Cess for education

The Common Minimum Programme of the United Progressive Alliance proposes to levy a cess on all taxes to raise outlay for education to 6 per cent of the GDP. Is this a good thing?

A number of questions arise. Should the country spend 6 per cent of the GDP on education? Should this be funded by the state? Should the state raise the needed resources from an earmarked cess? What should be the level of the cess?

Education up to high school should be the state's responsibility. In today's world dominated by knowledge and information technology any one with less than 8 to 10 years of education would be at a serious disadvantage.

Many countries provide such education free or at a modest cost. There are many externalities of a literate educated population. Not just the person who is educated but others also benefit from her education. The productivity of the economy goes up. Growth rate is significantly and positively affected by the level of the human skills that is, education level, in an economy.

Apart from these economic benefits, quality education is an effective way to provide equal opportunity to all. Thus for an equitable society education should be available to all. Even higher education to all deserving and capable, irrespective of their ability to pay, should be our objective. One may however require that the beneficiary of higher education that directly enhances a person's earning capability significantly should bear some of the costs.

A special emphasis on education is needed as we have a large gap to fill. The adult literacy rate was only 65.4 per cent at the all-India level as per the census of 2001 and much less for some of the states. Bihar had a literacy rate of 47.5 per cent, the lowest literacy rate of all states.

Female literacy rate for all-India was 54.2 per cent with Bihar at the bottom with 33.6 per cent. Also, the retention rate through the primary school is very poor. The enrolment rates in the primary school are 104 per cent for boys and 85 per cent for girls. The enrolment in middle school (standards VI-VIII) in 2000 was around 42 million whereas in primary school it was 112 million.

Not all those who enrol complete their education. Thus the loss of children from primary to middle school is large. Not only do we need to ensure 100 per cent attendance but also increase retention to near 100 per cent in primary school. We should also aim to have all students complete at least middle school.

While one accepts these, one may still ask, is there a need to raise resources allocated to education? Are we spending the money efficiently? Of course better expenditure efficiency is desirable. Yet there is a shortage of supply of education and we need to spend more.

Just increasing efficiency will not be adequate nor would increasing expenditure without improving effectiveness.

Teacher absenteeism is a major problem and also a  reason for high drop out rates. The solution is greater local control. Teachers should be made accountable to panchayat-parent committees and their pay and promotions should depend on them or at least on their recommendations.

This does not call for additional expenditure only a reorganisation of how education is organised. Experience with decentralisation has not been very encouraging in that the rural elite seem to capture the benefit and that the gram sabhas are not as effective as one had hoped.

This however is not too relevant here as it would also be in the interest of the rural elite to see that the teachers teach in the local school where his children also go.

There is, however, a large supply gap. Many schools are one-room schools. When a school does not have toilets for girls, they drop out. And there are many schools without toilets. Retention rate can be improved by providing facilities.

While primary schools are wide spread and access is by now reasonable for most parts of the country, middle schools are not provided by the public school system in many places. The required expenditure and lack of access both serve as major deterrents to many poor children. We need to provide not only more schools but also hostel facilities.

Even when one agrees that there is need to expand allocation on education, the question remains why raise it to 6 per cent of the GDP? Today the Centre and the states together spend some 4 per cent of the GDP on education of which nearly 50 per cent is on elementary education and 30 per cent on secondary education.

If we are to double the middle school enrolment to 84 million from the level of 42 million in 2000, and improve the quality of primary schools, 6 per cent of GDP on education does not seem unreasonable.

How should we raise the needed resources? Is an earmarked cess the best option? An earmarked cess is generally not efficient unless the cess can be looked upon as a user charge. Take the example of the earmarked cess on petrol and diesel for building highways. It can be looked upon as a user charge.

Those who use petrol and diesel are users of roads. Also their use of road is related to their use of petrol or diesel. The cess is thus a proxy for user charge for roads and highways and so justifiable. Education up to high school at least is a public good and we should not impose a user charge. Education should be funded from the General Budget.

What is the best way to raise additional resources for education in the Budget and is earmarking a good idea? Apart from cutting non-merit subsidies, cutting wasteful expenditure, reforming taxes that minimise possibilities of tax avoidance and better collection of taxes, to raise resources you need to raise tax rates or introduce new taxes.

A cess on all taxes is one way and perhaps as good as any other as it does not add any new substantial distortions that usually accompany most taxes.

Earmarking of taxes is generally considered suboptimal. It imposes a constraint on allocation of resources. Why should a particular allocation remain optimal for years to come? There is a lot of merit in this argument.

Yet earmarking in our situation makes some sense too. It is for political discipline. If not earmarked for education, the money may disappear into more non-merit subsidies or unproductive expenditure.

What should be the level of the cess? Central government's tax revenue is around 8 per cent of the GDP. A 5 per cent cess will raise only about 0.4 percent of the GDP as additional tax revenue. It is much less than what is needed. The government still needs to commit that it will cut down other expenditures and increase allocation for education.

I would like to reiterate that raising resources by itself would have little impact. Measures to make expenditure more effective should accompany mobilisation of additional resources.

We should draw lessons from Madhya Pradesh's innovative education guarantee scheme, the experience of voucher schemes in some countries and the accumulated experiences in different states of India, to bring in efficiency and accountability.

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