FINANCING EDUCATION IN UTTAR PRADESH

FINANCING EDUCATION IN UTTAR PRADESH 1. The system of education finance in India is complicated both because of general issues of fiscal federalism and the specific procedures and terminology used in the country. Essentially, however, state government revenues finance upwards of 97 percent of total government spending on primary and secondary schooling and 65 percent of universities. Public expenditures on primary education, then, essentially depend on the health of state government finances and the structure of total expenditures. This annex briefly considers some of the issues of state finances in general and of Uttar Pradesh in particular, analyses the size, growth and structure of the State s education expenditures since 1985 and provides some illustrative assessments of the financial implications of universalizing primary schooling. Recent Trends In State Government Finance (All India) 2. State governments currently raise around 35 percent of total state and central government revenues and account for 58 percent of total revenue expenditures. Since 1987-88, dissaving of a considerable magnitude has appeared on the combined states revenue accounts: 1987-88 Rs. -1088 crores 1988-89 Rs. -1807 crores 1989-90 Rs. -3682 crores 1990-91 Rs. -5445 crores 3. The deficit for 1991-92 is projected at Rs.4000 crores - equivalent to 4 percent of GDP. Surplus on the capital account, largely through increased loans from the Center have led to lower, but increasing, overall budget deficits. In recent years these have been: 1987-88 Rs. -66 crores 1988-89 Rs. +380 crores 1989-90 Rs.-161 crores 1990-91 Rs. -429 crores 1991-92 Rs.-1781 crores 4. The 1991-92 deficit would have been Rs.2714 crores had not additional tax measures been implemented by states and the Centre during the year. These deficits have occurred in spite of cuts in approved Plan outlays in each of the past few years. In 1990-91 these totaled Rs.1856 crores. The overall resource gaps in budgetary operations of the states have grown even more dramatically. Gross fiscal deficits over the 1980s were: 1980-81 Rs. 3712 crores 1985-86 Rs. 7520 crores 1990-91 Rs.19540 crores 1991-92 Rs.20140 crores 5. Budget deficits have led to increased loans and indebtedness. The outstanding debts of state governments grew from Rs.21,600 crores, equal to 17.6 percent of GDP, in 1980 to Rs.91,000 crores equal to 23.0 percent of GDP in 1990. As a result, levels of interest and capital repayments are high and increasing. For all states combined these were equal to 15.7 percent of non Plan expenditures in 1989-90 rising to 17.9 percent in 1991-92. 1 of 13

6. Another important trend in states finances is the increasing share of central government grants as Table 1 demonstrates. Within three years (1989-90 to 1991-92) the averaged 28.9 percent. Given the increased determination of the Central Government to reduce its own budget deficit, it is unlikely that such growth rates can be sustained into the future. Table 1. Sources of Revenue: All States: 1989-90 to 1991-92 (percent) Source 1989-90 1991-92 Average Annual Increase States own Taxes 46.0 44.0 10.4 Share in Central Taxes 23.2 20.5 7.0 States Non Taxes 15.8 15.0 9.8 Grants 15.0 20.5 28.9 Total 100.00 100.00 12.3 Source: Reserve Bank of India Bulletin. April 1992, pp.627-30 Recent Trends In Uttar Pradesh State Finances 7. Uttar Pradesh State Government deficits on the revenue account were Rs.1410 crores in 1990-91 and Rs.1353 crores in 1991-92. These were 26 and 34 percent respectively of the combined deficit of all states in those years. Consequently, interest payments and payments of debts as percentages of total non Plan expenditures in the State are significantly above the national average - 22.8 percent in 1991-92 compared to the all-states average of 17.9 percent. These payments further fuel increases in total state expenditures. The State s finances are also much more dependent on Central Government transfers that are the average state s and the dependence has grown as Table 2 demonstrates. Transfers grew from 33 percent of the total in the late 1960s to 45 percent in the late 1970s and to 52 percent in the late 1980s. While the State s share of total tax income distributed to the states as a whole has fallen slightly (from 17.0 to 15.8 percent between 1987 and 1991), its share of total grants increased from 10.3 to 15.4 percent. Table 2. Sources of Total State Revenues. Uttar Pradesh. 