One school of thought considers that raising or implementing school fees is a viable policy option for generating revenues for expansion and for improving quality. Free provision of elementary education is generally justified by its high social rates of return, and also by merit-good reasons. But in secondary education, cost-recovery through user fees in education can be justified based on the higher private returns to education at this level. Detractors argue that imposing fees would lead a substantial group of students to withdraw from school, and would deter young people at the margin from participating in education, and that the disadvantages would fall disproportionately on poor households.
In practice, households in all income classes spend large amounts on secondary education, as was seen in Chapter 2. The most recent national data, which unfortunately are for 1995-96, show that for a rural household at the 50th percentile, the average cost of sending a child to secondary school was almost half of average annual per capita household income; for the poorest rural households, this share was as high as 87 percent. According to the 55th round of the National Sample Survey (1995-96), the average private cost of sending a child to a secondary school in India was Rs. 1,619 a year in 1995-96. This figure does not take into account the opportunity costs such as forgone earnings, which tend to increase with a student’s age. Without proper panel data, it is not possible to estimate the own-price elasticity of demand for education. However, the high expenditures on education by all income quintiles can be taken to signify a low price elasticity of demand for secondary schooling, conditional on enrollment.
In general, the impact of user fees on household spending on education will depend on income distribution and on household tastes and preferences. We can think of households divided into three categories of preferences: A, B, and C. Category A households are those who will reduce their spending on schooling when user fees are imposed, because education is now a relatively expensive good and they will have to forgo a large amount of consumption on other goods to buy public
education of a given quality. Category B households may increase their expenditure on education because they would have spent relatively highly on education without free public education, but whether they will choose to remain within the public education system or leave it in favor of better quality private education is an empirical question. Category C households will not be affected because they were using the private sector even in the presence of free public education. Cost-recovery via imposing or raising fees can be justified if it leads to net positive returns, i.e., a large number of students do not cross over from the public to the private sector, and the reduction in demand for secondary schooling by the poorer households (category A) is mitigated by targeted scholarships to the households in that category.
Imposing user fees in secondary education is less regressive than doing so in primary education. Using Roy’s identity, it is possible to interpret enrollment rates as first-order approximations of welfare incidence for small changes in school costs or fees.65 Table 5.9 shows
the attendance ratios for elementary (6–14 years) and secondary (15–18 years) education for students from the first and the fifth household consumption quintiles in selected Indian states, using data from the 43rd (1987- 88) and 55th (1999–2000) rounds of the National Sample Survey. In both years, the average difference in attendance ratios between the first and fifth quintiles is smaller for elementary than for secondary education, even though the difference for secondary education varies widely across states. This table supports the argument that charging fees in secondary education is not as likely to hurt the poor as much as charging fees in elementary education; fewer students from the poorest quintile receive secondary education and their needs can be addressed through targeted financial assistance. Based on estimates of the minimum monthly salary for a qualified private secondary school teacher in the current labor market (estimated at Rs. 6,000), additional minimum non-salary expenditures at the secondary level (estimated at 30 percent of a teacher’s salary), and minimum number of students per class (30), it is possible to calculate a theoretical
65 For large changes, such an interpretation would overstate the
minimum unit cost for a private secondary school of approximately Rs. 2,600 per year (US$65), or Rs. 260 per month per child. Comparing that minimum monthly school fee with average consumption quintiles (disaggregated by urban and rural) provides a rough estimate of to what extent secondary education could be financed exclusively by households, under the assumption that households (particularly poor ones) will be unable to spend more than 5 percent of total household consumption on one child’s
schooling (note: average household size suggests multiple children in school, as well). Table 5.10 below indicates that even using minimum estimates of the cost of private secondary schooling, it is unaffordable without public subsidization for households in the lowest three consumption quintiles (perhaps the lowest four quintiles in rural areas). This suggests that the limit of private unaided secondary schooling in India is 35–40 percent of total secondary enrollment (compared to 30 percent today).
