EC-7-Economics-of-Education-English-munotes

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1 1A
CONCEPTUAL ISSUES IN ECONOMICS
OF EDUCATION
Unit Structure
1A.0 Objectives
1A.1 Meaning, definition, scope and importance of Economics of
Education.
1A.2 The relationship between education and the economic system.
The role of the economic system in (i) financing of education, and
(ii0 absorbing the educated manpower.
1A.3 Education as an indu stry
1A.4 Education as consumption and Education as individual, social
and national in vestment.
1A.5 Spill -over and inter -genera tional effects of educatio n.
1A.6 Referenc es
1A.0 OBJECTIVES
At the end of this lecture, you should be able to:
• Define economics of education;
• Differentiate between ordina ry economics and economics of
education;
• Identify the fundament al problem of econ omics of education; and
• Explain what an economist of education can do to solve the
fundamental problem in the educational system.
1A.1 MEANING, DEFINITION, SCOPE AND
IMPORTANCE OF ECONOMICS OF EDUCATION
Economics is a social science that studies how so ciety chooses to allo cate
its scarce resources, which ha ve alternative uses, to provide goods and
services for present and future consumption.
Economics as a social science subject concerns itself with making choices
and finding alte rnatives. It studies how society decides what, how and for
whom to produce goods and servi ces. Robbins defined Economics as a
social science subject that studies human behaviour as a relationship
between ends and scarce means which have alternative uses. munotes.in

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Economics of Education
2 Meaning and Scop e of Economics of Education :
Economi cs of Education as an area of study cannot be said to be a separate
field of inquiry that is totally diff erent from the ordinary economi cs.
Economics of Education is the appli cation of Econo mic prin ciples,
concepts, laws to the proc ess of Education. Economics of
education studies human beha viour (in terms of human deci sions),
action(s) and reaction(s)) about schooling (Babalola, 2003 ).It further
looks into how hu man beha viour affects econo mic devel opment.
Economics of educa tion is one of the branches of ordinary economics,
though, it is the study of how educational managers make official or
approved choices from scarce available resources which is meant for the
realisation of the best possible educa tional outcomes. Economi cs of
Education emplo ys the use of some ele mentary concepts commonly used
in labour economi cs, public sector economics, welfare economics,
growth theory and development economics. World known classical
economists like Adam Smith , Alfred Marshall, John Stu art Mill had
discus sed education and development extensi vely, advocating for public
investment in education. So, by the 1950s, economists gave attention to
issues such as the relationship between education and economic growth;
relationship between education and income distribution and also the
financing of education.
Economis ts analyse the production of education in this world where
resources such as the capital invested in buildings or technology and the
labour of the teacher wor kforce are necessa rily scarce. This scarcity of
resources means that polic ymakers must decide:
1. How much to spend on each stage of education (i.e. what to
produce);
2. How to provide educational services in a way that maximises its
benefits to society (i.e. how to produce edu cation); and
3. Who should have access to each stage of education (i.e. for whom
is education provided).
There are three decision ma kers or stakeholders in the educational system.
These are (1) The society (2) The institutions or providers (suppliers)
of education and (3) Individual or households (purchasers of education al
services). The t win problem of scarcity and choice face these major
stakeholders.
The fundamental problem of economics of education is how the society,
institution and the households make use of the limited human and material
resources they have, to best satisfy their unlimited wants for education.
The solution to the fundamental problem requires the application of
certain economic concepts.
The study of e conomics of edu cation in cludes private and social rates of
returns to educa tion, human capital and signalling theories of education,
non-pecuniary benefits of education, education and e conomic munotes.in

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Conceptual Issues in
Economics of Education
3 development, contribution of education to the economy, measurin g
educational expenditure, manpower planning, education al planning and
human resource development, educational cost, cost analy sis, educational
production, educational effectiveness and efficiency, costs -efficiency
and cost - effectiveness, cost -benefit analysis and economics of teacher
supply, educational and equity.
Check Y our Progress :
1. Define economics of education.
2. Differentiate between ordinary economi cs and the economics of
education.
1A.2 THE RELATIONSHIP BETWEEN EDUCATION
AND THE ECON OMIC S YSTEM. THE ROLE OF
THE ECONOMIC SYSTEM IN (I) FINANC ING OF
EDUCATION, AND (II) ABSORB ING THE
EDUCATED MANPO WER
Economic S ystem : An economic system is the structure of production,
allocation of economic inputs, distribution of economic outputs, and
consump tion of goods and services in an economy. It is a set of
institutions and their social relations. Alternatively, it is the set of
principles by which problems of economics are addressed, such as the
economic problem of scarcity through allo cation of finite productive
resources. An economic system is composed of people and institutions
including their relationships to productive resources, such as through the
convention of property. Examples of contemporary econo mic systems
include capitalist system , communist system, soc ialist system and mixed
economy.
1. Capitalist Economic System : A free market is a mark et without
economic intervention and regulation by government except to enforce
ownership and contracts. It is the opposite of a control led market, where
the government regulates how the means of production, goods, and
services are used, priced, or distributed. This is the con temporary use of
the term "free market" by economists and in pop ular culture; the term has
had other uses historica lly. A f ree-market economy is an econo my where
all markets within it are f ree. This requires p rotection of property rights,
but no coercive regulation, no coercive subsidization, no coercive
government -imposed monopolistic monetary system, a nd no coercive
governmental monopolies. Capitalism is a way of organi sing economic
relations based on private control over the means of producti on, including
farms, factories and knowledge. The 'private control' here usually
refers to control at th e level of an enterprise. The key to capitalist
control used to be o wnership, but now control usually rests in the hands
of top management, who run large corporations which are structured
in the form of bureaucracy. Capitalism as a s ystem involves some form of
economic competition between enterprises in a market. What drives the
capitalist system is t he struggle f or corporate survival and profit. munotes.in

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Economics of Education
4 Individual capitalists have little choice in their behaviour if they are to
prosper. Ca pitalism influences staffing, research, teaching and academic
knowledge. The capitalist cause in relation to higher education ad vocates
making education and academic work relevant to 'prac tical problems' and
'the national interest. In the capitalist econ omy, education is go verned by
market for ces.
2. Communist Econ omic System : Planned economy (or command
economy) is an economic system in which the state or workers' coun cils
manage the economy. It is an economic system in which the central
government make s all decisions on the production and con sumption of
goods and service s. Its most exten sive form is referred to as a command
econom y, centrally planned e conomy, or command and control economy.
In su ch economies, central economic planning by the state or g overnment
controls all major sectors of the economy and formulates all de cisions
about the use of resources and the distribution of output. Planners dec ide
what should be produced and direct lower -level enterpri ses to produce
those goods in accordan ce with national and s ocial objectives. Planned
economies are in contrast to unplanned e conomies, such as a market
economy, where production, distribution, p ricing, and investment
decisions are made by the private owners of the factors of production
based upon their individual interests rather than upon a macroeconomic
plan.
Communi sm is distinguish ed from sociali sm primarily by the maturity or
degree of development of the economic base of the new so cio-economic
formation —that is, the productive forces and product ive relations. It is
“socialist society in its developed form,” “the highest stage of
sociali sm”. When the new formation has reached full maturi ty, sociali sm
is transformed into complete communism. It emphasises common
ownership of the means of production and a planned, or command
economy.
3. Socialist Economic System : A sociali st economy is based upon the
principle of welfare of the people. As opposed to capitalism, a socialist
economic system is based upon the principle that economic activities
should b e undertaken so that people would be able to use goods produced
there of, instead of employing the production for profit. Many economic
philosophers had previously refused to believe in this system as a
legitimate one, but countries with so cialist economic system, have pro ved
the importance and succe ss of the element of socialism in the governance
of any economy. This has eventually led to the evolution of mixed
economies.
4. Mixed Economic System : A mixed economy is an economic system
that inclu des a varie ty of private and government control, or a
mixture of capitali sm and socialism. There is not one single definition
for a mixed economy, but relevant aspects include: a degree of private
economic freed om (including privately owned industry ) intermingled
with centralized economic planning and government regulation (which
may include regulation of the market for env ironmental concerns, munotes.in

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Conceptual Issues in
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5 social wel fare or efficiency, or state ownership and management of some
of the means of producti on for national or social objectives).
Relationship bet ween Economic S ystems and Education : There is
a very close relatio nship between education and the economic system. For
instance, in a socialist economy, the aims of education, curricula and
meth ods of teaching are determined keeping in mind welfare of the s ociety
at large with a focus on democratic ideals, secularism, modernization,
social reforms and national development. The control of education is
exercised by the central and/or the state gove rnments. On the other hand,
in a capitalist society, these de cisions are taken by the state
government whereas in a capitali st economy, these factors are decided by
market forces, i.e. by demand and supply.
Role of Economic System in (a) fi nancing of Education and (b)
absorbing the educated manpower : The dominant role played by
the state in the financing, regulation and provi sion of primary and
secondary education reflects the widely -held belief that education
is necessa ry for person al and societal well -being. The economic
organisation of educa tion depends on politi cal as well as market
mechanisms to resolve issues that arise because of contrasting views on
such matte rs as income inequality, social mobility and diversity. Today,
some capitalists have been owning or directly controlli ng instituti ons of
higher educ ation. Many corporations do pro vide funding to higher
education. Besides, capitalist also influence higher education in in direct
manner. The most important influence of capita lism on higher edu cation is
the existence of the capitalist system itself. Because it is a major
system of power in society, people and social structures adapt to
capitalism. On the other hand, in a communist society, financing of
education is done by the State. In the mixed econom y, financing of
education is shared both by indi viduals and the State. Similarly, in a
capitalist society, educated ma npower is absorbed by the economy
depen ding on demand for and supply of the skills and abilities of th e
individuals i.e. the market forces. On the other hand, in a communist
society, the State decides what type of manpower is required and
accordingly, education is p rovided to individuals and thereafter, they are
absorbed by the economy. In a m ixed economy, the individual depends
on market forces for gaining employment.
1A.3 EDUCATION AS AN INDUSTRY
Education as an Indust ry : Education presumably produces educated
individuals who, a re expected to ha ve enhan ced productivity. Thus, the
process by whi ch education transforms (relatively) unproductive
individuals into (relatively) productive ones is not to be understood. In
other words, it is essential to understand the educational production
function. Considering edu cation as an industry al so invol ves the issue of
standards and provides a reason to evalua te educational perfor mance using
means other than examination results. The transition into the labour
market provides a natural alternative ind icator of educational success .
There are many pathways that individuals can take through education in to munotes.in

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Economics of Education
6 work, including further education, higher education, apprenticeship
schemes and so on. Individuals with different characteristics ha ve
different likelihoods of passing through any one of these pathway s, and
econo mists have had considerab le success in recent years in modelling
this transition. The labour market for teachers is distinct from many
occupation -specific labour markets, for a number of reasons. First, teacher
training is a lengthy process and thus adjust ments in the market take time.
Secondly, for various reasons, feminisation of the teaching prof ession has
taken place that has left the market with a la rge pool of l atent sup ply.
Thirdly, government often has an important part to play in both the
demand an d sup ply sides of the market. All these features make
the market for
educators substantially different from other labour markets, and require
careful analy sis. Thus, education is termed as an industry as it
produces economically productive i ndividuals, it requires human and
non-human resources for carrying out this hu man production function and
in today’s context, market forces play an important role in the de mand and
supply of education.
1A.4 EDUCATION AS CONSUMPTION AND
EDUCATION AS INDIVIDUAL, SOCIAL AND
NATIONAL INVESTMENT
Education as an Investment : The economic view of education
traditionally has employed the hu man capital framework develop ed by
Becker (1964). In this framework, education is viewed primarily as an
investment wherei n indiv iduals forgo current labour market earnings and
incur direct costs in return for higher future wages. The original
theoretical work by Becker (1964), Ben Porath (1967) and others spurred
a tremendous amount of empirical work, whi ch has generally supported
the impli cations of the human capital model (Freeman 1986). As
individuals and nations increasingly recognise that high levels of
knowledge and skills are essential to their future succes s, spending on
education is increasingly considered an inves tment into a collective future,
rather than simply as individual con sumption. H owever, investment in
education competes for limited public and private resources. The
challenge of expanding educational oppo rtunities while maintaining their
quality and ensuring their equitable distribution is linked to questions of
education finance. Education is seen as an investment because it entails
costs in the present and becau se it increases productive capacity and
income (of the edu cated individual to be sure bu t also of society in
gene ral) in the future. Private returns accrue to indi viduals, while social
returns accrue to the whole society (including the indi viduals). In most
cases, private returns are greater than social returns be cause go vernments
give more in subsidies than they take away in taxes.
Developed nations around the world invest an average of 6% of their
gross domestic p roduct (GDP) in systems of public schooling. The
national importance of education is based on the signifi cant positive munotes.in

