new chapter v role of public finance in school education...

CHAPTER v

Role of Public Finance in School Education Progress

V.l SOURCE OF FINANCE

In Chapter III, an analysis was made of interdistrict variations in development

in the state of Andhra Pradesh. In the previous chapter an attempt was made to

analyse inter-district variations in economic and educational development and

followed by the analysis of the process of financing education in the state. In

this chapter we examine the role of financing of education in the state since

1956 in order to draw inferences about the distribution of educational finances

and development of education.

Allocation of adequate resources is a prerequisite for the successful

implementation of any programme. Most states have a system of financing of

school education through a mix of public and private funds. The degree of cost

burden shared by each party, however, differs from state to state, within a state

among districts, and within a district over time at different levels of education.

Extreme cases where education is financed wholly by either the government or

the students (by their families), are very rare. The bulk of educational activities

in the state of Andhra Pradesh are financed jointly. The multi-source finance

system of education, as it has grown in the state, can be attributed more to

historical reasons than economic factors.

The main sources of educational finance in Andhra Pradesh are:

ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 97

• Government-Central and State and local bodies

• Private

• Students (or their families) tuition fees

• Endowments and

• Other sources-fines, special levies, etc.

The relative importance of tnese sources has undergone a major change

during the last few decades. Educational institutions managed by the central

government are very few in Andhra Pradesh and, hence, the financing of

education in the state by the central government is indirect. The assistance

made available by the Centre is very limited and it takes the form of grants-in

aid to the state government. Though education has been included in the

concurrent list vide the forty-second amendment to the Constitution, it is still

mainly the responsibility of state governments, particularly at the lower levels

of the educational ladder.

A major part of the public funds towards education comes from the

state government, which disburses these funds to various educational institutions

through its various agencies. The expenditure on Direction and Inspection is

fully borne by the state government. A significant part of the state funds marked

for education relate to scholarships, fee concession and other direct financial

assistance to students. The government's total expenditure on education was

almost one-fifth of the whole state budget in 197 6-77, Rs. 218 crore by 1990-

91 and Rs. 1090 crore by 1995-96. The financing of education may thus be

seen to have kept pace with the increase in enrolment at all levels of education

that has taken place in the state. But the growth is unequal. It may even be that

the financing system itself is contributing to the inequalities. This particular

issue will be discussed in the following chapters.

The quantitative expansion in educational facilities discussed in the

previous sections could not have been possible but for the massive support to


education extended by the state government. Its responsibility in meeting the

rising educational costs is, however, increasing over the years. Also, the efforts

are not the same in all districts, considering that the districts show variations in

development.

The growth of the state's education budget during the period 1956-57

and 1995-96 is summarized in Table V.I. It should be kept in mind that the

figures relate to revenue account only; capital expenditure forms only an

insignificant part of the total capital expenditure and is not considered here.

Again, the education budget includes only the expenditure incurred by the

Education Department and excludes the expenditure on education made by

other departments. At the same time, the education budget includes expenditure

on items which are only remotely connected with education. But the expenditure

on these items is insignificant when compared to the total education budget.

Because of the difficulties in the calculation of total budgeted expenditure on

education, we have confined our analysis in this section to the education budget

of the Education Department on revenue account only.

It is seen from Table V.1, which presents the sectoral distribution of

education budget for the period 1956-57 to 1996-97, that the education budget

has increased a great deal over the decades. At current prices, it has shown an

annual growth rate of 15.5 per cent. (see Figure V.1).

The proportion of education budget to the total revenue budget of the

state government varied between 18.7 per cent and 23.0 per cent between 1956-

57 and 1980-81. It was 40.01 per cent in 1995-96. Nearly 3 to 6 per cent of the

total revenue budget, not included here, was spent on education by other

departments. If this is taken into account, the recommendation of the Education

Commission to spend 25 per cent of the total revenue budget of a state

government on education has been nearly fulfilled in Andhra Pradesh.

Public expenditure on education influences the levels of living and this

influence is rising gradually over the years. We have seen that despite its rising

80

' • ' •

60

40

20

Fig. V. I ANDHRA PRADESH

SECTORAL DISTRIBUTION OF EDUCATION BUDGET (Revenue Account)

•

' • ' • ' .