1965-1990 (percent) Source 1965-70 1971-75 1976-80 1981-85 1986-90 Share in Central Taxes 19.1 28.7 27.3 30.1 32.9 Central Grants 13.7 12.7 18.0 20.1 19.2 Total Central Transfer 32.80 41.40 45.30 50.20 52.10 Total State-Own Income 67.2 58.6 54.7 49.8 47.9 Source: Bajaj and Agarwal, State Finances in Uttar Pradesh 1965-90, p.347 8. The dramatic change in the relative shares of the internal and external sources of revenue partly results from the relatively slow growth of the State s own-tax revenues. Table 3 compares Uttar Pradesh s revenue performance with that of the fourteen other most populated states up to the late 1980s. On each measure the State comes near to the bottom of the all-state rankings. 2 of 13

More recently taxes and the rate of growth of tax revenues have increased but they start from a relatively low base. Table 3. State Revenue Performance State Index of Own Tax 1986-87 1960=100 Average per capita Tax Revenue 1982-7 (Rs.) Tax to SDP (%) 1986-87 Uttar Pradesh 2661 97.9 5.7 All 15 States 3167 172.4 8.5 Rank (out of 15) 11 12 13 Source: Bajaj and Agrawal, p.349 Note: SDP is State Domestic Product 9. The trend in capital receipts also suggests increasing dependence on central sources of finance. While the overall proportion of the capital receipts in the form of loans and advances from the Centre is roughly the same in Uttar Pradesh as in the rest of the states (around 60 percent), their recent growth in this State has been much higher. Between 1989-90 and 1991-92 the growth was 69 percent against 31 percent for all states. 10. Revenue generation problems have existed in Uttar Pradesh for some time. Overall shortfalls in real Plan expenditure were equal to 19.0 percent of the planned levels during the Sixth Plan and 9.1 percent during the Seventh Plan. Projections of the Ninth Finance Commission for the overall revenue account position for the State (after all Central transfers) were: 1990-91 Rs. -759 crores 1991-92 Rs. -675 crores 1992-93 Rs. -565 crores 1993-94 Rs. -458 crores 1994-95 Rs. -428 crores 1990-95 Rs.-2886 crores The next highest cumulative deficit was Rs.960 crores for Rajasthan. Trends in state finances in Uttar Pradesh (and across all states), suggest the need for some significant restructuring of revenues and expenditures. Uttar Pradesh Education Expenditure 1985 To 1992 Plan Expenditure 11. Plan expenditures on the educational system since 1985 are shown in Table 4. In addition to those made through the Ministry of Education, allocations are also made by the Ministry of Social Welfare for scholarships to Scheduled Caste and Scheduled Tribe children. The period 1985 to 1990 covered the period of the Seventh Plan. In 1990-91 and 1991-92 there were Annual Plans only. The Eight Plan is intended to cover 1992-93 to 1996-97. Overall, the share of Plan expenditures devoted to the education sector has increased, from 4.0 percent during the Seventh Plan period to 4.5 percent in the two annual plans, and the projections for the Eighth Plan period suggest an acceleration of this trend to 6.5 percent. Including scholarships, during 3 of 13

the Seventh Plan 5.0 percent of total expenditures were devoted to education and 4.9 percent during the two annual Plans of 1990 and 1991 percent. In the Eighth Plan the share is projected to be a total of 7.3 percent. 12. Increases in allocations in real terms can only be calculated approximately. Over the period of the Seventh Plan the rate of inflation averaged roughly 6.5 percent a year. In 1992 prices, therefore, Eighth Plan expenditures on education are projected to be over double (116 percent) the size of expenditures during the Seventh Plan. This compares to an overall Plan increase in real terms of only around one third. Education s share of Plan expenditure has traditionally been small but is projected to increase substantially. Table 4. Plan Expenditures: Education Sector, Uttar Pradesh 1985-1992 Level 1985-90 1990-91 1991-92 1992-93 8th Plan 1992-97 Elementary 2952 1009 834 897 7037 (NFE) 173 62 101 55 242 Second 570 180 414 426 2207 Higher 258 102 67 61 1760 Adult 508 109 161 135 232 Other 43 6 107 48 321 Tech 491 144 208 221 2724 Total Ed 4823 1551 1792 1788 14281 SC/ST/B Educ 1164 101 170 297 1743 TOTAL ED + SC/ST/B 5987 1652 1962 2085 16024 TOTAL PLAN 119487 32082 41580 42444 220050 TOTAL ED AS % OF 4.0 4.7 4.3 4.2 6.5 TOTAL PLAN TOTAL ED + SC/ST/B AS OF TOTAL PLAN 5.0 5.1 4.7 4.9 7.3 Source: GOUP Ministry of Finance, Budget Books for 1985-6 to 1992-3 GOUP State Planning Institute for Eighth Plan period. Note: SC/ST/B is Scheduled Caste, Scheduled Tribe and Backward classes almost all the SC/ST/B allocations are for scholarships. 