State Elementary Secondary
1987-88 1999–2000 1987-88 1999–2000 Q1 Q5 Q1 Q5 Q1 Q5 Q1 Q5 Andhra Pradesh 43 72 67 82 12 31 16 54 Assam 61 80 70 90 28 59 42 73 Bihar 24 61 34 74 20 43 17 52 Gujarat 55 87 70 95 18 49 29 60 Haryana 61 84 69 95 23 58 22 70 Karnataka 48 77 68 90 16 39 23 48 Kerala 89 97 91 95 36 67 48 78 Madhya Pradesh 37 68 56 86 17 40 24 62 Maharashtra 60 88 81 96 27 55 40 68 Orissa 29 77 53 90 9 40 24 57 Punjab 53 86 74 93 24 45 29 72 Rajasthan 37 66 56 85 18 39 21 57 Tamil Nadu 65 87 87 94 15 46 27 68 Uttar Pradesh 31 71 61 84 15 45 31 58 West Bengal 38 80 59 90 17 54 19 61
Source: Authors’ estimates from National Sample Surveys, 43rd Round and 55th Rounds.
Primary and Secondary Attendance Ratios, First and Fifth Quintiles, Selected Indian States 1987-88 and 1999–2000
Table 5.9
Q1
(lowest) Q2 Q3 Q4 (highest)Q5 Rural Household Average Monthly
Consumption\1 1,299 1,786 2,230 2,845 5,378 Minimum Monthly Schooling Fee (Rs. 260) as % of Average Rural
Household Consumption\2 20% 15% 12% 9% 5% Urban Household Average Monthly
Consumption\1 1,772 2,717 3,734 5,351 11,570 Minimum Monthly Schooling Fee (Rs. 260) as % of Average Urban
Household Consumption\3 15% 10% 7% 5% 2% \1: Per Capita Consumption Quintiles from NSS, 61st round, 2004-05;
\2: Average Rural Household Size: 4.9 (NFHS III) \3: Average Urban Household Size: 4.6 (NFHS III)
Calculation of Affordability of School Fees (Indian Rupees, 2004-05), by Consumption Quintile, Urban and Rural
Whether cost recovery is a viable option for expanding coverage and improving quality in secondary education is ultimately an empirical question, whose answer will vary from state to state. Implementing user-fees also has political implications, and widespread political support would no doubt be required for this option to become policy. At a minimum, policies should be articulated such that schools which generate revenue through fees are allowed to retain them at the school, to be invested in quality improvement.
Option (5): Mobilize External Assistance
While India’s financial needs for the expansion and improvement of secondary education are enormous, the Government of India has indicated its intention to allocate significantly increased domestic financing for this purpose under the 11th Five-Year Plan (2008–2012). Realistically, the estimated GoI allocation of US$13.5 billion for secondary education dwarfs whatever external assistance could be mobilized from external sources, whether multilateral, bilateral or a combination of the two. Nonetheless, external financial assistance is a promising strategy for secondary education for several reasons. First, external financial assistance can be used to pilot innovations and new models of secondary education more easily than can be done with government financing. Such external financing removes any trade-off between alternative uses of government financing which reduces opposition to pilots. In addition, external financing of pilot interventions typically comes with technical assistance and close monitoring to assess the implementation and impact of the pilots, which can increase the chances of success of the pilot and the generation of lessons learned for possible scale-up using government funds in a second phase. Second, external finance can mobilize international best practice and technical assistance more effectively than domestic financing. This will be particularly important for initiatives designed to improve the quality and assessment of secondary education. Third, external assistance often brings a rigor in fiduciary oversight, which can be helpful when the central government is increasing its financing of programs implemented by the states and would benefit from application of international norms in financial
management, procurement and auditing. In other words, external assistance can increase the accountability of the states vis-à-vis the central government, and the effectiveness of overall public spending on education. Thus, while the amount of external assistance for improvement of secondary education may be small relative to domestic financing, it can be of very high value.
Finally, external financing for India’s education system can still be mobilized on very favorable terms (grant basis for bilateral assistance or IDA-type terms for multilateral assistance). From an economic perspective, it would be better to use low- cost financing for secondary education if it is available, which would free up domestic funds for other uses (for which such low-cost financing may not be available). India’s economic growth is such that these favorable terms may not be available much longer (for example, if India’s GDP/capita surpasses US$750 it may become ineligible for IDA financing for education), which is a good argument for mobilizing these funds sooner rather than later.
