Education financing

1. Why education financing is a social justice issue

Education produces both private returns, such as higher earnings, and social benefits, including better public health, democratic participation, productivity and intergenerational mobility. Because households cannot capture all these benefits, market provision alone tends to underinvest in education. Credit constraints, unequal information and discrimination further exclude disadvantaged learners. Public financing therefore has an economic justification as well as a constitutional and redistributive purpose.

Affordability is broader than tuition fees. Transport, uniforms, digital devices, books, coaching, accommodation and the opportunity cost of a child’s time influence participation. These costs are especially important for low-income households, girls, children with disabilities, migrants and residents of remote areas. A school may charge no fees yet remain practically inaccessible because safe transport, accessible infrastructure or adequate teachers are absent.

The constitutional framework combines Article 21A with Directive Principles under Articles 41, 45 and 46. Article 46 specifically directs the state to promote the educational and economic interests of weaker sections, particularly Scheduled Castes and Scheduled Tribes. Consequently, financing should be assessed through adequacy, equity, efficiency and accountability, rather than merely the size of a budget announcement.

2. Sources of finance and fiscal federalism

Education moved to the Concurrent List through the Forty-second Constitutional Amendment, 1976. The Union sets national priorities, funds central institutions and supports states through centrally sponsored schemes. States bear the main responsibility for school systems, teacher recruitment, salaries and state universities. Local governments may manage institutions or support infrastructure, but their expenditure powers and own-source revenues vary widely.

Public education is financed principally through general taxation, intergovernmental transfers and budgetary allocations. Tax devolution and Finance Commission grants strengthen states’ overall spending capacity, while centrally sponsored schemes provide programme-specific assistance. The Health and Education Cess is an additional Union revenue instrument. Cesses are outside the divisible pool of Union taxes, making their growing use relevant to debates about states’ fiscal space.

Households finance private fees and supplementary costs even when students attend public institutions. Other sources include institutional fees, philanthropy, corporate social responsibility contributions, research grants and education loans. These can supplement public provision but cannot reliably substitute for recurrent commitments such as teacher salaries. Loan-based financing is particularly unsuitable as the principal instrument for universal schooling.

Fiscal federalism creates a central challenge: poorer states may have greater educational needs but weaker revenue capacity. Uniform grants or matching requirements can therefore reproduce inequality. Transfers should account for school-age population, deprivation, remoteness, disability, infrastructure gaps and fiscal capacity. Predictable releases are as important as initial allocation because delayed funding disrupts procurement and service delivery.

3. Major financing instruments and policy commitments

The Education Commission of 1964–66, commonly called the Kothari Commission, recommended raising educational expenditure to 6% of national income. Later policies reiterated a 6% benchmark, and NEP 2020 calls for public investment by the Centre and states to reach 6% of GDP at the earliest. The benchmark signals political priority, but achieving it requires sustained revenue mobilisation and expenditure planning rather than a one-year increase.

Samagra Shiksha, introduced in 2018, integrates support for school education from pre-school to Class XII. It supports access, teacher education, inclusive education, infrastructure, foundational learning and other quality interventions. Its usual Centre–state sharing pattern is 60:40, with 90:10 support for specified northeastern and Himalayan jurisdictions; Union Territories without legislatures receive full central funding. The applicable scheme rules must be checked rather than generalising these ratios to all programmes.

PM POSHAN finances school meals for eligible children in government and government-aided institutions, linking education with nutrition, attendance and social inclusion. Scholarships, hostels, textbooks, transport assistance and targeted support for disadvantaged groups address non-tuition barriers. Section 12(1)(c) of the RTE Act provides entry-level admission for children from weaker sections and disadvantaged groups in covered schools; reimbursement under the Act is limited by prescribed per-child expenditure and actual fees.

In higher education, Union and state grants support teaching, research and institutions. PM-USHA, the successor framework to RUSA, supports eligible state higher education institutions. HEFA provides a financing mechanism for infrastructure in eligible institutions. Such instruments should be distinguished from operating grants: financing a laboratory building does not automatically fund technicians, maintenance, consumables or affordable student access.

4. Measuring adequacy, equity and effectiveness

Education expenditure as a percentage of GDP measures overall public effort, while its share in government expenditure indicates budgetary priority. Real expenditure per student better captures the resources potentially available to learners. However, national averages hide differences across states, districts, educational levels and social groups. Comparisons must specify the year, whether figures are budget estimates or actual expenditure, and which departments and institutions are included.

Budget estimates express intentions; revised estimates and audited actuals reveal implementation. Funds may remain unspent because of delayed releases, vacancies, procurement constraints or weak administrative capacity. Conversely, full expenditure does not establish effectiveness. A useful assessment links inputs to outputs such as functioning classrooms and available teachers, and then to outcomes such as attendance, completion, foundational learning and equitable transitions.

Teachers’ remuneration necessarily constitutes a large part of education spending. The problem is not salary expenditure itself, but vacancies, uneven deployment, inadequate professional support and insufficient non-salary resources. Capital construction without maintenance funding creates deteriorating assets. Digital procurement without connectivity, accessible content and teacher preparation similarly risks generating expenditure without meaningful learning.

Household expenditure surveys help identify burdens concealed by official fee policies. UDISE+ provides school-system information, AISHE covers higher education, and learning assessments offer complementary evidence. These sources should be read together without assuming that spending alone explains outcomes. Poverty, language, nutrition, institutional governance and historical disadvantage affect the relationship between funding and learning.

5. Reform priorities for inclusive education financing

India needs a credible medium-term expenditure pathway that protects education during fiscal stress and aligns Union and state commitments. Priorities should include early childhood education, foundational literacy and numeracy, secondary-school completion and affordable higher education. A balanced approach avoids treating school education and universities as mutually exclusive claims: both require predictable funding, but their financing instruments and equity concerns differ.

Allocation should follow need rather than equal amounts per institution. Weighted per-student grants can recognise disability, poverty, tribal concentration and geographical isolation, while minimum institutional grants protect small remote schools. Scholarships should be adequate and timely, with accessible application procedures and grievance mechanisms. Digital-only verification must not exclude eligible students who lack documents, connectivity or functioning bank accounts.

Efficiency reforms should combine timely fund flows, transparent procurement, maintenance budgets and stronger administrative capacity. School Management Committees, legislative scrutiny, public disclosure and CAG audits can improve accountability. Performance-linked grants require caution: rewarding only high test scores can penalise disadvantaged institutions or encourage gaming. A limited performance component should recognise improvement and inclusion while preserving adequate baseline funding.

Private participation and philanthropy can contribute innovation and additional resources, but partnerships need transparent contracts, quality safeguards and enforceable inclusion requirements. Student loans should complement, not replace, grants for financially vulnerable learners. Ultimately, education financing succeeds when greater public investment translates into accessible institutions, supported teachers, lower household burdens and demonstrably better learning opportunities.

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