13. In addition to State Plan expenditures financed directly through State revenues of one form or another, there are also the Centrally Sponsored Schemes, financed by the Central Government. Some of these also involve some state funding, some do not. Where they do the State contributions are already included in the figures for State Plan expenditure in Table 4 above. Table 5 documents expenditure on Centrally Sponsored Schemes in education by the Central government since 1985 and those envisaged over the Eighth Plan period. During the Seventh Plan education expenditures under the Schemes were equivalent to 25 percent of State Plan spending on education. Most focused on primary schooling, non-formal education and literacy programs. Central Government spending on these programs was equivalent to 35 percent of the State s spending on them. In the Eighth Plan the share of the Centrally sponsored Schemes devoted to education programs has been reduced compared to the previous Plan (3.6 and 4.9 percent respectively). Even so the allocations to education programs are still equivalent to around 17 percent of State expenditure on education and for primary and adult education programs are equivalent to 27 percent of the State s planned allocation. 4 of 13

Table 5. Uttar Pradesh: Centrally Sponsored Schemes in Education 1985-92 and Over the Eighth Plan Period (Rs. million) Central Government Expenditure Programs 1985-90 1990-91 1991-92 1992-92 8th Plan Education CSS 1213 276 476 606 2440 Elem. Education 630 155 335 332 1272 Non Formal Education 302 139 177 172 315 Operations Blackboard 316 10 150 150 917 Adult Education 351 82 61 84 422 Rural Funct Literacy 309 65 35 56 280 All CSS Programs 24633 8723 11025 12122 67309 Education % 4.9 5.6 4.3 5.0 3.6 Source: GOUP Draft Eighth Plan Volume III Note: CSS is Centrally Sponsored Schemes. The components of the education program do not exactly add up to the Education total. 14. The total value of the State s Eighth Plan was originally set at Rs.2800000 million and has since been revised to Rs.220050 million - a reduction of 21 percent. The General Education program has been reduced to Rs.11577 million from Rs.13665 million - a reduction of 16 percent. Table 6 compares the Draft and Revised Eighth Plan allocations for education and scholarships. The overall share has risen very slightly with the reduction in technical and scholarships being countered by the increase for general education. Table 6. Uttar Pradesh: Allocations in the Draft and Revised Eighth Plans (Rs. million) Draft % Revised % General ED 13775 4.9 11557 5.3 Elementary 8385 3.0 7037 3.2 Technical Education 4000 1.4 2724 1.2 SC/ST/B 2493 0.9 1743 0.8 Total 280000 220050 15. The data for expenditures covering 1985-6 to 1992-3 in Table 4 were taken from the audited budgets. These cover expenditures from all sources of income which in one way or another flow through the budget and include special one-off allocations such as those recommended by the Finance Commission for school building in Uttar Pradesh in 1989-90 and 1990-91 (Rs.696 million and Rs.456 million respectively). The Eighth Plan allocations, in contrast, cover only those which arise from the State s revenues, including own revenues, shared tax revenues and central Plan assistance. Projected Plan expenditures, then, tend to be below those actually budgeted (so long as the Plan is actually achieved). Projected Eighth Plan outlays for 1992-97 and Annual Plan outlays for 1993-94 education are now presented in greater detail in Table 7. In both time periods, Elementary education is projected to receive over 60 per cent of the total. As a percentage of total ongoing expenditures, Elementary is to receive 45.4 percent. Of new expenditures, the sub sector is expected to be allocated almost 92 percent of the total. New Plan expenditures in the other sub sectors are very small indeed. Table 7. Eighth Plan and 1993-94 Annual Plan Outlays on Education (Rs.lakhs) 5 of 13

