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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 Session
On

“MODELLING MICRO-MACRO INTERDEPENDENCIES


IN INPUT OUTPUT FRAMEWORK”

Sixteenth International
Input Output Conference

At
Istanbul Technical University, Istanbul
(Turkey)
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2-7 July, 2007

THE RELATIONSHIP BETWEEN PUBLIC EXPENDITURE AND


STATUS 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 Shiksha
Abhiyan (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:

X = ( I − A) −1 f ………………………….. (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 n

TRLE = ∑ Vi Ai j + ∑ V j A ji  ……………………… (2)
 i =1 i =1 

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 ∑∑V


j i
i Aij

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 the
central 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 three
groups, 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 service
sector, 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 (Shri
Prakash, 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 (I–A)-1 is the matrix of total input requirements and is a regular


matrix.

Table 1 : The plan expenditure on education


Primary Secondary Tertiary
Constant
Periods Education Education Education
C
(x1) (x2) (x3)
1st (1951-52
383.03 162.3 146.72 95
to 1965-66)
2nd (1969-70
1402.9 840.39 1067.49 80
to 1984-85)
3rd (1986-87
39350.8 16820.46 7289.74 15
to 2001-02)
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According to the input-output matrix format.


L
M
383.03 1623. 146.72 O
P
A = M 1402.9 840.39 1067.49 P
M
M P
P
N39350 .8 16820 .46 7289 .74 Q
L
M
1 0 0O L383.03
P M
1623. 146.72 O
P
I−A=M0 1 0P− M 1402.9 840.39 1067.49 P
M
M P
P M
M P
P
N Q N
0 0 1 39350 .8 16820 .46 7289 .74 Q
L
M
−382.03 −1623 . −146.72 O
P
I−A = M −1402.9 −839.39 −1067.49P
M
M P
P
N− 39350 .8 − 16820 .46 − 7288 .74 Q
L
M
382.03 1623
. 146.72 O
P L
M
382.03 1623
. 146.72 O
P
− M
bg 1067.49 P= − M 1067.49 P
3
I−A = 1402.9 839.39 1402.9 839.39
M
M P M P
N
39350.8 16820.46 7288.74PQ M N
39350.8 16820.46 7288.74PQ
839.39 1067.49 1402.9 1067.49
I−A = b
382.03g16820.46 7288.74
− 1623
.
39350.8 7288.74

1402.9 839.39
+146.72
39350.8 16820.46

= − 748264615 ≠ 0

L
M839.39 1067.49 1402.9 1067.49 1402.9 839.39 O
P

M
16820.46 7288.74 39350.8 7288.74 39350.8 16820.46 P
M P
M
3 M
1623. 146.72 382.03 146.72 382.03 1623
. P
P
bI − Agij = bg

M −
39350.8 16820.46 P
M
16820.46 7288.74 39350.8 7288.74
M P
P
M
M
1623
. 146.72

382.03 146.72 382.03 1623
. P
P
M
N839.39 1067.49 1402.9 1067.49 1402.9 839.39 P Q
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L
M
−11837577.38 3178121214 . −9433244.68O
P
− M
bI − Agij = bg 1284935.389 −2989032.034 −39285.494 P
3
M
M P
P
N 50098 . 3263 − 201979 .7167 929814917
. Q
L
M
−11837577.38 1284935.389 50098.3262 O
P
− M
bI − Agji = bg 3178121214 . −2989032.034 201979.7167P
M
M P
P
N 9433244 .68 − 39285 .494 929814917
. Q
L
M
−11837577.38 1284935.389 50098.3262 O
P
bI − Ag−1 = + 7482645161
M
M 3178121214 . −2989032.034 −201979.7167P
P
M
N−9433244.68 −39285.494 929814917 . P
Q
L
M
−0.015820041 171722057 . 6.69526852 O
P
= +M 0.042473226 −3.994618981 −2.699308676P
M
M P
P
N− 0 .012606829 − 5 .250214057 1242628474
. Q
L
M
−0.015820041 171722057 . 6.69526852 O L
P M
95O
P
bI − Ag−1 = + MM 0.042473226 −3.994618981 −2.699308676P M
P M80P
P
M
N−0.012606829 −5.250214057 1242628474 . P
QN M
15 P
Q
L
M
−0.015 1717. 6.695 O L
P M
95O
P
=+M 0.042 3.994 2.699 P M 80P
M
M P
P M P
N − 0.012 5.250 − 1242
. Q NP
M 15 Q
L
M
236.36 O
= +M356.015P P
M
N40251 . P Q
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
Pattern of
Input-
I II III C expenditure
output
on education
I 383.03 x 162.3 x 146.72 x 95 236.36
236.36 356.015 402.51
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=90532.9708 =57791.2345 =59056.2672


840.39 x 1067.49 x
1402.9 x
356.015 402.51
II 236.36 80 356.015
=299191.445 =429675.399
=331589.444
9 9
39350.8 x 16820.46 x 7289.74 x
236.36 356.015 402.51
III 15 402.51
=9300955.08 =5988336.06 =2934193,24
8 7 7

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 IEA
at Kurukshetra Univ.
12

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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