5.7 Simulations of Future Secondary
Education Expenditures and
Affordability
Secondary education builds on the foundation of elementary education, and is meaningful to students only if they have mastered the requisite skills at the previous level. Universal secondary enrollment only becomes a realistic goal once universal completion of elementary education is achieved. The expansion of secondary education enrollment and expenditures will depend in large part on how fast the National Program for Universal Elementary Education,
Sarva Shiksha Abhiyan (SSA), can achieve universal coverage
and improve quality at the elementary level, so that graduates from Grade 8 can participate in secondary education and benefit from it. The speed with which these goals are achieved in elementary education, and the way secondary education is financed, will affect the resources needed for secondary education within the next two Plan periods.
5.7.1 Resource Implications
Incremental resources are needed to finance the additional students entering secondary education. More specifically, additional resources are needed to finance recurrent
expenditures such as teacher salaries, inspection, maintenance, and learning resources, and capital expenditures for additional classrooms, teacher pre-service education, teacher in-service training, laboratories, and other facilities.
Table 5.11 presents estimates of additional resource requirements to fund the additional students, under four scenarios that assume different rates of improvement of elementary and secondary education, assuming an annual GDP growth rate of 6.5 percent between 2007–2017.66 The first scenario simply extrapolates from
recent historical trends in enrollments in elementary and secondary education. The second scenario assumes that elementary level efficiency targets established by Sarva Shiksha Abhiyan are achieved by 2012 (retention rate increases from 71 to 75 percent; and the transition rate from primary to upper primary increases from 83 to 89 percent), which would increase the numbers of Grade 9 entrants. The third scenario integrates scenario two and
assumes improvements in the internal efficiency of secondary education, as well (decrease in repetition and dropout). The fourth scenario incorporates the second and third scenarios
66 Based on the CABE committee’s analysis, an additional quarter of
one percent of GDP on average will be required to improve the access and quality of secondary education.
and eliminates the “gate keeping” function of the Grade 10 exam, which increases the transition rate from secondary to senior secondary education from 75 to 90 percent.
The baseline is India’s GDP in 2005, at factor cost of Rs. 28,439 billion (US$ 653 billion), and total public spending on secondary and senior secondary education equivalent to 2005 Rupees 31.5 thousand crore (US$7.2 billion) or 1.11 percent of GDP in 2005.67 Viewed from a national perspective, if
GDP continues to grow at 6.5 percent over the next decade, the additional resource requirements for all four scenarios are affordable, although spending at the secondary level in real terms would need to increase significantly between 2008- 2015 to attain scenarios three and four. However, given the wide variation in state GDP growth rate projections, and the fact that states with lower secondary enrollment rates tend also to be poorer states with lower state SGDP growth, it cannot be assumed that all four scenarios would be affordable for all states. The so-called “lagging states” (Uttar Pradesh, Bihar,
Orissa, Rajasthan, Jharkhand and Chhattisgarh), in particular, would find it difficult to finance either the third or fourth scenario. A state-specific analysis is required of secondary and senior secondary enrollment projections, compared to current levels of recurrent spending and projected growth rates.
67 See Selected Educational Statistics, 2004-05.
Scenario 1 Scenario 2 Total (recurrent and investment) Spending on Secondary (2005 Rs. Crore) Annual Real Increase in Secondary Spending Total Secondary Spending as a % of GDP Total (recurrent and investment) Spending on Secondary (2005 Rs. Crore) Annual Real Increase in Secondary Spending Total Secondary Spending as a % of GDP 2008 32,258 8.9% 1.00% 32,258 8.9% 1.00% 2009 34,712 7.6% 1.01% 34,712 7.6% 1.01% 2010 35,300 1.7% 0.96% 35,300 1.7% 0.96% 2011 37,209 5.4% 0.95% 37,209 5.4% 0.95% 2012 40,078 7.7% 0.97% 42,924 15.4% 1.03% 2013 43,127 7.6% 0.98% 45,159 5.2% 1.02% 2014 45,368 5.2% 0.96% 47,393 5.0% 1.01% 2015 45,262 - 0.2% 0.90% 46,499 - 1.9% 0.93% 2016 43,520 - 3.8% 0.82% 45,819 - 1.5% 0.86% 2017 40,589 - 6.7% 0.71% 41,915 - 8.5% 0.74% Additional Resource Requirements to Finance Expansion of Secondary Education Table 5.11
Scenario 3 Scenario 4 Total (recurrent and investment) Spending on Secondary (2005 Rs. Crore) Annual Real Increase in