Level 8th Plan % 1993-94 % Elementary Ongoing 32140 6088 New 38227 9433 Total 70367 60.8 16521 66.0 Secondary Ongoing 20288 4423 New 1779 355 Total 22067 19.1 4778 19.1 University Ongoing 17939 2575 New 212 45 Total 17605 15.2 2620 10.5 Adult Education Ongoing 819 108 New 1503 277 Total 2322 2.0 385 1.5 Other 3414 2.9 721 2.9 Total 115775 100.0 25025 100.0 Elem as % of Total Ongoing 45.4 57.2 Elem. as % of Total New 91.6 93.3 Source: GOUP State Planning Institute, Annual Plan 1993-94 Note: Rs.1000 million has been added to the original 1993-94 allocation of new activities in elementary education to that originally proposed. The overall implications for the whole 8th Plan period is not known but the allocation to total Elementary is likely to rise by at least Rs.5000 million and the share to 62.4 percent. 16. Estimates of the share of Elementary education planned over the 8th Plan period compared to shares in the 7th Plan period and in the intervening years are shown in Table 8. Over the combined 7th Plan and two Annual Plan periods to 1992 Elementary education received an average of 56 percent of Plan allocations to General Education. During 1989-90 and 1990-91, however, the State received two ad hoc transfers from the Central government for primary school buildings. Subtracting these, the expenditures on Elementary education were 49 percent of the total. During the 8th Plan period the projected share for Elementary is 61 percent. Already, however, the allocation for 1993-94 is Rs.100 million above that anticipated. Deducting the loan and assuming that the additional Rs.100 million is maintained through the Plan period (as expected) the share would additional Rs.100 million is maintained through the Plan period (as expected) the share would remain constant. Given that the overall share of Education in the Plan is projected to increase quite significantly (from 4.1 percent to 6.5 percent), and that the share for Elementary outside of the loan is planned to remain constant, non loan expenditures should increase significantly and the loan can be regarded as financing additional expenditures. In 1993-94, the overall proposed Annual Plan allocation for elementary education, including the Project, is 66 percent of the total and around 53 percent after deduction of the loan. Table 8. Shares of Plan Expenditure in Education by Level and Time Period (percent Level 7h Plan 1990-92 8th Plan Elementary 59 52 61 Secondary 22 24 19 University 13 13 15 Adult 3 2 2 Other 3 9 3 6 of 13

17. This somewhat optimistic picture of education Plan financing requires some reservations. While the shares of total Plan expenditure allocated to General Education in general and Elementary in particular may be increasing they remain low. In addition it is important to view Uttar Pradesh in the national context. Problems in resource generation have led to lower than average Plan expenditures. Table 9 presents Plan expenditures for the State as a proportion of the expenditures of all states for each of the past four Plan periods, beginning in 1970, and the period 1990-92. Over time the share has fallen from 15.2 to 12.7 percent. Table 9. Plan Outlays: Uttar Pradesh and All States (1970-92) (Rs.million) State Plans Fourth Fifth Sixth Seventh 1990-92 Uttar Pradesh 11630 29090 65190 112110 62110 All States 76750 195710 484820 845670 488140 % Uttar Pradesh 15.2 14.9 13.4 13.3 12.7 18. The Eighth Plan allocations to major activities, and the shares, are documented in Table 10 together with the shares over the Seventh Plan period. The major change is for the Energy sector where the share increased from 23.7 percent to 32.2 percent. Almost half of the total allocation is devoted to Energy and Irrigation. To allow for the increased share to Energy the allocations for all other major activity groups have been reduced. With regard to Social Services as a whole, the share has only fallen slightly and the increased share for Education, documented above, can now be seen as one of very few activities which has been able to increase its share. Putting Education s share in another perspective, however, the allocation to power transmission and distribution alone is two and a half times greater. Table 10. 7th Plan and Proposed 8th Plan Expenditures by Major Activities. (percent) Major Activity Seventh Plan Eighth Plan Agriculture 10.2 9.7 Rural Development 8.9 7.3 Irrigation 17.5 14.7 Energy 23.7 32.2 Industry 5.8 2.7 Transport 10.7 9.5 Economic Services 0.7 2.9 Social Services (General Education) (Technical Education) 20.5 (3.8) (0.8) 19.4 (5.3) (1.2) Other 2.0 0.6 7 of 13