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Conceptual Issues in
Economics of Education
7 influence it has on in dividual li ves and on the welfare of communities.
Education is primarily a way to train children in the skills they will
need as adul ts to find good jobs and live well. But educa tion al so has
broader social and economic benefits for individ uals, families, and
society at large. These benefits are received even by peop le whose
relationship to the public school system does not extend beyond
“taxpa yer.” The wide spread improvement of social and economic
conditions is a direct outcome of an educated population that is able
to use information to make good de cisions in a bet ter manner and which
is collecti vely trained for work better. A great deal of re cent research
demonstrates how the benefits of supp orting publi c education extend
far beyond each child’s indi vidual academic gains. A population that is
better educated has less unemplo yment, reduced dependen ce on public
assistance programs, and greater tax revenue. Education also plays a key
role in the reduction of crime, improved public health, and grea ter
politi cal and civic engagemen t. Investment in public education results in
billions of rupees of social and economic benefits for society at large.
Education as Consumption : At the same time, the human capital
framework does not rule out that education may also provide immediate
consumpti on. Indeed, many economists have discussed the consumption
value of edu cation. For example, Schultz (1963) identifies current
consumption as one of three benefits of education, along with
investment and future consumption. For the most part, however,
consumption aspects of education have received relatively li ttle attention
in the li terature. Several trends suggest that consumption m ay be
becoming an increasingly i mportant part of the choice of whether, where,
and how to attend coll ege.
1A.5 SPILL -OVER AND INTER -GENERATIONAL
EFFECTS OF EDUCATI ON
There are “spillo ver” effects f rom educati on that transform indi vidual
gains into social gains. The personal, individual benefi ts of a good
education have broad benefi ts for society when improved “human
capital” c apacity – personal knowledge, skills, and judgment – is
taken by the indi vidual into the workpla ce, the public square, and the
home. For example, the entire society benefits when more people
are able to find adequate and stable employment. A better educated
work force not only leads to mo re research and innovation, but the
benefits of this economic innovation are then spread more widely and
powerfully throug hout a better educated public. Everyone al so benefits
when fewer citizens experience alienation or general distrust of others and
government. Besides, the children of well-educated parents are less
likely to seek public assistance, even when eligible. Each of these
examples is directly related to receiving a quality education. In short,
effective education improves decision-making abilities that then help
individuals stay out of trouble and live better, healthier, and longer
lives. As economist Milton Friedman wrote, “the education of my child
contributes to other people’s welfare by promoting a stable and democratic munotes.in

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Economics of Education
8 society”. This is known as the spill -over effects of education. Several
Governments in the world
have adop ted this approach and invested heavily in education as an
institution with signi ficant responsibility both for individual child
development and broader social and economic welfare. Despite the many
challenges that public educat ion faces, it is an effective way to prepare
large numbers of youth for their own future and for the overall welfare of
socie ty. Given the overall efficacy of education, it is also important to
determine the level of resources needed to maximize student achievement
and t he quality of teaching and learning that takes place in any given
school. Research has consistently shown that student achieve ment benefits
from small class size s, qualified teachers, safe school environments, and
up- to-date instructional materials and technology. The se things cost
money, as do the additional p rogrammes and services needed for students
with disabilities , and those with socio -economic disadvantages. We
often observe unive rsity students to have parents who went to universi ty
themselv es; the same type of observations seems to hold for school drop
outs and their parents. This simple observa tion could be i nterpreted as a
spill-over of schooling attainment from one generation to the next. In
order to avoid future generations to drop out of school, it would be
enough to ensure that today's generation stays in s chool. This line of
reasoning assumes that the education a parent receives will direc tly
influen ce the educational achievement of his off -spring. This mechanism
works via different channels, ranging from parent imitation to the direct
influen ce of the parents who gear their children towards higher
educational ca reers. We refer to this line of reasoning as the 'nurture'
argument.
Howe ver, this is not the sole explanation provi ded for the similarity of
educational careers over gene rations. One might al so argue that highly
educated parents have highly educated offspring because the parents have
passed on their genetically determined innate ability to their children,
which enables both generations to attain high levels of schooling. This
however would imply that increasing the educational attainment of one
generation would in this case not spill over into the following ones - the
"natur e" explanation. Finally, credit constraints can aspect the education
of parents and their children whether we assume that "nature" or "nurture"
matters. Low educational attainment is transferred over generations due
to low wages that will be ea rned with low education, constraining the
investment into human capital for the next gene ration and thus creating
negati ve spill -overs between generations and persistence of inequality
over generations. Estimating the contribution of the different effects to
inter-generational transmission of education is however not
straightforward. We can percei ve educational attainment of parents and
children and the income of paren ts, but we cannot observe and measure
innate ability. If we disregard parental ability however as an influen ce
by running a simple regress ion of parental education munotes.in

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Conceptual Issues in
Economics of Education
9 and inco me on a child's education we cannot interpret the estimates
since parental education and income can both be influen ced by ability as
well.
Present and Futu re Co nsumption : Choice also imposes opportunity
cost over time. The use of resources now means that those resources will
not be available for future use. A decision must be made, an oppo rtunity
cost enco untered, as to whether to allo cate for present needs or future
needs. Today versus tomorrow. Some goo ds will be consumed today and
some in the future. By reducing consumption today, future
consumption may be increased. Isn’t that one reason you are in school?
If you are not working full time, you are not consuming all you could. You
are postpo ning consumption. Why? Because you belie ve you could get a
better job (and one with more pay) if you have more training and
education. So you can consume even more later. Thus you postpone
current consumption while bu ilding up your skills so as to increase
consumption later. Again, a barrel of oil pumped from the ground now is a
barrel of oil that will not be available for consumption any day in the
future. So to use the oil today imposes forgone opportunities in the future.
Check Y our Progress :
1. Which a re the different economic systems?.
2. Differentiate between education as consumption and as an
investment.
1A.6 REFERENC ES
Babalola, J.B. (2003). “Fundamentals of Economics of Educatio n”, in
J.B. Babalola (Ed ). Basic Text in Educational Pl anning, EPPU. Ibadan:
Deparment of Educational Management, University of Ibadan. Hardwick,
P;Khan,B. and Langmead, J.(1994). An Introduction to Modern
Economics,4th Edition, New York:

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10 1B
COST OF EDUCATION
Unit Structure
1B.0 Obje ctives
1B.1 Expenditure v/s cost, Meaning of cost, Meaning of cost of
education and Types of educational costs
1B.2 Unit cost of Education: Its estimation. Its applications to
different levels, m odes and types of education. (Levels: Primary,
Secondary and Tertiary Modes: Formal and Distance, Types:
i) General i.e. Arts, Scien ce and Commerce, and ii) professional
and Techni cal)
1B.3 External and Internal Efficiency of Education
1B.0 OBJECTIVES
• To understand the concept of unit cost of education
• To identify different types of educational costs
• To understand how to compute unit cost of education
• To understand the concepts of internal and external efficiency of
education
1B.1 EXPENDITURE V/S COST , MEANING OF COST ,
MEANING OF COST OF EDUCATION AND TYP ES OF
EDUCATIONAL COSTS
There is a tendency to use the terms expenditure and cost interchangeably.
However, the terms ‘expenditure on education’ and ‘cost of education’
are not the same. Cost of education refers to the amount of money
spent to acquire or impart education. On the other hand, information on
expenditure on edu cation is more easily accessible and available from
budge ts and accounts of the Institution at the micro le vel and the Central
and S tate governments at the macro level. From the point of view of the
individuals, costs refer to the amount of money spent during a particular
period (generally a year) to acquire educa tion. From the point of view
of the state or the institu tion, it refers to the expenditure incurred on
education during a year. The term cost and ex penditure are used
interchangeably, but more popularly, we use the term 'cost' and refer
to cost per student pertaining to a particular level (primary, sec ondary,
higher secondary or university). Similarly, cost per student to the
institution/state for a parti cular cour se or le vel is calculated. But cost per
student in the institution/state may include expenditure incurred on staff munotes.in

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Cost of Education

11 salaries, equipment an d buildings, maintenance costs of apparatus,
library books, sports, etc. From the point of view of the indi vidual, cost
of acquiring education includes expenditure on books and statio nery,
school fees, travel cost and in case of students making use of hostels, it
will also include rent of hostel acc ommodation, mess charges, etc,
Meaning of Cost
In economics, in general, the concept of cost comes into play in the
production of goods or services. It needs to be noted that: (a) cost may
be expressed in terms of money or in non - monetary terms; (b) cost affects
a spe cific economic transactor: producer, seller, buye r, consumer, etc.
Thus, when the owner of a factor of production o ffers that factor to a
producer, the cost to the owner is represented by his ‘ consu mption
forgone’, while the producer incurs a precise and m easurable money cost,
made up of wages, interest, charges, etc.
In busines s, cost is usually a monetary valuation of (1) effort, (2) material,
(3) resources, (4) time and utilities consumed, (5) risks incurred and (6)
opportunity forgone in production and delivery of a good or service. All
expenses a re costs, but not all costs (such as those incurred in a cquisition
of an inco me-generating asset) are expenses.
Meaning of Cost of Education : Something of value, usually an amount
of money, given up in exchange for something else, usually goods or
services.
The education sector , as the producer of the service of ‘education’ and
like any o ther sector of activity, theoretically brings into play the same
concepts of cost. A closer look at the application of the con cept of cost to
educati on, howeve r, reveals three types of difficulty inherent in the very
nature of the activity of education, and arising mo re particula rly out of: (a)
the defini tion of the produ ction of education; (b) the identification of the
economic transactors concerned with education; (c) the fact that education
has the character of a public service.
By analogy with other sectors of a ctivity, it is accepted that the activity of
education con sists of producing a servi ce whi ch can be explicitly defined
by referen ce to the aims of the education system. For instan ce, one
product of education may be the preservation and enlargement of the sum
of human knowledge; another product is measured by the creation and
development of a civilization; yet another is measurable by the exp ansion
of the reserves of human resources. For the sake of simplicity, we shall
limit ourselves to the view that the production of edu cation con sists of
either transmitting or ensuring the assimilation of, a body of knowledge,
certain ways of behaviour, etc.’ In the first case, the output of education
is measured mainly by the number of enrolments and in the second
by the number of successes, or scholastic performance. The two
different definitio ns imply two different measurements of the quantity
of education produced by the same system. In contrast to what happens
in every transact ion relating to goods or services, the quantity of educa tion
supplied by the produ cer is not equal to the quantity acquired by the munotes.in

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Economics of Education
12 consumer. In estimating total or unit costs, the refore, it is necessary to
speci fy clearly whether the reference is to producer cost or consumer
costs; though even this assumes that a distinction can be dr awn between
the producer and the consumer of education.
The producers may be : the education establishment, the teacher, the
public authority (minis try of education) a private agency (in the case
of private e ducation) f amilies (who help to bring up children at home), or
any other non -formal teaching institution. The consumers are the pupils
and students and also families, which are, in a sense, ‘buyers’ of
education for their children. One could thus speak of: (a) the cost to the
agencies p roducing education, essentially education establish ments and
administrative or supervisory authorities; (b) the cost to the consumers of
education, essentially families
Types of Educational Costs:
Costs can be classified into two types :
(a) Individual or Private Costs
(b) Institutional or Public or Social Costs
(c) Direct Costs
(d) Indirect Costs
(e) Opportunity Costs
Individual Costs or Private Cost : Individual costs or private costs of
education are those costs of education incurred by a learner or by
his/her parents/guardians or by the family as a whole. These concern
individuals in fam ilies and represent costs which the indi viduals and the
families mu st bear in return for the education received. Individual costs
are of two types: direct and indirect. Examples of private costs are as
follows : Tuition and examination fees and other such fees,
institutional supplies, manuals and books, transport, uniforms and
foregone earnings.
(b) Institutional/Public/Social Costs : These costs concern society
and refer to such costs (or expenditure) as are borne out as a result of all
education and training activities in a society at a given point of ti me. Costs
incurred at the institutional level (government, private or mixed) are called
institutional costs or public costs of education. Public costs are those that
include financing by the government on the basis of taxes, loans and other
public revenues. The institutional costs of education are, generally,
analy sed in terms of (i) var iable and fixed costs of education, (ii)
recurring and non -recurring costs of education and (iii) current and
capital costs of education. Institutional/Public /Social cos ts are also of two
types: direct and indirect.
(c) Direct Costs : These are those costs that are directly visible. They
include all money expenditu re incurred on different items by the student. munotes.in

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Cost of Education

13 Direct costs are exp enses that can be separately identified and charged as
part of the cost of a product, service, or department. Typical direct costs
include items such as instructional and other programme materials printed,
fuel, oil and repairs of vehicles used for home -to-school transpo rtation,
centralised da ta processing services, in-house equipment repairs, field
trips, expenditure on tuition fees , other fees a nd charges, purchase of
books, stationary, uniforms, hostel expenses and transport.
(d) Indirect Costs : Indirect costs are those costs that cannot be directly
charged to a particular programme, but are attributed to services, which
are neces sary to operate the program. Such services include, but are not
limited to, accounting, budgeting, payroll preparation, personnel
management, purcha sing, warehou sing and centralised data processing.
Some programs cap the allowed indirect cost rates, others have an
administrative cap that limits a combina tion of dire ct administrative costs
and indirect costs, while others do not allow indirect costs at all,
requiring that the entire award amount be spent on direct costs. These
expenses are not paid direct ly to your school, but are a ssociated
with attending school. You and your family can control some of them.
The real nature of cost could be understood only when we understand the
different concepts related to the costs of education. As mentioned earlier,
cost is the actual expenditure of money
incurred on, or attributable to, a specific thing or activity. For instance: on
a query from a student as to how much cost would be for his/her
graduation, the college specifies the cost to be about Rs.
20,000/ - per annum, this is called a notional cost. But his/her cost was Rs.
30,000 when he/she completed his/her graduation; this is called the actual
cost (which depends upon all kinds of pri ces incurred during his
graduation in cluding priv ate costs).
The following table shows the various components of private and
social costs of education ; Social costs Private costs Direct
Costs • Teachers' salaries
• Other current expenditure
value of scholarships on goods
and services etc.
• Expenditure o n books, etc.
• Imputed rent • Fees
• Books
• Travel cost
Indirect Costs • Earnings foregone • Earnings
foregone

(e) Opportuni ty Cost : Opportunity cost is a concept you did not see in
the definition of economi cs. But not seeing it doesn’t mean that it isn’t munotes.in

