envelop of the government and hence the education sector.

Unfortunately, there is no automatic assurance that high economic growth or higher tax-GDP ratio will induce higher spending on education. For example, between 2012-13 and 2016-17 (BE), the annual growth rate of GDP has increased from 5.5% to 7.2%; The tax-GDP ratio has increased from 17.26% to 17.82%; total government expenditure has increased from 27.1% of GDP to 29.5% of GDP ; in the same period, the spending on education has decreased from 11.6% of total expenditure  to 10.7% of total expenditure

Nonetheless, even in the proposed scenario, with incremental increase of education budget by 1% of total government expenditure per year, doubling the share of education budget of the total budget in 10 years period is not possible without compromising spending on other sectors. This zero-sum exercise is not a realistic ethical approach, especially when many other sectors are equally important, if not more.

Moreover, a contrary situation may also occur. What would happen to spending on education, if overall public investment shrinks? Thus, it would be encouraged to set the milestones of the public investment for overall education in terms of GDP instead of share of total government expenditure. 

Evidence shows if there is improvement in education expenditure in terms of GDP, total government expenditure and per capita expenditure simultaneously, only then will there be an assertion of improvement in public spending on education. However, for states’ expenditure, percentage of Gross State Domestic Product (GSDP) or percentage of total state budget cannot be a good benchmark because of the varying size of the economy and its varying resource generating capacity.

Also read: In Trying To Defy Colonialism, Draft NEP Walks the Path of the Colonisers

The policy should have specific recommendations also for states on how to increase expenditure significantly and per student expenditure probably would be the best indicator to serve this purpose. 

The policy endorsement for cesses as one of the dedicated revenue sources for education is another area which needs to be revisited. Currently the Union government collects 3% cesses on income tax payable to supplement government expenditure on education, of which 2% is transferred to a non-lapsable fund under MHRD called the Prarambhik Shiksha Kosh (PSK)’, a dedicated fund for elementary education and 1% for secondary and higher secondary education. Over the last few years, the major chunk of the Union government’s financing of elementary education had been through education cess.

However, year after year the Comptroller and Auditor General (CAG) reports inefficient use of cess money. As per the latest report, in 2017-18, of the total collection of education cess, Rs 1,977 crore was not transferred to PSK; Rs. 94,036 crore collected since 2007 under Secondary and Higher Education Cess was retained in the Consolidated Fund of India, instead of being transferred to the dedicated fund created for this purpose.

Hence, if the financing of education depends on collection of cesses, the allocation would always be uncertain. Moreover, it also raises the basic question as to why a cess is necessary when tax revenues have been growing steadily over the years.

Many of the more ambitious suggestions of the draft NEP would require substantial contributions by both the Centre and the state. Photo: Wikimedia Commons

Limited discussion on federal fiscal structure

Any discussion on public financing will not be comprehensive without a  discussion on the federal fiscal structure. Though, financing of education is a joint responsibly of both Centre and state government; the Centre’s budgetary spending on education accounts for a smaller share as compared to the states’ total budgetary spending on education. After the 14th Finance Commission’s (FC) recommendations, along with a larger devolution of untied resources from Centre to states, the burden of education financing has also shifted more towards states and many states have actually stepped up investment on education

A series of new policy suggestions by the committee like extension of RTE Act, 2009 to all children between the ages of three and 18, expansion of mid-day Meal till Class 12, and a high quality four-year integrated B.Ed programme would need more human resources to be in place and that requires substantial amount of additional resources both from Centre and states. But the question is how the additional burden is going to be distributed between Centre and states.

In 2015, the Sub-Group of Chief Ministers on Rationalisation of Centrally Sponsored Schemes had recommended that after the 12th Five Year plan period, Centre’s allocation share for salary and remuneration would not change further and any upward revision of remuneration or additional hiring would be made only with  states own resources. The draft policy also states that it is the state governments who will prioritise funding to ensure the required number of teachers in individual schools and school complexes. There is a high possibility that in the new policy regime, states would not agree to bear the additional cost of salaries. In that case, what would be the cost sharing model for recruiting human resources? 