Non Plan Expenditure 19. Non-plan expenditures in the education sector are several times larger than Plan expenditure. During the Seventh Plan period the ratio was approximately 11:1. In 1990-91 it was 13:1 and in 1991-92 11:1. Table 11 documents non Plan expenditures from 1986-7 to 1992-93. The particularly large increase in 1990-91 resulted from a major salary review and the back payment of increases. Changes in total State expenditures have varied considerably over the period (a 43 percent increase in 1989 and an 8 percent decrease in 1992) resulting in the shares for Education being rather volatile. The underlying trends, however, appear to have been upward in the late 1980s followed by somewhat of a struggle to maintain the resulting higher levels over the recent years. Table 11. Uttar Pradesh: Non Plan Expenditures 1986-1992 (Rs. million) Level 1986 1987 1988 1989 1990 1991 1992 Elementary 4130 42223 5830 8789 11108 9819 9943 Secondary 3049 3608 4350 5938 6238 6520 3806 Higher 669 756 1006 1269 1539 1738 1755 Technical 185 240 209 321 381 361 379 Other 21 21 24 27 98 79 82 Total Education 8054 8848 11419 16349 19021 18187 18665 Total State Expenditure 46802 53385 53141 76281 97593 104029 96060 total Education % Total State 17.2 16.6 21.5 21.4 19.5 17.5 19.4 Source: GOUP Ministry of Finance Budget Books Note: 1986 to 1990 data are actual expenditures, 1991 are Revised Estimates and 1992 are Budget Estimates. 20. Focusing only on elementary, secondary and higher education, some substantial differences in the growth rats and changes in these can be seen. First, however, the share of elementary in total general education expenditures through time is calculated. The shares were: 1986 1987 1988 1989 1990 1991 1992 52.6 53.9 52.1 59.6 58.8 54.2 53.7 At least part of the bulge in 1989-90 and 1990-91 resulted from the payment of salary arrears. Apart from these years the average share of elementary in the total is around 53 percent with recent years slightly above those for earlier years. Table 12 below describes various growth rates of expenditure by level. 8 of 13

Table 12. Uttar Pradesh: Average Annual Rates of Growth of Non Plan Education Expenditure by Education Level 1986-92 (percent) Level 1986-92 1986-89 1989-92 1992-93 Elementary 23.5 37.6 4.4 1.3 Secondary 20.2 27.6 5.3 4.3 Higher 2.3 18.8 12.8 1.0 Total 23.0 31.3 5.0 2.3 Source: Table 11 21. Rapid growth rates in the first years of the 7th Plan period have turned into much lower rates in the past few years, particularly for elementary and secondary education. Inflation rates during the latter half of the 1980s were around 6.5 percent and have hovered around 10 percent in the last two years. The proposed growth rates in expenditures for 1992-93 are very low for each level and only 2.3 percent overall. The lower rates of expansion reflect the increasing budgetary problems which are facing the State (and most other states). 22. Teacher salaries dominate the non Plan costs of education. Of the total allocation to elementary education, emoluments comprise 97 percent of the total. Although changes in salaries have occurred throughout the country since, in 1989 primary school teachers in Uttar Pradesh received lower salaries than in any other state and for trained graduate teachers salaries were lower in only four of the 25 states (Second Report of the Ninth Finance Commission 1989). However, as multiples of state per capita income (3.0 and 4.5 times respectively) they were higher than in states such as Maharashtra and Haryana. Total Plan and Non Plan Expenditures 23. In assessing the overall contributions of the states to educational provision in India, both