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Economics of Education
14 there. There is yet more to say about the definition, but this is the logical
place to int roduce a rela ted concep t. Opportunity costs are everywhere,
due to scarcity and the necessity of choosing. Opportunity cost is not
what you choose when you make a choice -it is what you did not choose
in making a choice. Opportunity cost is the value of the forgo ne
alternati ve - what you gave up when you got something. The opportunity
cost of going to college is the money you would have earned if you
worked instead. On the one hand, you lose four years of salary
while getting your degree; on the other hand, you hope to earn more
during your career, due to your education, to offset the lost wages. Thus,
opportunity cost is the c ost of a lternatives foregone.
Let us consider a concrete but hypothetical example. Suppo se you are
working in a lea ther manufacturing company and by offering your service
you are paid Rs. 6,000 a month. Had you not joined the abo ve company,
let us suppose that you could ha ve joined a textile firm with a monthly
salary of Rs. 3,500. This means that your value in the next best a lternative
use is Rs. 3,500. From the individual point of view, this is called transfer
earning . Note that transfer earning is similar to opportunity cost. From
the societal point of view, this is called oppo rtunity cost which is Rs.
3,500 in keeping you employed in the l eather manufacturing company.
The three cost elements given above (i.e., social cost, private cost and
opportunity cost) can easily be combined to give an e stimate of the annual
cost per student for each lev el or t ype of edu cation. If there were no
wastage or repetition, this would be sufficient for a cost - benefit
calculation.
1B.2 UNIT COST OF EDUCATION
Unit cost of education means costs per unit i.e. per student, per graduate,
per credit, etc. Gener ally, unit in unit costs means the total number of
learners enrolled in a course in a particular year. Sometimes, it is said that
the number of learners actually attending the classes should be taken for
the purpose of calculation of unit costs and not the total number of
learners on roll. Alternatively, unit costs refer to the unit of output i .e.
successful learner or gradua te. This is called effective costs of education.
This type of c ost calculation education takes care of wastage in education
too. The difference between the effective costs and the no rmal costs of
education reveals the efficiency of the given level of educatio nal system.
Thus, we can calculate alt ernative forms of unit costs of education. These
are as follows :
Cost per learner (unit cost of ed ucation) = Total expenditure/Total
enrolment
Cost per learner actually attend ing the school = Total expenditure/ No. of
student attending classes Cost per successful learner = Total expenditure/
Number of pass- out learners (effective unit costs of learner) Cost of
education per capita = Total expendi ture/Total population
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15 Feature of Unit Costs Ana lysis
• For manpower planning and related purposes, the ‘effective unit
costs’ is important.
• The selection of unit in unit costs analysis depends upon the
purpose. As the costs are generally found to be highly sensitive
to the number of students, the student is most often considered as
the unit. But while calculat ing costs of classroom equipment,
the class forms the right unit.
• Generally, unit costs of education are calculated per year. It is
unreasonable to calculate the unit costs for one level by the duration of
a five year time period, and for another level/type of 3 year time
period.
Determinants of Educational Costs : Knowledge of the major
determinants of educational costs is essential for anyone thinking of
improving the level of education in the socie ty. The cost of an
educational plan or innovation is often expressed in terms of its total
cost to indicate the value of the total resources devoted to it. But for
diagnostic and evalua tive purpo ses, unit cost is more meaningful. Unit
cost is cost per educational nit, e.g,, cost per student, cost per school,
cost per teacher, etc. But education has multiple outputs measured
variously in terms of student achievement, number of graduates passed,
and so on. Hen ce, while estimating unit cost, due care should be taken to
avoid ambiguity.
For examp le, cost per student may imply:
a) cost per student enrolled:
b) cost per student actu ally attending school; or
c) cost per student successfully completing a given course.
The problem of deciding on the unit cost has to be solved carefully.
Choosing the number of students may not always be the right thing to do
because all costs do not vary with the number of the students; for
instance, the teachers and their salaries, the number of square meters of
building space, etc. Hence, cost per teacher or cost per s chool should also
be conside red. Educational costs may be divided into three categories:
• Those related to the students;
• Those related to the teachers; and
• Those related to buildings and equipment.
In a normal growing state, a co mposite u nit including all three could be
adopted. Unit costs are likely to rise due to changes in the price level,
increase in learner population, rise in the educational standards, demand
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16 age. In making long term forecasts, we have to take note first of the
increase in the number of students, teachers and schools and secondly, of
the rise in cost per unit. It is essential to break up the expenditure on
education, both by the government and priva te institutions, into different
components li ke recurring expenditure and cap ital expenditure.
Recurring expenditure (or cost) as the name suggests takes place regularly
at certain intervals. Capital expendi ture or costs, on the other hand, are
one time investments. Cost depends on: the level and structure of the
teachers' salaries; the a verage pupil -teacher ratio at ea ch level; the non -
salary costs of edu cation; and the capital cost for buildings and other
equipments. Of course, each of these factors ar e themselves determined
by a number of other factors like availability of funds, teacher, student
enrollment, etc. It is because of the variation in the se factors that
countries or states and districts within the country differ with regard to
their educati onal priorities and the corresponding expenditu re.
Check Y our Progress
1) Distinguish between cost, as used in economics and education in six
sentences.
1B.3 EXTERNAL AND INTERNAL EFFIC IENCY OF
EDUCATION
If we agree with human capital school and view education as a producti ve
investment in human capital, efficiency will beco me our first
consideration. As Psacharopoulos has poi nted out, ‘the choice of
investments must, therefore, be based on an analy sis of the external
efficiency of all compe ting uses of resources, from the point of view of
society’s ob jectives, as well as the internal efficiency of resource use.’
There are eviden ces from all over the world including India that have
identified certain behaviour patterns of educational cos ts. You may note
that total cost i ncreases with an increase in the number of students,
teachers and institutions. Unit cost, on the other hand, may increase,
decrease or remain constant as expansion takes pla ce. In order to study the
behaviour of costs of educa tion, we can calculate them along di fferent
dimensions: co st by level (like primary, secondar y, higher education, etc.);
cost by region (like rural and urban); total cost; unit cost; fixed and
variable costs; and average and marginal costs. The type of cost
analysis will depend upon the purpose for which it is needed. Ideally,
the cost per pupil enrolled and the cost per successful student should be
the same. This, however, is not usually the case because of the prevalence
of dropouts. Therefore, cost per successful student is higher than per
student enrolled. The difference is a measure of the efficiency of the
system, as the lower the difference the more efficient the system.
In economic terms, the concept of efficien cy can easily be defined as the
relatio nship be tween inputs and outputs, whereby economic efficiency is
increased by a gain in units of output per unit of input. This can occur by
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17 input or by deriving greater product ion from the same level of input. In
relation to education, we may say that various educational outcomes can
result from a varie ty of different combinations of inputs such as
teache rs, building s, class -size, curriculum, etc. The problem that confronts
economi sts and educators, however, is how to mix the inputs in the
right proportions to achieve the most efficient outcome. But the prob lem
is further compounded when we ask ourselves "What output should we
measure?' According to Sheenan, it is very difficult to specify a unit of
outpu t "becau se educational systems so often in practice have no
single well defined function, so also they have no single well-defined
indica tor of output."
Internal Efficiency : The internal efficiency of education is improved
when mo re educat ion outputs are produ ced at given education resources or
fewer education resources are used in producing the same amount of
education outputs. Thus educational economic analy sis is centrally
concerned with the production of education outputs and with educa tion
costs. Internal efficiency is concerned with the relationship between inputs
and outputs within the education system or within individual insti tutions.
As to public subsidization of education, the questions which external
efficiency tries to answe r are what is the optimal amount of
public subsidization in vested in educa tion and what is the desired mix of
different kinds of subsidized education. While what internal
efficiency concerns is how to all ocate the given pu blic subsidization
among competing u ses: training teachers, curriculum reform and
improving facilities and so on, and how to provide public subsi dization,
that is, financi ng consumers (students, or families) or financing producers.
In my opinion, i nternal effi ciency is at least as important as external
efficiency. Public su bsidization i tself is not the objective, and its objective
is to foster economic and social development by improving educat ion both
in quantity and in quality. If internal efficiency is low, education output
may go down, even with increased public sub sidizations. Under this
circumstance, the more public subsidi zation, the more wastage.
Consequently, the internal goals of educational ins titutions are harmed, so
are the wider objectives of so ciety. In the following, I will arg ue that
internal efficiency is neglected to some extent though it is also is ve ry
important. This neglect must be correct ed, with the face of the changing
world: increasing co st of education, growing financial constraints and
undimini shed thirst for (higher) educational opportunities and so on. It is
defined as the total number of pupils who are enrolled in the same
class as in a previous year, expressed as a percentage of the total
enrolment to the specified clas s. This indicator measures the extent and
patterns of repetition by class, as part of the internal efficiency of
education system.
External Efficiency : The external efficiency of education is improved
when more education ou tcomes are produced at given edu cation resources
or fewer education resources are used in producing the same amount of
education outco mes. Exter nal efficiency, is judged by the relat ion between
input and outcome with the objective of social welfare maximization. By
external efficiency an alysis, we can justify the investment in educa tion munotes.in

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18 based on certain manpower demands or the hig her social rate of return to
investment in edu cation than o ther alternatives. Some evidence showed
that in developing countries the average rate of retur n to human capital
inves tment is higher than the rate of return to physical investment,
even though we do not take into account the positive effect of education
on the productivity of physical capital. (Psacharopoulos, George and
Woodhall, Mauree n 1985, p.22) Therefore, government, as a rational
investor, should invest in education, since it is more profitable (or
beneficial if we consider social externalities) for society. Not only exte rnal
efficiency consideration affects the amount of public subsidi zation,
extern al efficiency is also important for gov ernment to decide which levels
or which kinds of edu cation should enjoy the priorities in public
subsidization. For example, it is widely argued that the social rate of
return to primary education i s higher than that of secondary and higher
education, so it should be paid more attention than the latter two. It
measures the incongruity between the characteristics of graduates and the
job market. The most common indicators of external efficiency in
education are estimates of the private and social rates of return to
expenditures on education at the different levels or types (e.g., academic
vs. vocational) of education. Unfortunately, at this point there is no good
country level indicator of the ap propriate le vels of access and quality of
education. There are seve ral reasons for this e xternal inefficiency such as
underinve stment in secondary educa tion, increased use of market signals
for planning and annual budgeting decis ions, excess "social demand " for
higher education and insufficient resource recovery, inaccurate selection
criteria, and inadequate educational finan cing methods.
There are four principal sources of inefficiency. The first is the leakage
of resources betw een the central government a nd the school through
misu se of grants, non-appointment of teachers etc. The second is the
leakage of resources within the school, mainly attributable to student,
teacher and head master absenteeism and student drop-out. The third is
the non-recruitment of teachers as well as deploying teachers to do tasks
other than teaching. The fourth is the allocation of resources within
govern ment schools, where cla ss sizes are largest in the early grades and
smallest in the later grades. Teache rs are the most valuable resource in
impro ving educational outcomes.

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19 2A
COST BENEFIT ANALYSIS IN
EDUCATION
Unit Structure
2A.0 Objectives
2A.1 Meaning of cost-benefit analysis. Its purpose and problems
2A.2 Profiles of age-education ear nings. Calculation private marginal
and benefit cost ratio.
2A.3 Interpretations and evaluation of rates of return on investment in
education.
2A.4 Cost Effectiveness Analy sis in Education. Difference between
Cost-benefit and Cost –Effectiveness Analysis.
2A.5 Concept of Cost Consciou sness in Education.
2A.0 OBJECTIVE
After going throug h the topic the learner will able to.......
• To understand the meaning, purpose and problems of cost benefit
analysis
• To analyse the age –education -earnings
• To interpret and evaluate the rates of return in education
• To differentiate between cost-benefit, cost-effectiveness and cost -
consciousness
2A.1 MEANING, PURPOSE AND PROBLEMS OF COST
BENEFIT ANALYSIS
Meaning :
A cost benefit analysis is done to determine how well, or how poorl y, a
planned action will turn out. Although a cost benefit ana lysis can be used
for almost any thing, it is most commonly done on financial question s.
Since the cost benefit analysis relies on the addition of positi ve factors
and the subtraction of negative ones to determine a net result, it is also
known as running t he numbers.
Cost Benefit Anal ysis: Definition:
A cost benefit analysis find s, quantifies and adds all the positive
factors. These are the b enefits. It then ide ntifies, quantifies and subtracts munotes.in