0~-----------------.--------~------------------_/

1956-57 1960-61 1970-71 1980-81 1990-91 1995-96

YEARS


Table V.I. Sectoral Distribution of Education Budget (Revenue Account)

Year Elementary Secondary Population Total(%)

1956-57 75.30 24.70 100

1960-61 50.89 49.10 35983447 100

1965-66 28.42 71.57 100

1970-71 23.42 76.57 43502708 100

1975-76 28.97 71.03 100

1980-81 34.12 65.87 53549673 100

1990-91 34.59 65.40 66508008 100

1995-96 40.01 60.01 100

Sources: Govt. of Andhra Pradesh, Budget Reports of A.P. (for the years 1956-57 to 1967-68).

Govt. of Andhra Pradesh, Selected Educational Statistics, 1997-98.

Govt. of Explanatory Memorandum on the Budget for 1982-83 (Hyderabad, 1982) .

. Govt. of India, Ministry of Education, Trends of Expenditure on Education, 1968-69 to

1978-79 (New Delhi, 1980).

Govt. of India, Ministry of Education, Trends of Expenditure on Education ( 1993), Allied

Educational Statistics.

trend the amount of financial resources invested in education is meagre when

compared to the needs as the population has more than doubled. More important,

even these meagre resources are misallocated. To a certain extent, allocation of

resources among different layers of the education system and among different

districts is responsible for imbalances in educational development among levels.

In the next section we examine how the state funds are contributed to develop

different levels of education.

V2 ROLE OF STATE FINANCES IN DEVELOPMENT OF ELEMENTARY EDUCATION

The state government's education budget, which was only Rs. 7.1 crore at'the

beginning has increased to about Rs. 1,883.3 crore in 1995-96, showing an

annual growth rate of 16 per cent. However, when allowance is made for

inflationary pressures, it has grown at 8.5 per cent in real terms. As the education

budget increased faster than the population the per capita education budget

increased from Rs. 2.22 in 1956-57 to Rs. 335 in 1995-96. As a proportion of


total revenue budget, the education budget share varied between 17.3 per cent

and 23 per cent between 1956-57 and 1995-96.

The allocations to elementary education have increased from Rs. 5.7

crore iii 1956-57 to Rs. 737.9 crore in the current budget ( 1997-98). As a

proportion of total education budget, it declined from about 56 per cent in

1956-57 to 39.2 per cent in 1995-96. A study by K.N. Reddy (1992) reveals

that there has been a decline in the growth rate in the last decade.

Since the formation of the state in 1956 the finances available to

elementary education have increased significantly. The expenditure on elementary

schools increased from Rs. 660 lakh in 1956-57 toRs. 674.55 crore by 1995-

96, at an average annual growth rate of 12,97 per cent. The expenditure figures

presented here do not include expenditure on elementary education incurred in

secondary schools. In real and per capita terms, the expenditure growth is nominal

due to inflation and population growth.

Change in the relative importance of different sources of financing

primary education, as shown in Table V.2, points the increase in the government's

responsibility as against a decline of private sources. From about 77 per cent in

1956-57, the share of government in financing primary education increased to

98 per cent with a slight decline in 1995-96 (89 per cent). If local bodies are

considered as a part of the government, then a very small proportion of funds to

elementary education came from non-governmental sources. The state

Table V.2. Expenditure on Elementary Schools by Source 1956-57 to 1995-96 (%)

Year Government Local Bodies Fees Endowment Total

1956-57 77.5 19.6 1.1 1.8 100

1970-71 98.2 0.5 0.6 0.7 100

1980-81 97.5 0.1 1.6 0.8 100

1995-96 88.5 6.2 3.7 1.6 100

Source: Govt. of India.

Calculated on the basis of information from the Directorate of School Education Andhra Pradesh.

Fig. V. 2 ANDHRA PRADESH

EXPENDITURE ON ELEMENTARY SCHOOLS BY SOURCE 1956-57 AND 1995-96 (in%)

~

rnrrn ffiilll ..