Plan and non Plan expenditures need to be aggregated. Table 13 below is based on such an aggregation over the whole period 1977-77 to 1990-91 for Uttar Pradesh. The table documents the changing shares of expenditure by level of education and the overall shares of educational expenditure in total State Government expenditure. A comparison of the latter is made with the average for the fourteen major states in India. Table 13. Uttar Pradesh: Education s Share of Total Government Expenditure and Allocation by Level 1976-7 to 1990-1 (percent) Period Elementary Secondary Higher Other Techni cal Edn. as % of Total 14 Major States % 1977-79 49.9 34.3 11.1 2.0 2.8 15.2 16.6 1980-82 48.8 35.3 10.6 2.6 2.7 14.0 15.5 1983-85 49.1 35.6 9.8 2.4 2.7 15.2 16.3 1986-88 49.5 35.4 8.7 2.5 3.9 15.7 16.7 1989-91 54.6 32.2 8.0 2.3 2.8 19.1 18.2 Source: Tables prepared by the National Institute for Public Finance and Policy, New Delhi. 9 of 13

24. The data in Table 13 indicate a distinct upward trend in the share of total educational expenditures devoted to primary education over the past decade but particularly since 1989 in Uttar Pradesh, compensated through reduced shares initially to higher and, more recently, also secondary education. Equally striking is the gradual increase in the share of total State Government expenditure which has been directed towards education, rising from 15.2 percent in the late 1970s to over 19 percent at the turn of the 1990s. Since then the share has been above the average. The message appears clear. In recent years elementary education has been receiving an increasing share of a larger share of government expenditure. This conclusion needs to be tempered by the understanding that the increases in shares appear to have recently stalled, the overall rate of growth of government expenditure has slowed and that even activities which are given priority by Government are not necessarily significantly increasing their control over real resources. 25. Another way of viewing resource flows across major activities is provided by the Reserve Bank of India which aggregates total state expenditures on the revenue and capital accounts. Around 80 percent of the total are in the former. The most recent presentation of these expenditures supports the cautious statement above. It details actuals, revised estimates and budget estimates for 1989-90, 1990-91 and 1991-92 respectively. These suggest some disturbing trends. Expenditures/allocations to the Social Services in general fell from 38 percent to 29 percent and to Education from 24 to 18 percent. The most prominent increases were for interest payments and administrative services. 26. Some comparisons between Uttar Pradesh and the rest of the country are interesting. Compared to the averages for all major states, prior to 1988 Uttar Pradesh was spending a smaller percentage of its total Plan and non Plan expenditures on education. since then the share has been above the average. Through the 1980s the growth rate of total state government real expenditures in UP was 7.0 percent and for the social services, 8.2 percent. for all the states the respective growth rates were 6.8 and 8.5 percent. the similarities in growth rates, however, hide somewhat the absolute differences in expenditures between states. The Ministry of Human Resource Development has recently published data on the amounts of education expenditure per capita across states for 1989-90. In Uttar Pradesh, Bihar and Madhya Pradesh expenditures were between Rs.90 and Rs.99. In the other twelve major states the range was from Rs.135 to Rs.227 with an average of Rs.166. In general, Uttar Pradesh State appears to have been attempting to increase resources for education in general and elementary education in particular in recent years. However, the earlier years of neglect and the States low income and revenue base results in absolute expenditures remaining very low. Unit Costs 27. Dividing the non Plan budget for 1991-92 by total enrollments in the primary schools gives an average cost per year per student of Rs.533. Since around 97 percent of this budget is for salaries and the student teacher ratios are officially 51:1 in primary 1-5 classes and 32:1 in primary 6-8 classes, a child in the higher classes costs roughly 60 percent more than those in the lower. Unit costs are around Rs.480 for primary 1-5 and Rs.768 for primary 6-8. Total recurrent costs for non formal schooling are estimated at Rs.6925 for a class of 25 children and non 10 of 13

