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-inaid 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 1976-77, 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 98 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
Fig. V. I ANDHRA PRADESH SECTORAL DISTRIBUTION OF EDUCATION BUDGET (Revenue Account) 80 60 ' ' ' ' '. 40 20 0~-----------------.--------~------------------_/ 1956-57 1960-61 1970-71 1980-81 1990-91 1995-96 YEARS
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 100 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 101 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%) 1956-57 1995-96 ~.. rnrrn ffiilll GOVERNMENT SCHOOL LOCAL BODIES SCHIOOL FEES ENDOWMENT
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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 104 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.
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 105 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 106 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 107 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 108 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.
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 109 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 1975-76. 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 education 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 1995-96 mi GOVERNMENT FUND [I]]]] LOCAL BODIES t~~~~~~ FEES.. ENDOWMENTS
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 111 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 expenditure. 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 1985-86 1995-96 ~PLAN [[[[)] NON-PLAN
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 113 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
ROLE OF PUBLIC FINANCE IN SCHOOL EDUCATION 115 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.