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Economics of Education
20 all the nega tives, the costs. The difference between the two indicates
whether the pl anned action is advisable. The real trick to doing a cost
benefit analysis well is making su re you include all the costs and all the
bene fits and properly quantify them.
Example : Cost Benefit Ana lysis
As the Production Manager, you are proposing the pur chase of a Rs. 1
Million st amping ma chine to inc rease output. Before you can present the
proposal to the Vice President, you need some facts to support your
suggestion, so you decide to run the numbers and do a cost benefit
analy sis.
You itemize the bene fits. With the new machine, y ou can produce 100
more uni ts per hour. The three workers currently doing the stamping by
hand can be replac ed. The units will be higher quality be cause they will be
more uniform. You are convinced these outweigh the costs.
There is a cost to purchase the machine and it will consume some
electricity. Any other c osts would be insignifican t.
You cal culate the selling price of the 100 additional units per hour
multiplied by the number of production hours per month. Add to that
two percent for the units that aren't rejected because of the quality of the
machine output. You al so add the mon thly salaries of the three workers.
That is a pretty good total benefit.
Then you calculate the monthly cost of the machine , by dividing the
purchase price by 12 months per year and divide that by the 10 years the
machine should last. The manufacturer's specs tell you what the power
consumpt ion of the machine is and you can get power cost numbers from
accoun ting so you figure the cost of electricity to run the machine and add
the purchase cost to get a total cost figure.
You subtract your total cost f igure from your total benefit value and your
analysis shows a healthy profit. All you have to do now is present it to the
VP, r ight? Wrong. You have got the r ight idea, but you left out a lot of
detail.
Purpose of Cost –Benefit Analysis:
The principles of cost-benefit ana lysis (CBA) are simple:
1. Appraisal of a project: It is an economic technique for project
appraisal, widely u sed in bu siness as well as go vernment spending
projects (for example should a business invest in a new information
system)
2. Incorporates externalities into the equation: It can, if required,
include wider social/environmental impacts as well as ‘private’ e conomic
costs and benefi ts so that externalities are incorporated into the decision
process. In this way, COBA can be used to estimate the social welfare
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Cost Benefit Analysis in
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21
3. Time matters! COBA can take account of the economics of time –
known as discounting . This is important when looking at environmental
impacts of a project in the years ahead .
The Main Stages in the Cost Benefit Analysis A pproach
At the heart of any i nvestment appraisal dec ision is this ba sic question –
does a planned project lead to a net increase in social welfare?
O Stage 1(a) Calculation of social costs & social benefits. This would
include calculation of:
O Tangible Benefits and Costs (i.e. direct costs and benefits)
O Intangible Benefits and Costs (i.e. indirect costs and benefits –
externalities)
O This process is very important – it involves trying to identify all of the
significant costs & benefits
O Stage 1(b) - Sensitivity analysis of events occurring – this relates
to an important question - If you est imate that a possible benefit (or
cost) is £x million, how li kely is that outcome? If you are reasonably
sure that a benefit or cost will ‘occur’ – what is the scale of
uncertainty about the actual val ues of the costs and benefits?
O Stage 2-Discounting the future value of benefits - costs and
benefits accrue over time. Ind ividuals normally prefer to enjoy the
benefits now rather than later – so the value of future benefits has to be
discounted
O Stage 3: - Comparing the costs and benefits to determine the net
social rate of return
O Stage 4: - Comparing net rate of return from different projects – the
government may have limited funds at its disposal and therefore
faces a choice about which projects should be given the go-ahead.
Check your progress
1. What do y ou mean by Cost Benefit Anal ysis?
2A.2 PROFILES OF AGE –EDUCATION -EARNINGS
For a long time the returns on educational investment were higher at lower
levels of schooling. The scarci ty of human capital in low -income
countries provided a signifi cant premium to investing in education. The
high returns on primary education provide an added justification for
making education a priority in developing countrie s. Over time, on
average, the rate of return to education has fallen. This decline coincides
with a signif icant increase in average years of schooling for the
population as a whole. During the last 12 years, average returns on munotes.in

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Economics of Education
22 schooling have declined by 0.6 percentage points (P sacharopoulos and
Patrinos 2004).At the same time, average s chooling le vels have inc reased.
Therefore, and according to theory, everything else being the same, an
increase in the supply of education has led to a slight decrease in the
returns on schooling. That is, if there are no “shocks” – such as changes
in technology –that increase the demand for schooling, then an increase in
overall s chooling le vels should leadto a decrease in the returns to
schooling. Over the r ecent decades, we have seen the returns to schooling
decline in many low-income countries, while the technologic al
revolution has increased demand for skilled labor in some developed
countries and the returns to schooling have increased. Amidst the
fluctua tions, there has been a downwa rd trend in the returns to
schooli ng since the 1980s. The proportion of the popula tion with
secondary schooling and above has risen markedly over the decades
while the proportion of the population with only primary has declined.
This means that primary education has beco me almost universal;
subsequently the returns to primary schooling have declined the most over
time. For secondary education, both rate of returns and the proportion
of population have risen together until the 1980s when the proportion
of the secondary education population appears to be inversely related to
the private rate of return to sec ondary education. Estimates such as these
have been used extensively in policy fora to argue that more needed to be
invested in educa tion, espe cially basic education. For example, in the
campaigns for “Education for All,” analysts have used these rates of
return as a call to action. While education is seen by many as a basic
human right, these econo mic arguments are seen as essential to releasing
the national resour ces to invest in schools and uni versities. In the
2002Educa tion for All Global Monitoring Report it is stated that
“available esti mates of rates of return for developing countries
consis tently show that both private and social returns to p rimary
schooling are higher than at secondary and tertiary l evels. Their
magnitudes are generally greater than typical returns to capital in o ther
economic sectors” (UNESCO 2002: 34). The Global Campaign for
Education (2005: 3) argues that: “education, especially for girls,
empowers families to break the cycle of p overty for good. Young women
with a primary education are twice as likely to stay safe from AIDS, and
their earnings will be 10 -20 percent higher for every year of schooling
completed. Evidence gathered over 30 years shows that educating women
is the singl e most powerful weap on against malnutrition – more effective
even than improving food supply. Without universal primary education,
the other Millennium Development Goals – stopping AIDS, halving the
number of people living in pove rty, ending unnecessary hu nger and child
death, amongst others – are not going to be achie ved.”
CALCULATION COST RATIO:
A benefit -cost ratio (BCR) is an indicator, used in the formal
discipline of cost-benefit analysis, that attempts to summarize the
overall value for money of a project or proposal. A BCR is the ratio of the
benefits of a project or propo sal, expres sed in moneta ry terms, re lative to munotes.in

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Cost Benefit Analysis in
Education
23 its costs, also expressed in moneta ry terms. All benefits and costs should
be expressed in discounted present va lues.
For example, For, Sarva Shai ksha Abhi yaan, how much money is needed,
how much to be given to each se ction, how to distribute it and what kind
of items is required for the project etc are all cal culated to ensure that the
project becomes successful.
BENEFIT COST RATIO FORMULA:
To create a benefit cost ratio e xample we’ll use Widget Corp. as our
fictitious business. W idget Corporation’s top account exe cutive has an
idea for a new wid get that will re volutio nize the widget industry. The total
cost to plan , develop and produce t he widget is $55,000. Once the
production line has been set up, the revolutionary widget sells like
hotcakes a nd produces record net profits for Widget Corp. of $500 ,000 for
the year. Using the formula listed abo ve, we can figure the benefit cost
ratio.
500,000/55,000 = 9.09
The final outcome of $9.09 is the dollar representation of a
$9.09 return for every $1.00 inves ted in the revolutionary widget. After
one year of sales, the revolutionary widget paid for it self almost te n
times.
BENEFIT COST RATIO ANALYSIS: - Using the benefit cost ratio
allows bu sinesses and govern ments to make de cisions on the negatives
and po sitives of investing in different projects. In other words, using
benefit cost ratio ana lysis allows an entity to decide whether or not the
benefits of a given project or proposal outweigh the actual costs that go
into the creation of the project or proposal.
Benefit cost ratio is simple enough to figure out, however, there are
benefit cost ratio calculators availabl e that take in to consideration other
factors that make the calculation a bit more complex. Factors such as
actual employee production or production line brea kdowns can cause the
bene fit cost ratio to change dramatically and so they must be accounted
for when delving into the details of a particul ar proposal or project.
Busines ses and gove rnments can benefit greatly by figuring out the cost
of a project versus its returns. For this reason alone, the benefit cost
ratio is an impo rtant formula to be used in th e decision making pro cess for
any p roject that might be presented.
Check your progress
1. What factors impact Benefit Cost Ratio?
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24
2A.3 INTERPRETATIONS AND EVALUATION OF RATES
OF RETURN IN EDUCATION
In finance , rate of return (ROR ), also known as return on
investment (ROI), rate of profit or sometimes just retur n, is the ratio of
money gained or lost (whether realized or unrealized) on an investment
relative to the amount of money invested. The amount of money gained
or lost may be referred to as interes t, profit /loss, gain/loss, or net
income/loss. The money invested may be referred to as the asset,
capital , principal , or the cost basis of the investment. ROI is
usually expre ssed as a percentage .
CALCULATION:
The initial value of an investmen t, Vi, does not always have a clearly
defined mone tary value , but for purposes of measuring ROI, the expec ted
value must be clearly stated along with the rationale for this initial
value. Similarly, the final value of an in vestment, Vf, also does not always
have a clearly defined monetary value, but for purposes of measuring ROI,
the final value must be clearly stated along with the rationale for this final
value.
The rate of return can be calculated over a single period, or expressed as
an average over multiple periods of time.
Single -period
Arithmetic return
The arith metic return is:



rarith is sometimes referred to as the yield.
Observing that education is the key to reaping the benefits of the
demographic di vidend in the form of a young population, Finance
Minister Pranab Mukherjee Monday announced a 24 percent hike
in the budget allocation for education.
"For education, I propose an allocation of Rs.52,057 crore, with an
increase of 24 percent over the current year," Mukherjee informed the
Lok Sabha while presenting the budget.
"Our demographic dividend, a relatively younger population compared
to developed countrie s, is as much of an opportunity as it is a challenge.
Over 70 percent of India will be of working age by 2025. In this context
universalis ing access to secondary education, increasing percentage of our
scholars in highereducation and providi ng skills training is necessary,"
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Cost Benefit Analysis in
Education
25
The alloca tion for Right to Education was meanwhile hiked by 40
percent.
"The ope rational norms of Sarva Shik sha Abhiyaan have been revi sed to
implement the right of children to free and compulsory education which
came into force from April 1, 2010. For the year 2011 -12, I propose to
allocate R s.21,000 crore which is 40 percent higher than Rs.15,000 cro re
allocated in Budget 2010 -11," he said.
The finance minister also said that vocationalisa ton of secondary
education will be imp lemented from 2011 -12 as a centrally sponsored
scheme to improve employability of youth.
The minister also announced a scheme for scholarship for Scheduled
Castes and S cheduled Tribes students in classes 9 and 10.
"Empowe rment flows from education. While the Scheduled Castes and
Scheduled Tribes s tudents ha ve access to post -matric scholarship, there
was so far a lack of pre -matric scholarship scheme.
"In 2011 -12, I propose to introduce a scholarship scheme for needy
students belonging to Scheduled Castes and Scheduled Tribes studying in
class 9th and 10 th. T his would be nefit about 40 lakh students," the
minister said.
Mukherjee also said that the propo sed National Knowledge Networ k,
which aims at conne cting 1,500 institutes of higher lea rning and research
across the country will connect 190 institutes b y March th is year whi le the
rest will be brought into the network by March 2012.
The minister a lso informed that the National Skill Development Council
(NSDC) is well on course to achieve its mandate of creating 15 crore
skilled workforce two years ahead of 2022, the stipulated target year.
"It has already sanctioned 26 projects with a total funding of Rs.658 crore.
These projects alone are expected to create more than four crore
skilled workforce over the next ten years.
"In the current year, skill training has so far been provided to 20,000
persons. Of these, 75 percent have found placements. I will provide an
additional Rs.500 crore to the National Skill DevelopmentFund during
the next year," he said.
Among other allocations in the education sector, the finance minister
announced grants of Rs.50 crore each for Aliga rh Muslim University's
upcoming campuses at Murshidabad in West Bengal and Malappuram in
Kerala and Rs.100 crore as a one-time grant to Kerala Veterinary
Animal Science Unive rsity.
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26 Also, Rs.10 crore each was allocated for setting up the Kolkata and
Allahab ad centres of the Wardha -based Mahatma Gandhi An tarrashtriya
Hindi Vishwavid yalaya.
The Indian Institute of Technolog y, Kharagpur will get Rs.200 crore a s a
one-time grant.
The minister also sanctioned Rs.20 crore to the Indian Institute of
Management, Kolkata for setting up a finan cial resear ch and training
laborato ry and Rs .200 crore for the Maulana Azad Education Foundation.
The Delhi School of Economi cs and Madras School of
Economics have also been allotted Rs.10 crore each.
Now we have to do calculation and find out that that what would this
investment will yield a nd at what rate? This wo uld ensure the rate on
investment.
Check your Progress
1. Calculate the rate of return in SSA as announ ced by the
Finance Minister by the end of 2025.
2A.4 COST EFFECTIVENESS ANALYSIS IN
EDUCATION
Cost-effect iveness e valuation is a comparison of the cost of implementing
a new information sys tem or upgrading an existing one to the costs that
would be involved in retaini ng the existing way of doing things (i.e. the
legacy system or the non-computerized approach). a new system does not
always represent an improvement. for example, upgrad ing an old
character -based user interface to a graphical user i nterface may not
provide a more usable interface and may not save time or cost.
Any educa tional intervention has an outcome and a cost. A measure of
the cost effectiveness is obtained by measuring costs against outcomes .
Uses
Analy sing cost effectiveness of an intervention can involve evaluating
various options, for example:
1. Reviewing a number of alternatives all of which are within the
realm of cost feasibili ty;
2. Considering which suppleme ntal programs ought to be used to
improve an educational outcome;
3. Trying to identify which program has the best average outcome per
student relative to the per -student cost.
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27 DIFFR ENCE BET WEEN COST BENEFIT AND COST
EFFECTIVENESS IN ED UCAT ION
Cost -benefit analysis is a term that refers both to:
• helping to appraise, or assess, the case for a project,
programme or policy proposal;
• an approa ch to making economic decisions of any kind.
Under bo th definitions t he process involves, whether ex plicitly or
implicitly, wei ghing the total expected costs against the total expe cted
benefits of one or more actions in order to choose the best or most
profitable option. The formal process is often referred to as eith er CBA
(Cost -Benefit Analysis) or BCA (Benefit - Cost Anal ysis).
The process involves moneta ry value of initial and ongoing expenses vs.
expected return. constructing plausible measures of the costs and benefi ts
of specific actions is often very difficult. in practice, analysts try to
estimate costs and benefits e ither by u sing survey methods or by
drawing inferences from market behavior. For example, a product
manager may compare manufacturing a nd marketing expenses with
proje cted sales for a proposed produ ct and de cide to produce it only if
he expects the revenues to eventually recoup the costs. cost–benefit
analysis attempts to put all relevant costs and benefits on a common
temporal footing. a discount rate is cho sen, which is then used to compute
all rel evant future costs and benefits in present -value terms. Most
commonly, the discount rate used for present -value calculations is an
interest rate taken from financial markets. this can be very controversial;
for example, a high discount rate implies a v ery low value on the
welfare of future generations, which may have a huge impact on the
desira bility of interventions to help the environm ent. empirical studies
suggest that in rea lity, people's discount rates do decline over time.
because cost –benefit analysis aims to measure the public's true willingness
to pay, this feature is typically built into studies.
COST -EFFECTIVENESS ANALYSIS
CEA is a form of economic analy sis that compares the relative costs and
outcomes (effects) of two or more courses of action. Cost-
effectiveness analysis is distinct from cost-benefit analy sis, which assigns
a monetary value to the measure of effect. Cost -effect iveness analysis is
often used in the field of health services, where it may be inapprop riate to
monetize health effect. Typically the CEA is expressed in terms of a ratio
where the denomina tor is a gain in heal th from a measure (years of life,
premature births averted, sight -years gained) and the numerator is the cost
associated with the he alth gain. The most common ly used outcome
measure is quality -adjusted life ye ars (QALY). Cost -utility analy sis is
similar to cost-effectiveness analysis. The concept of cost effect iveness
is applied to the planning and management of many types of organized
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28
In educati on CEA can be utili zed in the form of investment done in the
education sector and its subsequent result for example The Honorable
Finance minister has allocated Rs 21000 crore on SSA. Now an analy sis
has to be done so that whatever money has been inve sted had it been
yielding the desired result, or not has to be examined. If the r eturns are not
favourable then rethinking, re - planning and reconside ration has to be
done.
Check your progress
1. State the difference betw een Cost Benefit and Co st Effectiveness.
2A.5 COST CONSCIOUSNESS
A company -wide attitude about the topics of cost understanding, cost
contain ment, cost avoidan ce, and cost reduction. These da ys, it doesn't
matter what your product is -- any manufacturer can afford to save a few
dollars by avoidi ng unnecessary purchases. Even aerospa ce and defence
(A&D) companies, which were thought to be the ex ception, have
discovered that they, too, need to cease their free-spending ways and are
adopting more frugal procu rement practices. So education also has to
think on the same line and see that if cost could be cut if, if same
amount of investment can be utiliz ed for the many situations and
per unit cost can be reduced.
For example can the same classroom be utilized for Alternative Learning
purpose , can the same books be used for Adult Lea rning groups also,
can the same teacher be used for learning at various centre etc.
There is a four -step appr oach to reducing costs:
1. Create a center -led organization approach. The key to improvement
is a procure ment organi zation that cuts across business silos. It could even
be virtual -- rather than physically collo cated -- as long as it can o perate as
a cohesive unit. Cross - functional teams that are o rganized around
catego ries and technologies can help provi de the foundation for smarter
sourcing. Like having a core unit for subjects in schools so that once an
approach, a methodology is to be imple mented the core its taught and
then it pe rcolated down to each member with ease and even the new one
would get train ing from the same mebers.
2. Generate quick wins by reducing complexi ty. Reducing the
compl exity in the system will reduce the cost anyways. For example In
education it simply means that you need to keep the system simple. We
still in education have so much of paper work, everything to be
hand written, everything in individual work style, we must have format
for everything saving time and energy.
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29 3. Establish robust processes. More effective practices and other
innovations can help create lasting improvements in all aspects of the
educational process. Small improvements are the key to big results.
Examples include e stablishing pricing of education, negotiating the work
load, using material and resources in the teaching learning process and
leveraging your spend across categories.
4. Develop a fully inte grated cost reduction system. To ensure cost
effectiveness ensure that all systems, people and processes are
all the time a lert and aware that all the happenings in the field of
education are having a cost. The building, the energy supply ,the things,
the human resource are all there with a cost. So every thing is to be
utilized to a judicious extent, of course overuse and exploitation is to be
avoided.
Check your progress
1. Explain the concept of Cost consciousne ss
Reference: -
Coleman J (1990) Foundations of Social Theory. Cambridge. MA:
Harvard UniversityPress.
Gramlich EM (1990) A Guide to Benefit -Cost Analysis, (2nd
edition). Prospect Heights,IL: W aveland Press.
Heckman J (1998) Human Capi tal Investment Policy, Fiscal Studies 19(2)
pp.103 -119.







