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THE RELATIONSHIP BETWEEN PUBLIC

EXPENDITURE AND STATUS OF

EDUCATION IN INDIA: AN INPUT-OUTPUT

APPROACH

Paper to be Presented

At

Special SessionOn

MODELLING MICRO-MACRO INTERDEPENDENCIES

IN INPUT OUTPUT FRAMEWORK

Sixteenth InternationalInput Output Conference

At

Istanbul Technical University, Istanbul

(Turkey)


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2-7 July, 2007

THE RELATIONSHIP BETWEEN PUBLIC EXPENDITURE ANDSTATUS OF EDUCATION IN INDIA : AN INPUT-OUTPUT

APPROACH

Dr. Deepa Rawat* and Dr. S.S.S. Chauhan**

ABSTRACT

Education is the engine of economic growth and social change. It creates

motivation for progress and brings revolution in the ideas necessary for the progress of

the country. It is also one of the human rights set out in the U.N. Charter. Education not

only increases the economic returns but also has a significant effect on poverty, income

distribution, health, fertility, mortality, population growth and overall quality of human

life. In India the National Policy on Education (NPE) was set up in 1986 for the

eradication of illiteracy. The prime objective of this policy was to obtain universalisation

of elementary education. This is being achieved mainly with the help of government

programmes like District Primary Education Programme (DPEP) and Sarva ShikshaAbhiyan (SSA).

There are many educational indicators like literacy rate, gross enrollment ratio, net

enrollment ratio, drop out rate, gender disparities etc. As a result of growing awareness

and government efforts, literacy rate in India has increased from 18.3% in 1951 to 64.8%

in 2001. However the increase has not been as expected due to government apathy and

lack of political will. The growing need of education has been accompanied by a decline

in public spending on education per capita and a consequent fairly rapid privatization of

education. This has come about not only because of inadequate state expenditure and the

downgrading of many government educational institutions and their services, but also

because the hunger for education has made it an extremely profitable private sector

activity. As against the target of education expenditure at 6% of GDP by the NPE, the

combined expenditure on education by centre and state governments was 3.74% of GDP

in 2003-2004. But there is mutual relation between education and economy.

* Reader, Department of Economics, Agra College, Agra** Reader & Head, Department of Economics, Govt. Girls P.G. College, Sirsaganj,


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In this paper, an attempt is made to establish the relationship between the

government expenditure on education and the economy as a whole. A detailed input

output analysis is expected to draw the inference that unless the government increases its

total expenditure on education and ensures good quality education to the masses, India

cannot develop its human resource and fulfill its dream of becoming a super power by

2020.

Education economy interface with reference to public expenditure on education may be

captured by residentiary linkage effect of education. It is hypothesized that public

expenditure on education denotes public demand for education. We may use this as one

component of final demand vector to estimate the solution value of output vector X:

fAIX1

)( = .. (1)

Where on e element of the demand vector f is public expenditure on education. Besides,

the Residentiary Linkage Effect may be estimated as follows (See Prakash, 1991)

+= = =n

i

n

ijijjii AVAVTRLE

1 1 (2)

Where Vj value-added per unit of final demand for jth good, and A ij and Aji are elements

Leontief Inverse. Let j-denote education sector

For relative effect R.H.S. of 2 may be divided by j i

iji AV

Introduction

Economic development of any country necessitates economic

resources and human resources. Thus, human development for an

economy is a vital necessity. A basic component of human

development is education. It captures capability of acquiring

knowledge, communication and participation in community life.

According to Human Development Report (1993), literacy is a person's

first step in learning and knowledge building and as a result literacy

indicators are essential for any measurement of human development.


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Education holds the key to progress for any inclusionary society and

the government, acting as an instrument in providing education bears

an important responsibility. In India, education has been put on

concurrent list of VIIth schedule of the constitution. Although thecentral government plays a key role in the development and

monitoring of educational policies and programmes like the National

Policy on Education (1986), the state government bears the

responsibility of implementation of these policies. Through the National

Policy on Education and several measures subsequently taken by the

Government especially through the 83rd and 86th amendments of the

constitution, now education has been declared as a fundamental right.