1956-57

GOVERNMENT SCHOOL

LOCAL BODIES SCHIOOL

FEES

ENDOWMENT

1995-96

ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION IUJ

government assumed the main responsibility of funding elementary education

in the state vis-a-vis the central government (see Figure V.2).

The central government's direct involvement in financing primary

education is extremely limited, there being very few schools under central

government management in the state. The central government finances

elementary education in the state indirectly through funding centrally sponsored

schemes like Operation Black Board (OBB) and Non-Formal Education (NFE).

Further, it funds elementary education through the Finance Commission and

the Planning Commission. Though the extent of the central government's role

is difficult to assess, as far as funding of elementary education in the state is

concerned, it is very limited.

Among all the sources of funding elementary education, the state

government emerged as the single largest source. The contribution of this source

has been increasing both in absolute terms and as a proportion of total expenditure

on elementary education. At the time of state formation about 75 per cent of

direct expenditure on elementary schools was met by the state government. By

1995-96 it increased to 89 per cent. Of the total 49,247 elementary schools in

the state only 3,493 schools were under the management of the state government

in 1995-96. For the rest of the schools under local bodies and private agencies

it provides grants-in-aid.

Local bodies play an important role in decentralizing education,

particularly primary and elementary education. There is a considerable increase

in the responsibility of the local bodies in the management of elementary schools.

In the ea~Jy 1960s about 45 per cent of the state government schools and 79 per

cent of private schools were transferred to local bodies. At present, 86 per cent

of the schools are under its management.

Earlier, the efforts to mobilize local manpower and other resources were

discouraged by rigid rules and regulations. Now again there is a call for ·

strengthening of local bodies. The 73rd Constitution Amendment specifically


transferred education, including primary education to local bodies with a view

to strengthening and involving local participation in the development of basic

education.

Before the enactment of the Compulsory Elementary Education Act of

1961, local bodies contributed about 20 per cent of the expenditure on elementary

education. The Act has relieved them of this financial burden.

Local bodies do contribute to elementary education out of funds raised

through property tax, and in urban areas, the education cess. The state government

also collects an education cess on behalf of local bodies along with land revenue

in rural areas. The revenue from education cess is intended to meet the

expenditure on elementary education run by Mandai Praja Parishad. But the

amount of local finances used for education is negligible, and a major part of

finance for elementary schools under the management of local bodies comes in

the form of grants-in aid from the state government.

It is argued that state governments have not given enough autonomy to

local bodies in the management and financing of elementary education (Narain

1976).

In the private sector, there are three types of schools in the state, i.e.

private aided, private unaided and private unrecognized. For private aided

schools, which are about 5 per cent of elementary schools, the state government

grants are the main source of funding. Private unaided schools account for

about another 5 per cent and their main source of funding are donations and

fees. For the unrecognized schools, which are on the rise, tuition fees form the

main source of income.

Endowments and other sources in cash or kind are an important source

of income for some schools. This source mainly caters for non-recurring costs

like buildings, equipment, etc. Land, buildings, furniture and physical labour in

the construction of school buildings form in-kind contributions. These

contributions do not figure in the official statistics.


The resources devoted to elementary education by the private sector are

not reflected fully in the official statistics on educational finance, particularly

the contribution of the household sector. Parents incur some expenditure in

schooling their children. They have to pay school fees in private unaided schools.

Even though secondary education is free in aided schools, books and stationery,

uniforms and other items, and in urban areas transport is paid for by the child's

parents. The expenditure thus incurred~ b_y _the _narents differs considerably

between government and private schools and between rural and urban areas. It

also varies according to the economic position of the parents, the annual

expenditure per student in elementary education ranging between Rs. 299 and

Rs. 1,218 (see Shiva Reddy 1992). Poor households have to spend about 15 per

cent of their income on primary education of a child as compared to only 8 per

cent spent by the upper income groups.