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30 2B
PRICING OF EDUCATION
Unit Structure
2B.0 Objectives
2B.1 Micro and Macro aspects of pricing of education (Theoretical
Study)
2B.2 Practical solution to the pricing of education especially at the
tertiary level
2B.3 Problem of capitation fees.
2B.0 OBJECTIVES
• To understand the macro and micro aspects of pricing of
education
• To identify practical solut ions the pricing of education
• To understand the problem of capitation fees
2B.1 MACRO AND MICRO ASPECTS OF PRICING
OF EDUCATION
Higher education in the 21st century has become increasingly
important for both individuals and the larger society. It is important for
individuals for the sake of enriched life, enhanced status and greater
earning power. It is important for the sa ke of economic prosperity in
general as well as for the advancement of democracy and social justice.
In spite of this, in most countries including India, edu cation is s uffering
from increasing austerity. Problems such as over-crowded classrooms,
staff shortage and declining teacher : student ratios, deteriorating phy sical
facilities, poorly maintained buildings, in creasingly demoralized staff,
poor salaries in most of the private, self -financed institutions and s oaring
fees are evident in India.
Many impo rtant questions about pricing of education are concerned with
the following que stions :
• Is higher education a good inves tment for students?
• Is higher education affordable to students from middle income
families?
• Is higher education accessib le to students from low income families?
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31 • How are the costs of higher education shared between students,
their famili es, and government?
These questions are interrela ted with some highly publicised issues. For
instance, reports of tuition charges of Rs. 20,000 or more have raised
fears that college has become unaffordable. Some believe that
government finan cial grant -in-aid policy should help people acquire
education at subsidi sed rates. Others argue that too much government
financi al grant -in-aid is provided. Further, as governments face
increased p ressure on their budgets, public higher education institutions
have had to cope with smaller appropriations and are relying more on
tuition as a source of revenue. Finally, ave rage faculty salaries have
recently been rising faster than inflation, but only after much of their
purchasing power was eroded during the high infla tion years of the 2008 -
2011.
The cost of higher education to students has a direct impact on access, so
that increases in cost are unders tandably of great concern to students,
parents, and education policymakers.
TRENDS IN PRICING OF HIGHER EDUCATION
Six trends in the latter years of the 20th and early years of the 21st
centuries —each with economic, political, and social roots and
consequences —are noteworthy for their impacts on the pri cing of higher
education and in turn on higher edu cational participation and acces sibility.
These trends, while var ying both among countries and within each
country, form the context for higher education’s currently widespread
financi al austerity as well as for the emerging policy solutions which
exhibit some very similar patterns despite local variations. These trends
are:
• The increasing unit (per -student) costs of instruction.
• The increasing enrolments.
• The increasingly knowl edge-based economies and the
consequent additional expectations heaped on higher education to
serve as a major engine of economic development and individ ual
betterment.
• The failure of governmental, or public, revenues to maintain their
share of the cost inc reases resulting from these pressures on higher
educational ex penditures.
• The trend toward increased globalisation, which contributes both to
the increasing cost trajectories and to the faltering governmental
revenues.
• The pattern of increasing liberalisation of economies and the resulting
decentralisa tion, de volution and pri vatisation of public and private
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32 SOURCES OF INCOME FOR HIGHER EDUCATION
The funds for higher education in India come mainly from three different
sources, viz, government, fee income from students and other sources of
income from philanthropy, industry, sale of publications, etc. Reliance on
gover nment for resources has almost more than doubled. On the other
hand, fee income has been drastically declining. Higher edu cation has
been largely a state funded activity with about three -quarters of the total
expenditure being borne b y gove rnment. The rel ative shares of non -
government sources such as fees and voluntary contributions have been
declining.
On the other side, the needs of the higher education s ystem have been
growing rapidly. It is being increasingly realized that public budgets
cannot adequately fund higher education, particularly when se ctors of
mass education are starved of even bare need s. A decadal experien ce with
adjustment policies is with clear co mpression in the higher education
budget. Indeed, the decline in plan allocations had s tarted even prior to
economic reforms. Hence, in the recent d ecade, the need for
experimentation with seve ral alternatives such as student fees, student
loans and privatisation is inten sified. Simultaneously, the demand for
higher educati on has been growing rapid ly with comparatively fa ster
growth in enrolment in higher educational institutions than the
growth in number of higher educa tional institutions. Even for the very
low enrolment ratios in India, it is being increasin gly reali sed that public
budgets cannot adequately fund higher education, particularly when
sectors of mass education are starved of even bare needs. As a
consequen ce, sev eral policy directions on new ways of diversifying
resources, resulting from a variet y of pressures and opportunities are
continually emerging with several alternative s, including student fees,
student loans and privatisation. The most serious casuality of all these is
undermining equity of access to higher education. Equity and soci al
justice demand that newly emerging beneficiaries from the secondary
education sector, who increasingly rep resent vulnerab le groups are able to
afford an access to higher education and eventually for an upward
mobility (Punnayya Committee, 1993). However , there is rarely any
systematic attempt to examine the impact of increase in fees on access to
higher edu cation.
2B.2 PRACTICAL SOLUTION TO THE PRICING OF
EDUCATION AT THE TERTIARY LEVEL
1. Increasing Unit (Per-Student) Costs of Instruct ion : The fundame ntal
financial problem of higher education all over the world begins with the
fact that universities face a trajectory of annual co st increase s. This
trajectory is the natural and quite appropriate rate of increase in the staff
salaries. This rate tends to track the rate of increase of salaries in the
general economy —or, if there is any real growth in the economy, at a
rate in excess of the prevailing rate of inflation. This phenomenon
is con cerned with of rising relative unit costs in sectorsof the economy
that are labour inten sive and productivity immune, or at least munotes.in

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33 productivity resistant. Accelerating this natural rate of unit or per -student
cost increa se are other factors peculiar to many uni versities that further
accelerate annual c ost increases in varying degrees in different countries,
depending mostly on available re venues as follows :
a. Technology : In goods -producing industries in the private sector,
technology lowers costs by substituting capi tal for labour and driving
down unit costs. In contrast, technology in higher education inc reases
costs suppo sedly altering the very nature and improving the v alue of the
product, but still requiring more revenue.
b. Constant Change : In higher education, new programmes are
added almost always fas ter than it can shed old programmes with their
faculty and staff.
c. Research : The costs are already high and rapidly increasing, especially
in the physical and bio-medic al sciences with their high technology
expenses. Thi s trend is especially exacerbated when faculty and
administrators aspire beyond their constant share of prestige or of the
enrolment market. It is particula rly evident in elite and would - beelite
universities, which seek greater scholarly reco gnition, better and more
academically qualified students, and higher international ranking s. Higher
education finance, in short, is burdened with a natural unit cost trajectory
that in normal years will exceed the average rate of increase of consumer
price s generally. That is, ev en in ordinary times, the cost trajectory will
naturally exceed the rate of inflation year -in and year -out.
2. Increasing Enrolments: The second trend, affecting national systems
more than individual universities, is increa sing enrolments. These
increases accelerate the financial impact of the aforementioned increases
in per-student costs because of three forces, which vary greatly among
countries. The first of these is demographics: specifically the change
(generally the gr owth) over time in the numb er of youth in the
convention al college or university age cohort (usually 18 through about
24). India, which is a low income country is experiencing increases in
the traditional university age cohort. The second force aff ecting
enrolments is the hi gher participation ra te of this cohort. This
increased participation rate is a function of: (a) increases in
enrolments at secondary levels; (b) changing employment opportunities
and a perception of increasing compe tition for these fewer “good” jobs
which will be enhanced by higher education and (c) an increasing regard
for social and economic mobility and justice. This third f actor leads to
polici es designed to increase higher edu cational participation,
particul arly among segments of the population who have traditionally
been less well rep resented: disadvantaged sections especially SC/STs,
women, students from rural areas, religious minorities, or other groups
considered to be educationally disadvantaged. A final factor affecting
enrolments is the increasing amount of higher education sought by ea ch
entering student, usually expressed in terms of final degree. This factor,
too, shows an accelerating trend as first-degree graduates perceive a need
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Economics of Education
34 example is the increased demand for MBAs and other professional
master’s degrees. Professions such as teachers and the non -physician
health professions al so show a trend of attaching new status to their
degrees, both to raise their stature and to limit the numbers allowed to
practice, which limi ts competition and en hances status and re muneration.
The first impact that increased enrolments has on financing higher
education is to increase the cost . Thus, maintaining quality requires
yearly budget inc reases, which are usually not forthcoming. At the same
time, however, increased enrolments make it easier to take management
actions that are extremely difficult in a time of stable or declining
enrol ments. Such management tactics include, for example, raising
student -to- faculty ratios or implementing new and more cost -effective
pedagogies. But when enrol ment remains level or declines, efficiency
measures almost i nevitably m ean terminating jobs, accom panied by the
extraordinary levels of resistance and demoralization that attend the
downsi zing of any institution.
3. The Increasingly Knowledge -Based Economy : The third factor
affecting the finan cing of higher education in virtually all countrie s is
the increasing tilt, toward services or the knowledge -based e conomy
of high te ch, design, finance, management and the like. The financial
impact of this increasingly knowledge -based econo my on higher
education is manifested by the new and usually more expensive
education al programmes offered and by a redistribution of fa culty and
students among these new programmes, both effects tending to further
accelerate the incre ase in per -student costs. The increasingly knowledge -
based economy also gives a premium to both individuals who have the
requisite higher edu cation and also to countries with higher education
systems that are high quality, oriented to needs of employers, and broadly
inclusive. This trend forms a third source for the incr easing revenue needs
of higher education everywhe re and for the even greater austerity that
results when the needed revenue is not forthcoming. At the same time, it
constitutes a strong argument for increased investments in higher
education from go vernments (where su ch increases are possib le and
politically fea sible) and from students or parents (also where such
contributions are politi cally feasible and technically possible ). Student
loans offer such opportunities, since the possibility that students will
be able to repay them is high, thanks to the better jobs they will thereby
obtain.
4. Higher Educational Austerity : The immediate effect of these
trends on the financing of higher education has been increasing austerity
in universities, in o ther institutions of postsecondary education and in
national systems of higher education. This nearly uni versal austerity,
which shows no signs of lessening, has resulted in the following
characteristics :
a) Univer sities and other ins titutions of higher e ducation are experien cing
the results of austerity as manifested by overcrowding in lectu re rooms,
restive and unhappy faculty, insufficient or outdated library, computing
capabili ty and internet connectivity, a deterioration of ph ysical plant s, less munotes.in