The primary objective of the National Policy is to obtain universalisation

of elementary education through programmes like District Primary

Education Programme (DPEP) 1997 and Sarva Shiksha Abhiyan (SSA)

launched in 2001.

The concept of the national system of education implies that up

to a given level, all students irrespective of caste, sex or location, have

access to education of a comparable quality. It envisages a common

educational structure of 10+2+3 for all parts of the country. There are

many educational indicators : literacy rate, enrollment rate, drop-out

rate etc. by which the quantity and quality of education can be

determined.

Ever since the commencement of economic planning in 1951-52,

the education sector has remained the priority sector of the central as

well as the state governments. The inter-se priorities on and off have

been changed as reflected in the expenditure pattern of the last fifty

years. In the first plan, top priority was given to elementary education,

keeping the secondary education at the back burner, the situation

changed during the second and third five year plan, when the higher

education and technical education got prominence, the pattern of

public expenditure remained almost same during IV, V, VI and VII Five

Year Plan. The primary education again came into prominence during


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VIII, IX and X Five Year Plan because of high spending on programmes

like the mid-day meal scheme.

Quantitatively, the Indian education system, might have

achieved some milestones but qualitatively it lacks far behind on the

international arena. The Indian engineers, doctors, managers and

scientists have proved their worth throughout the world but how

unfortunate is this, that, none of the Indian universities or the research

institutes could find a place in the top fifty universities or institutes

(Basu, 2006).

It is a matter of common knowledge that primary education acts

as a resource for secondary education, which in turn acts as a resource

for higher and technical education. Thus, all the three sectors along

with the technical education create the final demand for and output of

education for the country as a whole. Very few studies have been

taken up so far to analyse the development of education system of

India on the basis of input-output (IO) technique. The present paper

"The relationship between public expenditure and status of

education in India : An input-output approach" tries to analyse

the outcome of public spending on education and focuses on the

development of alternate future strategy for the development of

education in the country, keeping in view the requirements of various

sectors of the economy.

Assumptions :

The study is based on the following assumptions :

1. The proportion of the population of the cohort group of primary

education (+6 to 14), secondary education (+14 to +18) and

higher education (18 to 28), is 95, 80, 15 per cent respectively.

These ratios will be used as gross enrollment ratios for each

group in the future.

2. The public expenditure means the expenditure of central

government including the UTs as well as state governments.


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3. Only the plan expenditure of centre and state governments has

been used.

4. The period of data is from 1951to 2001-2002.

5. The data of nine Five Year Plans has been clubbed into threegroups, merging the three consecutive Five Year Plans i.e. I, II &

III in the first group, IV, V & VI plan in second group and VII, VIII &

IX plan in third group.

Analysis :

Nowadays, primary education consumes nearly 57.05 per cent of

the total plan expenditure of the education sector. Leaving the 43 per

cent to other sectors. The programmes like the Sarva Siksha Abhiyan

are giving greater emphasis on universalization of primary education. If

we rely on the statistics of the government, then the gross enrollment

ratio for boys in primary schools is more than 100 per cent and for girls

it is around 84 per cent.As a whole the GER is around 95 per cent

(Government of India, 2001-02). Practically, this high enrollment ratio

does not reflect in the final pass out from class V, because the drop out

rate was as high as 39 per cent in 2001-02 (Bhat and Padder, 2006).

However, the proportion of public expenditure on education to GDP

started increasing around the mind 80's and there has also been an

improvement in the share of elementary education (Tyagi, 1993,

p.123).

The secondary education sector relies on the primary education

sector for the input and prepares students in the age group of 14 to 18,for entry into higher education as well as technical education. The

gross enrollment ratio in secondary education in the cohort age group

of 14 to 18 years was about 60 per cent in 2002-03 in general, but was

low for girls in particular. In contrast to this, the overall GER of this

group is 100 per cent in South Korea, 92 per cent in Sri Lanka and 78

per cent in Philippines. Moreover girls have not been discriminated in

these countries in respect of secondary education (Bhat and Padder,2006).