V.3 PROBLEMS AND PROSPECTS

Despite four decades of planned development India continues to grapple with

the problem of universal elementary education. The state of Andhra Pradesh

lags far behind even the national average. Even though significant progress has

been made in the enrolment of children in the age group 6-13 years, about four

million children still need to be introduced to education. To provide them

schooling is a stupendous task. Since these children belong to the weaker

sections, some incentives are needed to bring them to school. A closely related

problem is the waste and stagnation. About 56 per cent of students in the state

failed to complete primary education in 1994-95. The corresponding figure for

those not completing the upper primary stage was 67 per cent. The non-enrolment

and drop-out problem is closely related to the problem of child labour.

The most important factor for the state's poor performance is the

inadequacy of critical inputs. Even where the inputs are available, their quality

is often below par. Many primary schools lack basic teaching and non-teaching

inputs. Despite several programmes like Operation Black Board and Andhra


Pradesh Primary Education Project, (APPEP), schools without enough teachers,

proper classrooms, black-boards and other basic facilities are more common in

the state, particularly in rural areas where the majority of the non-attending

children live. To achieve universal elementary education, the resource

requirements are much more than are possible from the available sources.

In recent years the state government, which had a revenue surplus till

the early 1980s, has been facing widening fiscal imbalances (Sharma and Sridevi

1994 ). In the current year the deficit is estimated to be Rs. 714 crore, accounting

for about one per cent of the state domestic product.

The lingering revenue deficit may compel the state government to borrow

to finance even the revenue expenditure. There has been a rise in the fiscal

deficit more for debt servicing rather than to finance new (capital) expenditure

commitments. The borrowings from foreign sources (both bilateral and

multilateral) are increasing. Unless corrective measures are taken it is speculated

that the state may head for a debt trap.

The fiscal deterioration adversely affects education in general and

elementary education in particular. It relates to both Plan and non-Plan ~

expenditure and revenue and capital expenditure on education, disturbing the

regular flow of grants-in-aid (both teaching and non-teaching) to schools

managed by local bodies and the private sector. Non-teaching grants (called

maintenance grants) were reduced in the recent past. Even the reduced amount

is reportedly not being paid to many schools in the last few years. The result is

that one observes higher salaries for the teachers combined with poor

infrastructural facilities and poor maintenance of existing infrastructure.

The inadequacies of the state government in sustaining educational

development are reflected in the allocation of Eighth Plan funds to education.

The gap between what is recommended by the Expert Group and what is finally

approved by the Planning Commission is unacceptably wide. Since there is a


cut in the allocation by Rs. 651 crore in the current Plan, primary education

may have its own share in the cut.

External aid component accounts for about one-third of the Rs. 284

crore allocated to primary education in the Eighth Plan. The Canadian

Development Agency funded the APPEP project and is now funding the DPEP

project.

It is estimated that the state government requires Rs. 4,037 crore during

1995-2000 to meet non-Plan expenditure commitments. In the current budget

only Rs. 612.3 crore were allocated as against the required amount of Rs. 688.7

crore, leaving a gap of Rs. 76.4 crore. The government did not extend the

enhanced dearness allowance to employees of aided schools, colleges and

universities mainly due to the financial crisis.

Under the circumstances there is a need to have an earmarked tax to

finance elementary education since soft sectors like education (and primary

education within education) suffer most whenever there is a financial crisis. At

present education cess is the only tax earmarked for financing elementary

education, which gives negligible revenue. To increase this revenue, the

feasibility of widening the base may be examined.

Raising of resources from non-governmental sources, though desirable,

is equally difficult, particularly in the short run. Local community involvement

in the management and financing of primary education has been emphasized

recently. As matters stand, the local community is not happy with the state of

primary education and hence, is reluctant to participate actively. Unless school

conditions improve the community will not come forward and unless the

community comes forward the school environment will not improve. Only in

the long run one may look forward to active community participation in the

management and financing of primary education.

Provision of free primary education is government responsibility. Since


it is not advisable to charge to children in primary schools, there is no question

of raising resources through tuition and other fees in aided institutions.

Strengthening of the private sector in the development of elementary education

is another measure. Government can streamline and encourage this sector to

grow systematically to meet the demands of those who can afford to pay for

education. The government of Andhra Pradesh is now following a liberal policy

towards the private sector, allowing it to fix tuition fees and salaries. Once the

private sector takes care of those who can afford to pay for education, the state

government can concentrate on the education of the poor and weaker sections.

