– Vanisha Sharma


Even though the condition of the education sector in India seems to have become better over the years, a more in-depth analysis needs to be conducted to reveal whether the government is sparing an optimal amount of resources on education in India, and whether current expenditures are reaping sufficient benefits or not. The recent years have observed a significant increase in the GDP of India, with a current growth rate of about 7.4%. Along with increases in the general economic growth of the nation, increments in the proportion of government expenditure being spent on the education sector have also been observed from about 8 billion dollars in 2000 to 27 billion dollars in 2012. Even though this might seem like a significant increase, this proportion as a percentage of the national GDP has actually decreased from 4.3% to 3.9% between 2000 and 2012.

With continuous efforts of the Indian government to spread access to equal education by launching educational schemes year after year, the literacy rate has shot up to 74% in 2012 from 65% in 2000. According to an Indian periodical, India has the greatest number of adult illiterates, accounting for 37% of the world’s total illiterates at 287. Furthermore, apart from the quantity of schools and literate adults in India, the quality of education also needs to be emphasized since there are still classrooms in some rural schools that do not even have blackboards, let alone whiteboards or screen projectors. Veterans in this area are currently advocating for an increase in investment in the education sector.

Cost and Benefit Analysis

A comparison of the costs and benefits of investment in education in India revealed that the Indian government needs to spend a little more on the education sector in India. I undertook this analysis on a per-project basis, which implies that the costs and benefits will be assumed according to costs incurred and benefits accrued to cumulative government initiatives on education. In doing so, four key government projects were taken into account, including the District Primary Education Project (1994), Woman and Child Development Project (1998), Elementary Education Project (2004) and Sarva Shiksha Abhiyan, or Education for All (2008). The total cost has been analyzed as the aggregate sum total of incremental cost in the year each of the four initiatives were implemented.

Measuring the benefits of the socio-economic investments is always a challenge. The benefits of educational policies were estimated using their potential impact on the economic growth of the country. First, I tried to estimate the effect of these educational policies on the labour productivity of the country. Second, I added the change in the income tax revenues to the total benefits retrieved. The rationale behind measuring the impact of these policies on the labour productivity lies in the fact that if the educational policies were successful, then the children who benefited from these policies in the year the project was implemented would have joined the work force and contributed to the GDP, and thus to the labour productivity in a greater way by the time the project was completed.

Further, the rationale for including the changes in income tax revenues of the government lies in the fact that the more educated a person, the more is the likelihood of her attaining a high-paying job, thereby increasing the personal income tax revenue.


Therefore, it can be concluded from the graph that the ultimate point of optimality or efficiency will be reached when the marginal cost is raised a little more, whereas the marginal benefit is reduced a little more. This point is just a little ahead of the last initiative invested in, which indicates that the government is nevertheless, gradually inching towards the point of Pareto efficient allocation of resources with every additional policy. In other words, for the next policy to achieve ultimum efficiency, the government should invest just a little less than $8000 million to accrue an equivalent marginal benefit. Therefore, according to the cost and benefit analysis conducted, the government of India needs to invest a little more into the education sector in order to generate the right amount of benefits to the overall socio-economic development of the nation.

The current status of education sector in India can be thought of as a little ambiguous. On one hand, there are rich, private schools that cater to the needs of the elite class of the population, from which students graduate and join expensive private colleges, either within India or abroad. On the other hand, there are average schools that resulted from a partnership between public and private sector, which produce graduates who go on to work in the industry or join public colleges. However, these two types of schools only represent a minute sample of the total number of schools in the country. A third category of schools includes government-funded schools that have below-average infrastructure facilities, low quality of teaching, high teacher absenteeism and in some cases not even a single blackboard in the classrooms, let alone smart white boards and projectors.

Policy Implications

As far as policy implications are concerned, while spending on increasing access to education, it is recommended that the government should also regulate the quality of education being provided through periodic or random assessments of schools, more emphasis on teacher training and better infrastructural facilities. Moreover, as Mingat and Tan (1996) have pointed out, India should focus on expanding primary education first, and focusing on expansion of secondary education when its economy is in the later stages of development. Further, decentralization of educational authority is also suggested, along with adoption of public-private partnerships. Friedman’s approach of providing school vouchers is also suggested, in order to make government funding more feasible, and to reap greater benefits. Friedman proposes that states should fund individual underprivileged, capable children so that it creates competition between them, so that the fact that families cannot afford to send their children to a good quality school should not prohibit the children from getting good quality education. Further research on recognizing as well as quantifying not only private, but also social benefits of government expenditure on education needs to be conducted in order to develop a more comprehensive and reliable model to calculate the optimal level of resource allocation to the education sector.


Friedman Foundation. (2003). Milton Friedman on vouchers. CNBC news. Retrieved from:     http://www.edchoice.org/who-we-are/our-founders/the-friedmans-on-school-choice/article/milton-friedman-on-vouchers/

Mingat, A. and Tan, J. (1996). The full social returns to education estimates based on countries’             economic growth performance. Human Capital Development Working Papers, World Bank. Retrieved from: http://documents.worldbank.org/curated/en/949711468740209672/pdf/multi-page.pdf

The Hindu. (2014). India topes in adult illiteracy: UN report. Retrieved from:   http://www.thehindu.com/features/education/issues/india-tops-in-adult-illiteracy-un-report/article5629981.ece