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Pricing of Education
35 time and support for faculty research and a widely as sumed diminution of
quality in teach ing, learning and research.
b) National system of higher education is also expe riencing di re
consequences: capacity constraints, the inability to accommodate all
products of secondary levels who are capable and desirous of further
study, a loss of the most talented faculty to countries with fewer financial
troubles and an increasing inability to compete in the global knowledge
economy.
c) Students are dismayed and resentfu l to be charged tuition fees
where there used to be none or to deal with very rapid increases where
fees already existed. Living expen ses have also increased, requiring a
larger percentage of students to work part -time or full -time w hile
attending school, to go into debt, or both. Many students are not even
fortunate enough to find a place, while those who left the secondary
school system without obtaining a certificate cannot even hope for the
possibility of tertiary educa tion. This austerity has been most serious
throughout the world’s de veloping countries and in many “transitional”
countries.
POLICY SOLUTIONS TO HIG HER EDUCATIONAL
AUS TERITY- Cost -Side Solutions : In response to these financial
pressures and increasing demands for accountability, uni versities and
national systems have sought solutions on both the cost and the revenue
sides. Solutions on the cost side include increasing class sizes and teaching
loads, deferring maintenance, sub stituting l ower-cost part - time faculty for
higher cost full-time faculty and dropping low priority programmes.
These solutions are difficult, academically problematic and hea vily
criticised, especially by the faculty and their politi cal allies who frequently
reject outright the claims of insufficient public re venues. Even when they
accept the basic economic principle of scarcity, they may have very
different notions of proper academic priorities than either their
governments or their v ice- chancellor s. The simplest solution is
frequently to impose enr olment ceilings or otherwise lim it capacity in
the low -price public institutions of higher education, including both
research universities and teaching -oriented colleges and technical
institutes. This solution inflicts the greatest damage on the goals of greater
participation and accessib ility. It forces increasing nu mbers of well -
qualified p roducts from secondary s chools into higher priced (and
generally lower quality) private coll eges and universities or into the fee -
paying tracks of t he public universities. And if family resources preclude
paying the se costs of pri vate ins truction and also meeting the high costs
everywhere of food and lodging, then these young people are forced into
jobs and must foreclose their a spirations to a post -secondary education. At
some point after serious politi cal negotiation for additional public
resources, strategic cost -side solutions accept the revenue li mitations and
seek to use available resources more wisely —that is, str ategically. Such an
approach requires neg otiating among the mix of goals that include even
such occasionally divergent aims as a cademic quality, capacity, social
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36 alike. The management of governmental agencies and the no rms of civil
service employment which prize continuity of employment above all else
are gene rally incompatible with many strategic cost side solutions to the
financial problems characteristic of universi ties and o ther institut ions of
higher educa tion. Typical problems with gove rnment agenci es are
laws, contracts and politi cal considerations that forbid terminating staff
for any but the most egregious rea son, hiring part time or temporary
workers, contracting out servi ces, carrying unspent funds forward from
one fiscal year to the next, or tran sferring available funds from one budget
category to another. There is a need to shift towards greater managerial
autonomy and flexibili ty on the lines of models associated with private
enterprise, allow greater managerial autonomy and incorporate more
flexibility in strategies. The se approaches are sometimes referred to
collectively as New Public Management and are designed to max imise the
unive rsity’s outputs of teaching and research for the public, or taxpayer.
Reven ue Supplementation and Cost -Sharing : Revenue
supplementation is an alternative to cost cutting and presents a preferred
route to fi nancial via bility. It may take th ese forms: (a) faculty and
institutio nal entrep reneurship (e.g., selling speci alized an d marketable
teaching or scholarship); (b) renting universi ty facilities to commercial
entiti es; (c) commercially marketing research discoveries; or (d)
fund raising, by appealing to alumni and other donors. However, its
most sustainable and po tentially lucrative form is what has come to be
known as cost -sharing. The term “cost -sharing” refers to sh ifting at least
some of the higher educational cost bu rden from gove rnments, or
taxpayers, to parents and/or students. Cost-sharing is fir st a statement of
fact— that is, that the costs of h igher education are shared among
governments/taxpayers, parents /students, and philanthropists. Howe ver, it
also refers to the art iculation of a policy that some of these costs must be
met, not by relying pred ominantly or even ex clusively on go vernments,
but by being shared a mong paren ts and/or students in addit ion to
taxpayers. Cost-sharing is most frequently associa ted with tuition
fees and “user charges,” especially for governmentally or institut ionally
provided room and board. However, a policy shift in the direction of
greater cost- sharing can take several forms.
POLITICAL AND IDEOLOGI CAL CONTEXT : Trends in pricing of
higher education are influenced by c omplex factors: (a) the countr y-
specific context, (b) global politi cs, (c) worldwide ideologies and (d) the
fiscal austerity with which almost all nations are grappling. These
factors impact the various policy solutions that are proposed. At the risk of
gross oversimplifica tion, a spectrum exists. At the extreme political and
ideological left is the view that the government should own virtually all
institutionalised means of production (including universities and colleges),
allocate resources, establi sh prices, and remunerate the staff. At the other
extreme are views associated with the far right that would diminish pub lic
employment and the size of the public sector generally, including publi cly
owned and finan ced higher education. The p olitical right tends to view
government, including bo th politicians and civil servants, as less
productive and more frequently self-serving, as preo ccupied with munotes.in

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37 maintaining the salaries and other emoluments that go with governmental
emplo yment, and as generally obli vious to the view that they must live
off the wealth created mainly in the private sector and diverted to
public use only by taxation or inflationary deficit financing.
Micro -level Pricing of Education
At the micro-level, the pricing of education takes the following
aspects in consideration :
• The total student enrollment at full-scale operation and the
pattern of enrollment g rowth after start-up. For estimating student
enrollment, a market analysis needs to be conducted . For this purpose,
trends at other charter institutions and in general enrollment, economic
and demographic shif ts in the community are examined. In addit ion, it is
necessary to hold an interest meeting for prospective parents and
students. Also, use conservative estimates. It is often easier for
institutions to handle a larger -than-expected s tudent enrollment than
manage the revenue shortfall caused by low enrollment. Beside s, account
for attrition. Some institutions experience an attrition rate of near about 10
percent during their first year of operation. Accounting for attrition will
produce more accurate estimates for years 2 and 3.
• The anticipated student -teacher ratio in classrooms and other
instructional programmes.
• The space, library and laboratory faciliti es and sports and hea lth
equipments, cultural p rogramme re quirements, canteen, transport,
computers and softwa res, counsellor, etc. for instructional
programmes and activities.
• In addition, revenue sources need to be kept in mind.
Check Y our Progress
1. How is pricing determ ined at the micro level?
2. What are the practical solut ions to the pricing of education?
2B.3 PROBLEM OF CAPITATION FEES
In India, over the years, there have been private initiatives in education
initially for philanthropic reasons and eventually in
professional and even in general higher education not only to meet the
growing demands but also to realize the huge and quick profi ts potential.
Privatization of higher education has emerged in several forms and types
in the recent decade in India. One, privatisation within go vernment higher
education i nstitutions take place in the form of introducing self -financing
courses within government institutions; two, converting government -
aided private institutions into private self -financing insti tutions; three,
allowing to expand self - financing private institutions with recognition and
also without recognition, which may be te rmed as commercial private
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Economics of Education
38 With the advent of privati zation, there has been an enormous
growth in the number of Private professional college s. This rapid growth
has no doubt contributed to a quantitative increase in the number of
colleges providing higher education but this has been at the cost of quali ty,
as the Governm ent does not exerci se sufficient contr ol over ‘unaided
colleges’.
Most Private colleges although adhering to standard admission procedures
like conducting entrance tests, interviews, etc. tend to admit students by
charging an exorb itant amount as capitatio n fee. Merit invariably takes a
backseat and those with the ability to shell out more money often tend to
get admitted, without fulfilli ng the admission requiremen ts.
With privatization, there is the risk of commercialization of education.
Although a compe titive atmosphe re would be created, some colleges
would concentrate on profit making rather than on improving the standa rd
of education.
Arguments for and against the Capitation Fee
The practice of charging c apitation fees by various institut ions
and uni versities h as been subjected to criticism on various grounds. It has
been often referred as ‘killing of merit’. In its emphatic judgement in the
Mohini Jain V/s State of Karnataka case, Sup reme Court declared that
charging of capitatio n fee was arbitrary, unfair and the refore in violation
of the fundamental right to equality contained in article 14 of the
Constitution. The Prohibition of Unfair Practices in Techni cal
Educational Institutions, Medical Institutions and Universities Bill, 2010
recognized capitation fee as a cognizable offence. On the o ther hand,
various private colleges have defended capitation fee on the g round that it
avails institutions with funds to re -invest in the institution which can be
utiliz ed for imparting qualit y edu cation. People favouring capitation fees
argue that for engineering colleges in most states, the permitted fee for
private -unaided colleges is in the vicinity of Rs 30,000 per student per
annum. Given that even most kindergarten schools charge a highe r fee
in the ci ties, one wonders exactly how the priva te institutions are expected
to provide high quality technical education for this fee.
The Minis try had been concerned over some technical and medical
institutes and universi ties resorting to unfair pra ctices. These in clude,
charging capitation fee and demandi ng donations, not issuing receipts in
respect of payments made by or on behalf of students, admission to
professional programmes of study through non -transparent and
questionable proc esses, low -quality delivery of education services not in
keeping with promises ma de, misleading advertisements in the media
with an intention to cheat, unqualified or ineligible teaching faculty,
forcible withholding of certificates and other documents.
The Prohibition o f Unfair Practice in Technical Educatio nal
Instit utions, Medical Educational Instit utions and University Bill,
2010 munotes.in

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Pricing of Education
39 Highlights of the Bill : The Bill seeks to prohibit s pecified un fair
practices in technical and medical institutions and universities t o protect
the inter est of students.
• Unfair practices include demanding or paying capitation fee;
admitting students without specified merit criteria; not issuing receipt
for any fee charged by the institution; publi shing advertisement
misleading studen ts; and withholding degree to compel a student to
pay a fee.
• The Bill makes it mandatory for every institution to maintain
records of the selection pro cess and publish a prospectus at least 60
days prior to admi ssion. The prospectus should include information
about fees, conditions of eligibility, process of admission and details
of faculty.
• The Bill imposes penalties for offences such as taking of
capitation fees, not adhering to the prospectus, publishing false
advertisements, etc.
Key Issues and Anal ysis
• Experts are divided over the issue of capitation fees. Some
contend that prohibition of capitation fee is required to ensure equity.
Others are of the view that steps to increase supply of educational
institutions would a utomatically reduce capitation fees since it would
address core issues such as shortage of seats and poor quali ty of
education.
• Although demanding capitation fees is illegal under current
regulation s, it has not been curbed. Since the Bill does not
change the enforcement mechanism for curbing capitation fees, it
is not clear how the practice would be stopped.
• The Bill states that its provisions do not affect the right of
minorities to establish and administer edu cational institutions.
Howe ver, it is not clear what pro visions the minority in stitutions are
exempted from.
• The Bill recommends a maximum of three years imprisonment and
prescribes a fine of upto Rs 50 lak h for offence s such as charging
capitation fees or publi shing misleadin g advertisement. The amount
is significantly higher than penalties for offences under some recent
Acts such as the Food Safety and Standards Act, 2006; the
Scheduled Tribes and Other Traditional Forest Dwellers (Recognition
of Forest Rights) Act, 2006.
Check Y our Progress
1. What are capitation fees?
2. How does the Government respond to this problem?
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40 2C


FINANCING OF EDUCATION


Unit Structure


2C.0 Obje ctives
2C.1 Sources of finance for educa tion: priva te, public, fees,
donations
2C.2 Endowments and grants. Grant -in- aid principles and
practices with special reference to higher education.
2C.3 Government’s role in financ ing education at different levels with
special reference to higher education.

2C.0 OBJECTIVES

• To understand the various sourc es of financing of education
• To be aware of the endowments and grant -in-aid principles and
practices
• To understand government’s role in financing of education

2C.1 SOURCES OF FINANCE FOR EDUCATION

There are multiple sources of finances for education in India. The
funds for higher education mainly come from three diffe rent sources, viz.
governme nt, fee income from students and other sources of income from
philanthrophy, indu stry, sale of publications, etc. Reliance on gover nment
for resources has almost doubled right from the first plan. On the other
hand, fee income has drastically declined. Other sources contribute around
10 per cent through out the period. Higher edu cation has been largely a
state funded activity with about three -quarters of the total expenditure
being borne by go vernment. The relative shares of no ngovernment sources
such as fees and voluntary contributions have been declining.

The needs of the higher education system have been growing rapidly.
It is being realized that public budgets are not adequate for funding higher
education, particularly when sectors of mass education are starved of
even bare needs. Hence, in the recent decade, the need for
expe rimentation with several alternatives such as student fees, student
loans, graduate tax and privatization is intensified.