recurrent costs at Rs.1500 (covering a three year period). This gives a unit cost of around Rs.290. The rough unit costs of Primary 1-5 of Rs.480 and Primary 6-8 of Rs.768 compare to Rs.2157 in secondary schools and Rs.2850 in higher education resulting in ratios of 1:1.6:4.5:5.9. Future Financing of Education 28. Since the Education sector as a whole apparently consumes the largest portion of non Plan expenditures and the Elementary sub sector absorbs over 50 percent of the total, any aspirations to expand these activities need to examine various aspects of the wider State financial scenario alluded to in the early section of this annex. considering the number and types of sources involved, forecasting future State revenues is very problematic. The Ninth Finance Commission for 1990-95 forecast a 7.5 percent annual increase in revenues for non Plan expenditures in Uttar Pradesh. This was considerably below the growth rate of the 1980s but still well above the expected rate of growth of the economy. An interesting attempt to examine finances across states in the future has recently been made by members of the National Institute of Public Finance and Policy. 1 Utilizing revenue and expenditure growth rates of the 1980s and the assumption that revenue budget deficits will have to eliminated by the year 2000, the attempt was made to describe the alternative revenue and expenditure growth paths necessary. For Uttar Pradesh, if revenues continue to grow in the 1990s at the rate they grew in the 1980s (15.2 percent), expenditure growth will have to fall from 18.3 percent a year to 13.2 percent. Alternatively, if expenditures continue to grow in the 1990s at the rate the grew in the 1980s (18.3 percent), the revenue growth will have to increase from 15.2 percent to 20.4 percent - the highest among all states. 29. The structure of budgetary expenditures is also interesting to note. A functional classification shows that while expenditures in real terms across all states increased at 8 percent a year in the 1980s, subsidies increased by 12.6 percent a year. 2 Among departmental enterprises, the losses incurred in Irrigation are the largest (1987-88 working losses of Rs.1500 crore and including depreciation Rs.5200 crore). Regarding budgetary support for non departmental enterprises, in most states these mainly arise from electricity and road transport corporations. In 1990-91, in only one state was the Electricity Board generating a surplus once interest payments were accounted for. In Uttar Pradesh the implicit budgetary subsidy was estimated to be Rs.6620 million, or around two thirds of non Plan expenditures on Elementary education. Total operating cost of supplying one unit of electricity was just over one rupee in 1989. The average rates charged were 64 paise overall and 23 paise for agriculture. 30. Any further significant expansion of primary schooling will have to occur within the financial context briefly described above. An illustrative calculation has been made of the costs involved in moving to a situation whereby all children enter and complete primary class 1 and transfer to upper primary schools for a further three years. 1990 population figures and the unit costs presented in section D above are the basis of the calculation. The major assumptions 1 R.Chelliah et al, Issues Before Tenth Finance Commission. Economic and Political Weekly, November 21, 1992. 2 G.Rao, Proposals for State-Level Budgetary Reforms. Economics and Political Weekly, February 1, 1992. 11 of 13