Though it may be good to encourage the private sector in the short term, as a

long-term measure it may generate inequalities unless the quality of education

is the same in both private and public schools. Needless to say, the private

sector is growing as a result of the low quality of education imparted in primary

schools funded by the state government.

V.4 SUMMARY

All the three components of universal elementary education-universal access

and enrolment, universal retention, minimum levels of learning, need

improvement in Andhra Pradesh. At the same time, both quantitative and

qualitative improvements need additional resources. Hitherto, the state

government has borne the major share of the burden. But the state is not in a

position to bear any additional burden.

Available resources need to be put to optimum use by selecting the most

cost-effective strategies. Elementary education becomes cost-effective only when

the minimum of all the basic inputs are ensured in all the schools. Even these

cost-effectiveness measures, however, require mobilization of additional

resources on a large scale.

Raising resources from the community may be a difficult task at first,

unless the school becomes attractive both to the child and the parent.


Strengthening the private sector and strengthening the base of education cess

are two options that need to be examined.

V.S FINANCING OF SECONDARY EDUCATION

As a result of several efforts, the state has progressed rapidly in the four decades

in secondary education. The number of institutions at the secondary stage have

increased by 6.3 per cent per annum as compared to 1.7 per cent for elementary

schools. The progress of secondary education was facilitated by the massive

support extended by the government through policy formulation and financing.

The changes in the relative importance of different sources of financing secondary

schools between 1956-57 and 1995-96 are presented Table V.3 (see Figure

V.3). The table indicates that the share of government expenditure on secondary

schools increased from about 45 per cent of the total expenditure in 1956-57 to

72 per cent in 1965-66 and to 93 per cent by 197 5-7 6. Due to some changes in

the classification of educational expenditure and lack of comparable data, we

have not been able to assess the exact situation. However, the sources of total

expenditure on secondary education suggest that there has been some reduction

in the public sector share in recent years. Local bodies, which manage a

significant number of secondary schools, do not in fact finance secondary edu

cation from their own funds. In 1995-96 the share of local bodies was as high

as 30 per cent, which does not really mean they financed it from their funds.

This reflects more an accounting procedure rather than the actual role of local

bodies in financing secondary education, since the figures include transfer of

resources from the state government.

The share of fees, which used to be an important private soui-ce of

financing secondary education, has been declining over the years, from about

32.3 per cent in 1956-56 to 9.5 per cent by 1995-96, though in the last few

years there has been some increase in the contribution of fees due to the rise in

the number of private schools. The share from endowments and other sources

has also declined from 7.9 per cent in 1956-57 to 2.3 per cent in 1995-96.

Fig. V.3 ANDHRA PRADESH

SOURCE OF FINANCES TO SECONDARY SCHOOLS 1956-57 AND 1995-96 (in%)

1956-57

mi GOVERNMENT FUND

[I]]]] LOCAL BODIES

t~~~~~~ FEES

.. ENDOWMENTS

1995-96


Table V.3. Source of Finances of Secondary Schools

Year Government Local Bodies Fees Endowments Total

1956-57- 44.8 15.0 32.2 7.9 100 1965-66 50.6 12.8 30.0 6.6 100 1975-76 92.5 N.A. N.A. N.A. 100 1995-96 58.0 29.8 9.5 2.3 100

Source: Govt. of Andhra Pradesh, unpublished documents, 1997.

The state government expenditure on secondary education increased

from Rs.l.85 crore in 1956-57 toRs. 539.59 crore by 1995-96, registering an

annual growth rate of 15.7 per cent (see Table V.4). However, in real terms the

expenditure grew by 6.8 per cent only. As a share of education budget, the

expenditure on secondary education increased from 18 per cent in 1956-57 to

35 per cent by 1964-67, thereafter declining to 28 per cent by 1995-96. We

might surmise that the importance given to secondary education increased during

the initial stages and maintained at that level thereafter.