The sources of finance for education in India can be broadly classified into
external and internal or domestic sour ces which are explained in the
following figure. External sources do not form a significant part of
educational finances in India. munotes.in

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Financ ing Education
41



(A) Internal sources: The d omestic/internal sources of funding a re
broadly divided into public and private sou rces. The public sources
include contributions made by central, state and local governments. The
private or non-governmental sources include fees and other household
expend itures in curred by the direct beneficiaries (students/parents) of
education and endowments and donations made by indi viduals, trusts,
etc. Among the private sources, fees is a c ompulsory payment where as
others are voluntary contributions.

Private sources of finance:

1. Student fees: It is well known fact that free and compulso ry
education is made at the primary stage, while fee structure at the
secondary and university level has remained constant during the post
independence period, attempts at raising fees structure incorporates a large
element of in -built sub sidy, which is given indiscrimina tely to all the
students, furthermore, Indian education policy provides an open in vitation
to all qualified students to involve in the institution of higher educati on
regardless of their capacity to profit from such educa tion. The academic
resources and the ph ysical resources available to the educational
institution are put to the severest strain.

There is a proposal to raise fees, but it adversely affec t the socially and
economically under pri vileged sections of the society. The suggestion
could be a differential fee system in which those who are able to
profiting from secondary and higher education a re given while those
who propo se to join these institu tions on the basis of o ther than
academic merit should be made to pay full co sts of education. There
should be the provision for scholarship and free ship so that no student of
merit is denied education due to economic reasons.

2. Educational Loans: The loans by banks and private institutions,
being repayable in easy installments, can create a self -generating fund
which can be recycled for the education of generations of students. It
would assist students to continue their higher education, becaus e the
education unemployment is increasing day by day which aff ects the
repayment of loans. munotes.in

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Economics of Education
42 It is proposed that, an alternative student loan scheme specifically for the
weaker sec tions should be e volved. Such a programme must be flexible
enough to suit their requirements, which may involve government
guaranteed lo ans, subsidized interest rates, liberal terms of repayment,
waive rs for those students with less future incomes, etc, in addition
to a strong student support system.

3. Individual/trusts donations: There is a decline in the proportion
of contributions for education from private sources, and the philanthropic
contribut ions have dried up. Therefore steps to be taken to augment
private resources for education as no government can finance entire
education sy stem: the combined efforts of the government and the
general public could meet the finance.

Various proposals have been made in this regard. Mahatma Gandhi had
suggested that the indust rial establishments sh ould set up colleges to train
technical h uman resources required by them, levying of cess on imports,
encouraging private entrepreneurs to donate for education through tax
remis sions, surcharge on land revenue and cess on urban property.

Public sou rces of finance: It includes the funds contributed from central
and state, university g rants, U.G.C., NCERT and financial aid.

1. Central government: provides grants -in aids for centrally
Sponsored schemes. These s chemes are formulated by the Central
Gover nment and are included in the Centre’s five year plans, the Centre
persuades the states to imple ment these schemes through financial
incentives in the form of grants -in aid which meet a larger proportion of
the total expenditure of the states on those sche mes. The Central
Government provides assistance, for centrally assisted schemes.

2. State Governments in financing education: The state meets the non-
plan and plan expenditure on education at all levels. The non-plan
expenditure is met from a states own revenue supplemented by the
financial re sources pa ssed on from Centre to the state through finance
commission. The state incur non - plan expenditure on education about
one-fifth of their revenue in a financial year.

3. Grant -in-aid of revenue: The constitu tion provides for transfer of
resources to the state government through grants -in-aid of revenue. The
finance commission identifies the particular state that would require
assistance for the period of the award as in article 275(1).

Under article 262, the Cen tral government set up planning commission in
1950 for making grants to the states for plan purpose. Grant in aid
or econo mic assistance utilities certain amount for education purpose.
This can be in the fo rm of gene ral grant and special grant, which is
provided in case of emergen cy. The Grant in aid amount can be utilised
for developme nt of primary education, increase in salary for the
teachers, research development in the institution.
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Financ ing Education
43 4. Funds of local bodies: This amount includes the funds of
Municipal Zilla Parishad and other areas which assist
development of education. The local community’s assist the local
schools and colleges for health and education service.

Municipali ty looks after munic ipal schools cleanliness, police and
other areas in the locality. The aid is provided in the form of municip ality
fund or municip ality club fund. Zilla Parishad looks after the functions
at district level, the objectives is to assist education at primary level and
secondary education.

5. Gram Panchayat: It would assist in financing education to a little
extent, the avenue sought from this area is utilized for education
purpose.

6. Endowment funds: The institution utilized this fund for the
interes t obtained from the end owment fund when required. This amount
is meant to utiliz ed only at the time of crisis. This amount is a long
term asset for the institution.

2C. 2 ENDOWMENTS AND GRANTS. GRANT -IN-
AID PRINCIPLES AND PRACTICES WITH
SPECIAL REFERENCE TO HIGHER EDUCATION

Education plays a crucial role in economic development and social
modernization. As a key factor in production, it supplies requisite number
and quality of persons needed for different tasks and by inculcating a mong
the mass of people appropriate attitudes, skills a nd personality traits.

It creates a proper climate f or development. Creating a well informed and
educated citizenry, it ensures the effective working of the basic
institutions on which economic and social well being of the nation
depends.

The cost for higher education is to be essentially borne by the government
or taxpa yers (as grants), parents or their substitutes (as tuition fees),
students and/or individuals (by availing loans or doing part-time work)
and donors (individuals or institutional ). Donation for higher education is
not a universal phenomenon and plays an insignificant role in financing
higher educa tion in most countries. This is mostly found in the U.S.A. and
the U .K. Financing of higher education by the govern ment is justified
on the ground that education, being a public good or at least a qua si-
public good produces many positive externaliti es. Posi tive externalities
would mean that since at large rather than the individual benefits from
higher education, the government should finance higher education. It is
widely accepted that education help in social mobility; therefore it is an
effective instru ment for promoting equity.

Education is a catalytic factor for the development of human res ources
with the provision for better health and nu trition, socio - economic munotes.in

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Economics of Education
44 opportunities and helpful natural environment. The principles are
efficiency, equit y, flexibility, national unity.

A) Promote national unity: Higher education promotes values like
national diversity, building tolerance, respect for differences and most
importantly building a united, modern democratic nation.

B) Equi ty: The higher education system has to ensure equal and fair
opportunities for all those who are eligible to enter the higher education
system. In particular, emphasis will be placed on poor students with
potential, the physically challenged, rural people, gender equity, and
others who have been particularly disadvantaged in the past.
Speci al attention needs to be given to increasing the number of women
students.

C) Ethics and integrit y: The higher edu cation system must uphold
the values of ethics, integrity and trust, act as role
models for students and make every effort to in culcate them into young
emerging leaders, intel lectuals and student s. Higher education teaching,
research and services are about the search for truth, problem solving,
and unravelling complex problems and challenges that affect people’s
lives and well being. Without hi gh ethi cal standards and in tegrity, such
efforts are meanin gless. Ultimately these qualities tog ether with skills a nd
knowledge will sh ape the character of students as critical citizens
contributing to sustainable development.

D) Good governanc e, Effectiv eness and Efficien cy: The principle
of effectiveness and efficiency are related but distinct. An effective higher
education system or institution works in a manner that leads to
achie ving its goals and objectives. An efficient syste m or institution
functions correctly, making optimal use of available resources without
duplication or waste. A higher education system that will ser ve in
achieving so cio-economic development must be both effect ive and
efficient.

Good governance is a key to effectiveness and efficiency. The creation of
high quality institu tions neces sitates improved human resource
managemen t, from initial efforts at staff recruitment to the administration
of research and other funding. Modern higher education must be flexible,
innovative and responsi ve.


2C.3 GOVERN MENT’S ROLE IN FINANCING HIG HER
EDUCATION

The main key to country’s current socio -economic success appears to be
education, particular ly the development of higher and professional
education. The corre lation between economic development and the
development of higher educa tion and the paramount importance of higher
education to economic and social development in the knowledge -based munotes.in

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Financ ing Education
45 economy are almost universally accepted. A great part of the succes s
of the Indian model in economic development stands upon the
foundation that India has built over time in its education sector – a large,
complex system to provide higher and professional edu cation that imparts
useful, usable skills reliably and on a large scale produces theoretical and
practical knowledge.

Broadly defined, the term “higher educa tion” in the Indian context co vers
the entire spectrum of education beyond 12 years of formal schooling.
Generally, it comprises three le vels of qualifications: bachelor or
undergraduate degree programs, master’s or postgraduate degree
programs and the pre-doctor al and doctoral programs – master of
philosophy and doctor of philosophy.

India’s independence in 1947 was wate rshed in its modern social
development. It forever changed the higher education system, which
has generally grown and improved steadily ev er since. By the end of
Tenth Plan (2002 -2007) the number of universities in India increased from
20 in 1947 to about 378, a thirteen fold incre ase. There are now 23 central
universities, 216 state universities, 110 institutions deemed to be the
universitie s, and 13 institutes of national imp ortance established th rough
central legi slation and 5 Institutions established through state legi slation.
The number of colleges increased from 500 in 1947 to 18,064 in 2006,
twenty -six fold increase. The number of university level teachers has
grown from 700 in 1950 to 4,92,000 in 2006.

All India Growth of Institutions, Enrolments and Teaching
Faculty at the higher Edu cation Level, 1950/51 – 2005/2006


Year Universities Colleges Total
Higher
Education
Institutions Enrolment
(‘000) Teachers
(‘000)
1947 -
1948 20 496 516 100 -
1950 -
1951 28 578 606 174 24
1960 -
1961 45 1819 1864 557 62
1970 -
1971 93 3227 3370 1956 190
1980 -
1981 123 4738 4861 2752 244
1990 -
1991 184 5748 5932 4925 271 munotes.in

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Economics of Education
46 2000 -
2001 266 11146 11412 8399 395
2004 -
2005 348 17625 17973 10481 472
2005 -
2006 378 18064 18419 - 492

The fastest growth in institutions was in 1950s a nd 1980s, as shown
above, reflect ing the small educational base in 1947 and the ambitious
expansion that independence spar ked. The growth was relatively slow in
1970s and 198 0s but pic ked up again from 1990s onward because of
increased demand for higher ed ucation, particularly in IT.

India has established a hu ge, complex modern system of higher
education. India’s institu tions of higher education can be classified
in several ways. They are divided by titles into universitie s,
institutes of national importance, and the colleges. They are owned
either by the na tional or state government or privately – in which case, the
can be aided or unaided. Dependi ng on h ow th ey function, they can be
affiliati ng universiti es, teachin g- cum affiliating u niversities, unitary
universities, federal universiti es and open universities.

Role of Government in Higher education:
Governments play an impor tant role in promoting and administering
higher educa tion institutions in India but the generally do so through
agencies set up for this purpose. The most important are the National
Planning Commiss ion (NPC), University Grant Commission (UGC), the
Central Advi sory Board of Education (CABE), and the c oordinating
councils t hat are co ncerned with professi onal disciplines.

The NPC is an advisory board es tablished in 1938 to formulate and watch
over the implementation of five year plans. The NPC acting at the central
level with t he Ministry of Education prepares a national educational
development plan in two parts – one dealing with the national
government’s direct responsi bility in educati on, and a second that is an
integra ted summary of state’s educational development plans.

Indian Educational Five Year Plans by Year

Year Plan
1951/1952 - 1955/1956 First Five Year Plan
1956/1957 – 1960/1961 Second Five Year Plan
1961/1962 – 1965/1966 Third Five Year Plan
1969/1970 – 1973/1974 Fourth Five Year Plan
1974 – 1979 Fifth Five Year Plan munotes.in

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Financ ing Education
47 1979 – 1984 Sixth Five Year Plan
1985 – 1990 Seventh Five Year Plan
1992 – 1997 Eighth Five Year Plan
1997 – 2002 Ninth Five Year Plan
2002 – 2007 Tenth Five Year Plan
2007 – 2012 Eleventh Five Year Plan

Although the market has a g reat influe nce on Indian higher education, the
central and state government play importa nt role. By setting up the
UGC in 1956, India’s government took a revolutionary step
towards implemen tation of quality standards in higher education. The
commission’s p rime duties were to monitor the establi shment of
universities providin g higher edu cation and the quality of teaching and
other integrated service in Universities and higher education institutions,
as well as providing grants for improvements. Government is active in
other ways as well.

CABE, establi shed to find ways o prom ote bo th autonomy and
accountability in Indian higher education, came up with a wide range
of recommendations in 2005. So far, nothing seems to have come of the
CABE report.

Finan cing higher education: Higher education has be en recognized as a
public good and go vernment has therefore assumed most of the
responsibility for its funding. The bulk of this spending goes to central
universities, state uni versities and deemed universities in the form of
maintenance or developmental gra nts from the UGC to organization or
organization and management committees at the state le vel. Most of the
public institutions are administered by the states and so they pay for up to
90% of their operating costs. 74% of total expen ses of state institution s are
funds from state expendi ture, only 26% from the central government.

The UGC, the central government’s main higher education funding
agency, uses almost 60% of its budget to finance the operating expenses
of the central universities and Delhi college s. The remaining 35% is spent
on the system at large. Most universities and all private unai ded
universities and colleges a re expected to meet all their expenses from
their own reven ue sources, mostly tuition.