involved are that 10 percent of boys and 30 percent of girls currently do not enter class 1 and that eliminating dropouts has no total recurrent cost implications but results in a fall in unit costs through the reduction of the decline in class size. Eliminating a situation such as one where for illustrative purposes, dropouts result in the average class size falling gradually from 40 to 26 would reduce the unit cost over the cycle by around 25 percent. (There will of course be some costs involved in the programmes which lead to increases in demand and reductions in dropouts but these are ignored here). 31. Summarizing, the annual additional recurrent cost of enrolling all children in lower primary is roughly Rs.1200 million and in upper primary Rs.3200 million: a combined total of around Rs.4400 million. The 1992-93 non Plan allocation to Elementary schooling was Rs.9943 million. Universalizing lower primary schooling would require an additional 12 percent and upper primary an additional 32 percent: a total of 44 percent over the existing allocation. These figures are based on the 1990 population figures. Assuming a growth rate of school age children of 3 percent a year the recurrent cost of providing them with a full primary schooling by the year 2000 would be around Rs.4200 million. 32. These approximate figures suggest that non Plan allocations for Elementary education would need to increase (at constant prices) from Rs.9943 million in 1992 to Rs.18,500 million in 2000 if universal primary schooling was to be achieved across the state, requiring a compound rate of growth of just over 8 percent a year. Given the in-built increases in the salary bill resulting from teachers movements along salary structures, the required real increase would be closer to 11 percent. This does not take into account extra expenditures required for quality increases (or increases in salary levels). Since the non Plan budget is unlikely to increase at this rate in real terms (real expenditures in all states rose 8 percent a year during the 1980s), the share of Elementary education in overall allocations would need to increase. However, these very approximate calculations suggest that the objective is not totally out of reach. 33. Capital costs may present more problems. To universalize lower and upper primary schooling by 2000 while taking the growth of the population into account would eventually require around 18 million additional places. On current estimates of Rs.2200 per school place this would require a total of Rs.39000 million. The Eighth Plan allows for around Rs.7000 million. Obviously, it will not to possible, in terms of both finance and absorptive capacity, to create the required number of places in the next decade or so. One option would be to increase class sizes. If the dropout rates can be reduced, however, class sizes will already be high in most schools. Coincidentally the total number of new places required for universal schooling is almost 18.5 million. Some thought could be given to double shifting. For much of the year classes are held outside with the classrooms used only during the monsoon period, lasting around 10 weeks. This allows for some flexibility in the way in which two schools on the sight might operate. Double shifting is common in many African countries. Even in Malaysia where the per capital income is several times that in India, and where there has been a strong Government commitment to universalize schooling, double shifting is very common and is currently experienced by a majority of upper primary students. Given that the financial constraint on a rapid expansion of primary schooling in Uttar Pradesh appears to be more one of capital costs that recurrent costs, this option may justify further consideration. 12 of 13

34. The steps currently being taken to expand and improve primary school facilities in Uttar Pradesh are significant and demonstrate a serious commitment. The desired results will be to increase learning, reduce dropout and expand access. The Project, however, covers only ten of the 64 districts in the State and may be seen a s the first stage in a process to accelerate the coverage and quality of the system. To continue the process will need, among other things, significant increases in resources. Options have to be developed and trade-offs made. The rough analysis above has demonstrated that universal primary schooling is not an impossibility from the viewpoint of recurrent costs. Their provision, however, would require tough decisions and reductions in some of the other activities in which the State Government is involved. Providing the necessary capital expenditures to replicate current modes of provision would be more difficult and may require changes in these modes. 13 of 13