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The higher education plays a key role in the development of the

various sectors of the economy, by providing skilled manpower. The

status of university education in India is rather unsatisfactory. In view

of demand of highly qualified personnel in the industry and servicesector, the GER of the cohort group 18 to 24 years is at around 7 per

cent which is considerably lower for the Asia as a whole (11%) and

much lower than the OECD countries. Enrollment ratios vary across

Indian states, with the southern and western states faring better than

their eastern and northern counterparts (Chauhan, 2006).

Along with these statistics some eye opening facts remind us

about the poor state of education in India.

Just 200 million children enter primary school, 33 million

secondary school and 10 million into colleges, finally churning out 3

million graduates every year (Ravi Krishnan, 2006). It means just

one out of 66 students entering primary school goes on to graduate

level.

Nearly 10 million students pass their intermediate examination

every year and out of these only 8 million are fortunate enough to

get admission in a college or university.

India has one of the lowest public expenditure on higher

education per student in the world, at US$ 406 (GOI, 2005).

The share of higher education in total planned resources has

declined continuously since IV Five Year Plan.

India ranks as low as eighty first in the world in terms of

proportion of public expenditure on education to GDP (Jandhyala,

1993)

It is worth mentioning here that formal system of education and

training focuses only on high and middle/lower middle level of

manpower and it is extremely slow to respond to emerging manpower


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needs of the economy in the wake of technological upgradation of

production base, which necessitates new skills, occupation and

knowledge. Private initiatives of non-formal systems are not only

flexible but also fill up the gaps in the formal system timely (ShriPrakash, 2005).

Input-Output Model in Education Sector :

The input-output model as developed here is a matrix

representation of India's public expenditure on education, to predict

the effect of changes in one sector on others. Each column of the

model represents, the three sectors of education viz. primary,secondary and higher. Each row of the input-output matrix represents

the monetary value of the public expenditure on various sectors of

education during the plans.

The model starts with the basic concepts of Input-Output

framework of Leontief model. In mathematical terms, the structure of

the input-output model can be expressed as

X = AX + C .......(1)

The solution of (1) gives

X = (I A)-1C ...... (2)

where (IA)-1 is the matrix of total input requirements and is a regular

matrix.

Table 1 : The plan expenditure on education

PeriodsPrimary

Education(x1)

SecondaryEducation

(x2)

TertiaryEducation

(x3)

ConstantC

1st (1951-52to 1965-66)

383.03 162.3 146.72 95

2nd (1969-70to 1984-85)

1402.9 840.39 1067.49 80

3rd (1986-87to 2001-02)

39350.8 16820.46 7289.74 15


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According to the input-output matrix format.

A =

N

MMMM

38303 1623 14672

14029 84039 106749

393508 1682046 728974

. . .

. . .

. . .

I A =

N

MMMM Q

PPPP

N

MMMM

1 0 0

0 1 0

0 0 1

383 03 1623 146 72

1402 9 840 39 1067 49

393508 1682046 728974

. . .

. . .

. . .

I A =

N

M

MMM

38203 1623 14672

14029 83939 106749

39350 8 16820 46 7288 74

. . .

. . .

. . .

I A =

N

MMMM Q

PPPP=

N

MMMMbg3

382 03 1623 146 72

1402 9 839 39 1067 49

393508 1682046 7288 74

382 03 1623 146 72

1402 9 839 39 1067 49

39350 8 1682046 728874

. . .

. . .

. . .

. . .

. . .

. . .

I A = 3820383939 106749

1682046 728874

162314029 106749

39350 8 7288 74

.. .

. .

.. .

. .

b g

+1467214029 83939

393508 1682046.

. .

. .

= 748264615 0

I Aij

=

N

M

MMMMMMMMMM

b g bg3

83939 106749

1682046 728874

14029 106749

393508 728874

14029 83939

393508 1682046

1623 14672

1682046 728874

38203 146 72

393508 728874

38203 1623

393508 1682046

1623 14672

83939 106749

38203 146 72

14029 106749

38203 1623

14029 83939

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .


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I Aij

=

N

MMMMb g bg3

1183757738 3178121214 943324468

1284935389 2989032034 39285494

500983263 2019797167 929814917

. . .

. . .

. . .

I Aji

=

N

MMMMb g bg

1183757738 1284935 389 500983262

3178121214 2989032034 2019797167

9433244 68 39285494 929814917

. . .

. . .

. . .

I A = +

N

MMM

M

b g1 1748264516

1183757738 1284935389 500983262

3178121214 2989032034 2019797167

9433244 68 39285494 929814917

. . .

. . .

. . .

= +

N

MMMM

0 015820041 171722057 6 69526852

0 042473226 3 994618981 2 699308676

0 012606829 5 250214057 1242628474

. . .

. . .

. . .

I A = +

N

MM

MM Q

PP

PP N

MM

MM

b g10015820041 171722057 669526852

0042473226 3994618981 2699308676

0012606829 5250214057 1242628474

95

80

15

. . .

. . .

. . .

= +

N

MMMM Q

PPPP N

MMMM

0015 1717 6695

0 042 3 994 2 699

0 012 5 250 1 242

95

80

15

. . .

. . .

. . .

= +

N

MMM

23636

356015

40251

.

.

.

After the calculations the final input-output matrix that will be

formed where I, II and III represent primary, secondary and higher

education, respectively.

Input-output Table

Input-output

I II III CPattern of

expenditureon education

I 383.03 x236.36

162.3 x356.015

146.72 x402.51

95 236.36


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=90532.9708 =57791.2345 =59056.2672

II1402.9 x236.36

=331589.444

840.39 x356.015

=299191.4459

1067.49 x402.51

=429675.3999

80 356.015

III39350.8 x236.36

=9300955.088

16820.46 x356.015=5988336.06

7

7289.74 x402.51=2934193,24

7

15 402.51

Conclusion :

The pattern of growth of the education sector in India, based on

the assumption of the future requirements of the economy shows that

the higher expenditure on primary education does not fulfill the needs

of the economy as a whole. If, we want to develop the economy in the

new era of globalisation, then the public expenditure on secondary

education and on higher education must be increased. Unless the

expenditure on secondary and higher education is increased we cannot

produce the skilled manpower as per the requirements of the various

sectors of the economy especially the industrial and service sector. The

authors are of the view that the expansion of secondary and higher

education should not be brought about at the cost of reduction in

expenditure on primary education. Rather the allocation for secondary

and higher education should be increased proportionately. If public

expenditure on these two sectors of education remains short of the

requirements then the gap should be filled up by involving the private

sector with proper safe guards. The private sector in education should

not be allowed to function purely on profit making motives. Hence a

highly empowered regulatory framework is required to monitor the

working of the private sector in education.

References :

Basu Kaushik, 2006; India's Faltering Education System; BBC News,

http://newsvote. bbc.w.uk/mpapps/south-asia/4793311.stm.

Bhat, G.M. and Shabir, A. Padder; Status of Different Levels of

Education in India, Conference Volume, 89th

Conference of IEAat Kurukshetra Univ.


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Chauhan, S.S.S., 2006; Commercialisatin and Privatisation of Indian

Higher Education System. Seminar Proceedings of "Access and

Equity Vs. Quality and Relevance in Higher Education" At

Rampur India.

Government of India (2002); Selected Educational Statistics - 2001-02,

Ministry of HRD, New Delhi.

Government of India, 2005; Higher Education in India and GATS : An

Opportunity; Ministry of Commerce, Discussion paper.

Jandhyala, B.C. Tilak, 1993; "Costs and Financing of Education in India :

A Review of Issues, Problems and Prospects" (Mimeo), National

Institute of Educational Planning and Administration, New Delhi.

Krishanan Ravi, 2006; Young Millions, Missing Classrooms, The

Financial Express, Sept. 16, New Delhi.

Shri Prakash, 2005; Human Development Index in Input-Output

Framework : An Alternative Approach; Paper presented as 15th

International, 10 Conference Beijing, China, 27th June-1st July.

Tyagi, P.N., 1993; Education for All : A Graphic Presentation, New Delhi,

p.122.

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