Also read: The ‘Liberal’ Education Envisaged by the Draft NEP Has No Role for Dissent

Unfortunately, the draft NEP does not deal with any of these fundamental questions. In fact, the discussion on Centre-state resource sharing for education is very limited in the policy document. 

Suggested alternative fund sources needs concrete roadmap

To supplement government spending on education, the draft NEP has suggested alternative avenues of investment through Corporate Social Responsibility (CSR) efforts and philanthropic initiatives by individuals, corporations and communities. The policy has also suggested four key areas: scholarship, infrastructure, teacher development and teacher recruitment, where the funds collected from these alternative sources can be channelised. 

CSR in India has witnessed a surge in education spending over the last five years. However, given the scale of requirement, the current fund allocation in education through CSR is miniscule. For example, in 2016-17, the total fund flow through CSR activities in education was 7% of the total MHRD expenditure and a negligible 0.033% of the country’s GDP

Suggestion of resource generation through mandated CSR contribution by Public Sector Undertakings (PSUs) in the current scenario reflects a disconnect between the policy prescription and policy action. A large number of PSUs (especially in states) are either getting closed or being privatised apparently because of their financial and operational inefficiencies

The policy identified the need for providing tax incentives to encourage individuals and companies for philanthropic activities. Literature shows that ‘tax treatment of donations’ can be a significant factor to countries in philanthropic giving. It is true that tax incentives do not necessarily produce an urge to give, but can make contributions towards social development more persuasive. However, other than a mention, the draft NEP does not provide any concrete suggestion on this front. Without a strategic roadmap, banking on PSUs, CSR activities or philanthropic funding would not lead to desired results. 

Policy suggestions lack nuance

For ensuring inclusive education, the draft NEP has offered some innovative policy measures like creation of National Scholarship Fund for underrepresented groups; Gender-Inclusion Funds to provide quality and equitable education for all girls; targeted funding and support for inclusion and access to districts and institutions and special fund for children with disabilities. However, many of these interventions are already in operation at state level in one form or the other.

The proposal of establishing a National Education Commission as an apex body of education is fraught with complexities. Photo: Think/Institute of Economic Affairs

Thus, it is not clear from the draft what ‘new’ aspects are being proposed or what would happen to the existing interventions.

There are some other recommendations in the draft policy which demand a discussion. The suggested roadmap for distribution of additional 10% resources across components indicates a financing priority towards higher education, which is a welcome step. However, the approximate distribution pattern suggested in the document reflects a lowest resource need for colleges (Type 3), as compared to the other two types of higher educational institutes – research institutes (Type 1) and teaching universities (Type 2) proposed under the new institutional architecture for higher education.

While the Type 3 institutions serve the largest number of students, the resource support from the government is lowest for these types of institutions. In an already unequal higher education system, this duality of funding among higher educational institutions will sow the seeds of inequality within the system

Promotion of research in the higher education institutions through National Research Foundation (NRF) is another praiseworthy intervention suggested in the draft NEP. The policy strongly opines for complete academic, administrative and financial autonomy to all public institutions to unleash their full potential. However, the proposal of establishing a National Education Commission (Rashtriya Shiksha Aayog) as an apex body of the Indian education, with the prime minister as the chair of it, which will have the power to review the budgets would make it impossible to ensure autonomy. Rather, it should keep open the possibility for government control just as is the case now.

On the whole, in the context of financing the draft NEP perhaps lacks vision to bring about substantive change. Though, the mapping of issues is done right but some of its recommendations seem to be superficial. It gives the impression that the committee somewhere was not inclined to link the education policy with the fiscal policy of the country. Probably, that is why the financing section is a supplement and not a part of the main policy document. Since the draft policy is in its inception stage, it would be expected that, the policy will go through many more consultations at various levels before getting finalised.

Protiva Kundu is additional coordinator of research at the Centre for Budget and Governance Accountability. Views are personal.