Expenditure on education is classified into Plan and non-Plan expend

iture. Plan expenditure is generally increased in the further development of

education, including a marginal expansion of the system. It includes activities

such as construction of new buildings, recruitment of new teachers, facilities

for new enrolment, expenditure on innovations, etc. Non-Plan expenditure, on

the other hand, is meant for maintaining the existing structure (Tilak 1987).

The Plan and non-Plan composition of expenditure on secondary

education in Andhra Pradesh suggests that resources are essentially used for the

maintenance of the existing infrastructure (see Table V.5 and Figure V.4). The '

data show that the Plan expenditure has been negligible, ranging between one

per cent in 1968-69 and ten per cent during 1995-96. This is more than 90 per

cent of the total non-Plan expenditure.

At the same time, a greater growth on expenditure of secondary education

is indicated, but a slower growth in comparison to the other levels of education.

The state of Andhra Pradesh has been spending a small percentage of its revenue

Fig. V.4 ANDHRA PRADESH

PLAN AND NON-PLAN EXPENDITURE ON SECONDARY EDUCATION (in Percentage)

1975-76

~PLAN

[[[[)] NON-PLAN

1985-86

1995-96


Table V.4. Government Expenditure on Secondary Education

Year %of Education Budget

1956-57 18.0 1960-61 25.3 1970-71 33.1 1980-81 29.5 1990-91 28.2 1995-96 28.0

budget for education, as compared to other sectors, but the expenditure on

secondary education was found to have been increasing much faster than the

state's net domestic product and also its expenditure in general education. The

state government was found to be providing increasingly larger assistance for

recurring expenditure, such as salaries, but educational infrastructure facilities,

like school buildings and libraries, did not receive adequate support from the

state grant. It is interesting to note that though the expenditure on buildings

from the non-recurring budget has increased, that on libraries in the secondary

schools has been declining. It was also found that financial resources were

allocated largely to meet the need for quantitative expansion and very little

attention was paid to qualitative improvement. In non-recurring activities like

developing the infrastructure, private endowment seems to have taken the

initiative to finance it. However, the grant-in-aid system based on the deficit

Table V.5. Plan and Non-Plan Expenditure on Secondary Education(%)

Year Plan Non-Plan Total

1968-69 2.93 97.03 100 1970-71 3.21 96.79 100 1975-76 2.86 97.14 100 1980-81 1.04 98.96 100 1985-86 5.75 94.25 100 1990-91 2.78 97.22 100 1995-96 7.62 92.38 100

Source: Documents from Government of India ( 1995) and Andhra Pradesh.

ROLE OF PUBLIC FrNANCE IN SCHOOL EDUCATION 114

principle has a built-in mechanism for mobilization of resources from the private

sector for meeting recurring needs, which fails in mobilizing resources from

the community.

In such circumstances alternative strategies and new approaches need to

be thought of and brought to light so that the growth of education is not hampered

merely because of the improper allocation policy or inadequacy of funds.

The Government always faces the question how to extend its efforts in

providing education to the backward regions and increase its quality. One option

is to diversity the sources of educational finance by encouraging local groups

and the lower levels of government to contribute and to decentralize authority

and control. The present study is concerned with the need of diversification of

funds for the deprived districts in quantity and quality and decentralization of

powers to the lower levels of government. The operation of such a system, it is

expected, will be non-problematic and reduce inequalities. In the following

chapter the role of financing in terms of equalization among the districts of

Andhra Pradesh is discussed in greater detail.

V.6 SUMMARY

This chapter attempted to examine the pattern of educational finance in Andhra

pradesh since 1956. This discussion centred around how much the state is

spending on education on what level of education.

There has been an increase in the resources allocated to education since

1956. But this increase is not sufficient to reach the level of equality.

A major part of the expenditure is financed from public funds at all

levels On lower level of education almost the entire expenditure is met from

government expenditure. Government expenditure shows a sharp increase since

1956. Fees and other sources of educational finance underwent diminution.

The allocation of resources among different levels of education exhibits

gross inequality. While the share of elementary education increased, the share


of secondary education decreased. The Plan allocation has also been declining.

Public expenditure on school education helped to reduce the inequalities among

districts and helped the underdeveloped districts.