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48 3

ALLOCATION OF FUNDS TO
EDUCATION IN THE 5 -YEAR PLANS


Unit Structure

3.0 Obje ctives

3.1 The concepts of five year planning.
3.2 Actual and estimated allocation of funds at different levels of
education in the Five-year plans (I-IX Plans), P riority for education
in the various five year plans.
3.3 Priorities within education in the various five year plans.
3.4 Educational expenditure and national economy.
3.5 Expenditure of educa tion, public education at different levels
(Central - State Level) in India.
3.6 Types of plans – Centr al, State and Institutional

3.0 OBJECTIVES

• To understand the concept of five year planning
• To analyse the five -year plan
• To identify the priorities in the five -year plans
• To und erstand educa tional expenditure and the types of plans

3.1 THE CONCEPT OF FIVE YEAR PLANNING

India has an old heritage of education but it was largely based on caste
and social status rather than being equally available to all. India has
emerged as a secular democracy with a state -led command economy after
Independence. Education for all and industrial development were seen as
crucial tools to achie ve economic prosperity and social equity. The Indian
Constitution resolves to provide quality edu cation to all. In the effort to
fulfill educational needs of the country, specifically for the diverse
societies and cultures of the country the government has chalked out
different educational categories viz., Elementary Education, Secondary
Education, Higher Education, Adult Education, Technical and Vocational
Education. Institutions of excellence in higher education were formed with
a view to pro vide sub sidized quality higher education to build a self reliant
and modern India. At present, India possess es a highly developed higher
education system which offers facility of edu cation and training in almost
all aspects of human’s c reative and int ellectual endeavors such as arts and munotes.in

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Allocation of Funds to
Education in the 5 -Year Plans
49 humanities, natural, mathematical and social science s, engineering,
medicine , dentistry, agriculture, education, law, commerce and
management, music and performing arts, national and foreign language s,
culture and communications etc.

The gove rnment initiative for the planned development of higher
education in the country and establishment of University Grants
Commission has transformed the elitist system of education favoring the
rich and higher cla ss to a more democratic and ma ss based system.
Around 40 percent of enrolments now comes fr om lower socio -economic
strata, and women comprising of approximately 35 percent of the total
enrolments.

Educational Goals under De velopmental Planning: The Government of
India Resolution of March 1950 had asked the Planning Commission to
make an assessment of the material capital and hu man resources of the
country, including scientific and technical personnel and suggest measures
to increase such manpower which is in short supply. The Planning
Commission was asked to prepare an action plan for most effective and
balanced utilization of the country’s total resources.

The Planning Commission in its report had suggested the following
lines of direction;

(a) Reorientation of the educational system and integration of
different levels and divisions functionally;

(b) Expansion in different fields of education, especially in those of
basic and social education, and remodeling of vocational education;

(c) Consolidation of the exist ing secondary and university education and
divising a system of higher education suited to the needs of the rural
areas;

(d) Expansion of facilities for wom en’s education, especially in the rural
areas;

(e) Training of teachers, especi ally women teachers, and teachers of
basic schools and improvement in their pay scales and conditions of
service; and

(f) Helping backward states by giving a preferenti al treatment to them
in the matter of grants

Most of the recommendations of the study team of the Planning
commission were accep ted and given effect under the various Fi ve Year
Plans.

Process and Nature of Planning for Higher Education: The plan si ze is
determined by the P lanning Commission in consultation with the munotes.in

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Economics of Education
50 Ministry of Human R esource Development, UGC and other experts
through the constitution of an expert group on higher education. The
development grant is essentially in the nature of ad hoc grant provided
once in fi ve years by UGC to the Central Universities on the basis of
negotiations. In allocating the plan grants to the universities, UGC
has scheme -based approach to fund higher education. Plans p repared by
the universities are scrutinized by the UGC and allo cations to the
universities are made under the different schemes.

3.2 ACTUAL AND ESTIMATED ALLO CATION OF
FUNDS AT DIFFERENT LEVELS OF EDUCATION IN
THE FIVE-YEAR PLA NS (I-IX P LANS), PRIORITY FOR
EDUCATION IN THE VARIOUS FIVE YEAR PLANS

Education ranks as an important impact of creating a social order founded
on the values of freedom, social justice and equal opportunit y.
Accordingly, it has had to be assigned a pivotal role in the developmental
process t hrough the plan periods. Rapid expansion of educational
facilities from one plan to another has been a characteristic feature of
educational plan ning in India.

First Five Year Plan (1951 -56) took note of the recommendations of
the University Education Commission (1948 -49) and the Constitutional
Provi sions of Universal Elemen tary Education. Accordingly it emphasized
the e xpansion of elemen tary education.

Second F ive Year Plan (1956 -61) laid g reat stress on basic education.
The A ssessment Comm ittee on Basic Education (1956) appointed by the
Government of India became the basis of the expansion and reform in
basic educa tion. In the field of secondary education, it was guided by the
recommendations of the Secondary Education Commiss ion (1952 -53).

Third Five Year Plan (1961 -66) emphasi zed the requirement of trained
manpower for the major de terminant of the measures of advance which
could be achieved in different directions.

There were three One -Year plans (1966 -69).

Fourth Five Yea r Plan (1969 -74) took into account the recommendations
of the Education Commission (1964 -66) and the Resolution on National
Policy on Education (1966) passed by the Government of India. The
chapter on education was entitled
‘Education and Manpower ’.

Fifth Five Year Plan (1974 -79) provided modest outlays for education
during the first three years of the Plan. The rule of the two
Governments by different poli tical parties, i.e., the Congress up to 1977 munotes.in

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Allocation of Funds to
Education in the 5 -Year Plans
51 and thereafter the Janata Government running in different directions was
not very conduci ve to development.

Sixth Five Year Plan (1980 -85) perceived edu cation, broadly as a
seamless continuum of life -long learning and essential for human resource
development. The emphasis in the development of educati on in the Sixth
Plan was on the optimum utilizati on of existing facilities, qualitative
improvement of system and making available the educational servi ces to
the socially deprived sections of the community. While it was recognized
that financi al outputs were impo rtant and necessary to crea te additional
infrastructure, it was equally important to bring about changes and
improvements in the system through in creased at tention to non -monetary
inputs.

Seventh Five Year Plan (1985 -90) The deve lopmen t of education during
this period was marked by the formulation of the Nation al Policy on
Education (NPE) (1986) and the Programme of Action (POA) (1986). The
Seventh Plan provided for reorientation of the education system so as
to prepa re the count ry to meet the challenges of the 2 1st century.
Launching of Operation Black Board (OB) for the improvement of
elementary education and ope ning of Navoda ya Vidyalayas at the
secondary stage of education in the rural areas providi ng free education
were the two important characteristics of the development programmes in
the field of education during the Seventh Five Year Plan.
Vocationalisation of education, especially at the senior secondary stage,
was yet another thrust area.

Eighth Five Year Plan (1992 -97) Quite a large number of educational
plans like plans in other sectors could not be implemen ted in the way as
envisaged by its formulators on account of rapid changes in the Central
Government. The formulation of Eighth Five Year Plan was also delayed.
The main objectives in the Eighth Plan, according to a vailable indi cations,
would be universali sation of elementary education and complete
eradication of illiteracy among the 15 -35 age -group.

Ninth Five Year Plan (1997 -2002) The Ninth Plan treats ed ucation as the
most crucial investment in human development. The Pri me Minister’s
Speci al Action Plan (SAP) has stressed the ne ed for expansion and
impro vement of social infra structure in the field of education. This goal
has been further elaborated in the National Agenda for Government
(NAG) which states: “We are committed to total eradi cation of illi teracy.
We will formulate and implement plans to gradually increase the
governmental and non-governmental spending on education up to 6% of
GDP; this to pro vide edu cation for all. We will implement the
constitutional provision of making primary education free and
compulsory up to 5th standard. Our aim is move towards equal access to
and opportunity of educatio nal standards up tp the school lea ving s tage.
We sha ll strive to improve the quality of education at all levels.
munotes.in

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Economics of Education
52 3.4 PRIORITIES WITHIN EDUCATI ON IN THE
VARIOUS FIVE YEAR PLANS: -

FIRST FIVE YEAR PLAN: In the post Independence period problems
of educational reconst ruction, expan sion, qualitative improvemen t and
financi al impli cations thereof were reviewed by several Commissions
and Co mmittees like, Scientific Manpower Committee (1947), the
Universi ty Education Commis sion (1948 -49) and the Secondary
Educati on Commission (1952 -53). The recommendations of these reports
together with the constitutional provisions bacame the basis for priority
determination in the First Five Year Plan.

1. General: A serious attempt should be made to achieve the
following b road targets

(a) At the conclusion of the Five Year Plan, educational facilities should
be provided for at least 60 percent of all the children of the school -
going age within the age group 6 -11.

(b) At the secondary stage, the target should be to bring 15 percent
of the children of the relevant age -group into educational institutions.

(c) In the field of social educat ion, at least 30 percent of the people
(and 10 percent of women) within the age-group of 14 to 40 receive
the benefits of social education.

2. Pre -scho ol education: In view of the short age of funds Government
can accept only limited responsi bility in this field, confined to research in
evolving methods suited to our needs, training of teachers, helping private
agencies who take up this work in the rural areas by giving grants -in-aid
and running a f ew model balwadis or nursery schools in each state.

3. Prima ry education: The provi sions of free and compulsory primary
education is the first neces sary step towards establishing equality
of opportunity for every citizen. All States should run, wherever
conditions permit, eight -year full-fledged basic schools instead of five-
year schools.

4. Secon dary education: must be closely related to the psychological
needs of the adol escents for whom it is being designed. In order to equip
the youth adeq uately for the needs of the existing socio-economic
situations, it is necessa ry to give secondary education a vocational bias.
Secondary education should be closely integrated w ith the ba sic education
and its essential development underlyin g principle s.

5. Universi ty educati on: In spite of their grave defects, the existing
universities are the only repositories we have of the tradition of organized
knowledge and the course of wisdom is to improve their working while we
attempt to build a system or systems better suited to our nee ds. We must munotes.in

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Allocation of Funds to
Education in the 5 -Year Plans
53 develop and apply selective tests on a large scale so that nobody is
allowed to go up for higher education who is not fit to profit by it.

6. Social education: The concept of adult educat ion to be widened
to include, in addition to literacy, the health, recreation and home life of
the adults, their economic life and citizenship training, and to denote this
new concept the term ‘social education’ was coined. Social education
impli es an all- comprehensive programme of community uplift
through community action. Attempt sh ould be made to organize an
economic activity on co-operative basis for social education in rural areas.

7. Professional education: Organisation of facilities for
professional education cannot be strictly related to the existing
opportunities for employment but should take into account the
developments planned in the various other spheres of nation al activity
which require technic al personnel. T he greatest need for ex pansion of
training facilities is at the l evel of arti sans a nd craftsmen. Institutions run
by the Ministry of Labour, trade schools, industrial schools, production -
cum-training centres should be opened on an extensi ve scale, so that the
skills of the large numbers of people, engaged in production or likely to
be so engaged, are developed.

8. Women’s education: Unlike boys, girls are forced to suspend their
studies in the early teens due to a variety of reasons and take up wider
responsibilities of the home. Arrangements
should, th erefore, be made to fa cilitate res umption of studies by women at
a time when they have leisure.

SECOND FIVE YEAR PLAN: The progress achieved in different
branches of education has been reviewed by the Central and State
Governments with a view to formulating programmes for the second five
year plan.

1. Elementary education: An aspect of the situation which causes
concern is the wastage which exceeds 50 percent at the prima ry stage. The
wastage is greater in the case of girls. Stagnation is the situation whe re a
pupil continues in the same class for more than the normal period. To
prevent wa stage the introduction of compulsion is e ssential. Its
enforcement may be easier if b usy agricultural seasons coincide with
school holida ys as far as possible. The princ iple remedy for stagnation lies
in improving the quality of teachers and teaching techniques, including
understanding of human relations and personality problems.

A major obstacle in the way of promoting girls’ edu cation is the dearth of
women teachers. The task of training women teachers has to be
approached as a matter of urgency.


As regards school buildings, it is inevi table that at the present stage
austere s tandards should be adopted. A school could be started under munotes.in

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Economics of Education
54 whate ver arrangements are immedia tely possible in a loc ality, and
common buil dings li ke vill age temples a nd panchayat ghars could also be
used. Once a school is actually functioning, the provision of a building
can be taken in hand as soon as circumstances are favou rble and local
contributions are forthcoming.

2. Basic ed ucation: In the spread of basic education certain administrative
proble ms have to be considered. The aim should be that new ent rants into
educational servi ces have had training in basic education. In organizing
training for basic teachers it is important to ensure the obse rvations of
high standards of teaching. Seminars, refresher courses and schemes of in-
service training shoul d also be organized. Further, post- graduate
basic training colleges needs to be affiliated to the universities so that
those who are trained there are able to go up for higher professional
training.

The practi cal value of basic e ducation and even i ts financial return can be
increa sed by linking it up with allied programmes like agriculture, vill age
and small industries, cooperation, devel opment and national extension
service, etc. and thereby giving a defini te place to institutions impairing
basic e ducation in the scheme of development in each district and each
block.


3. Secon dary educatio n: The Secondary Education Commission made
proposals for bringing about a greater diversity and comprehensiveness in
education al courses and providing more compr ehensive courses which
would include both general and vocationalsubjects. The Commission
recommended the establish ment of multipurpose schools, of technical
schools either separately or as part of multi -purpose schools and of speci al
facilities for agricultur al education in rural schools. A sound system of
secondary education, which offers openings in a large number of different
directions, is an essential foundation for economic development on
modern line s.

Plans of States do not provide in sufficient measure for the education of
girls, for, the number of high schools for girls is expected to increase from
1,500 to 1,700 only by the end of second plan. To enable girls to take up
careers for which openings exist and are li kely to inc rease (such as gram
sevikas, nurses, health visitors, teachers, etc.) special s chemes are
recommended.


4. Universi ty education: For improving the quality of universi ty and
college education and for reducing wastage and stagnation of students
who are unable to qualify, a number of measures are being taken by the
University Grants Commission. The se include the institution of th ree-year
degree courses, organization of tutorials and seminars, impro vement of
buildings, laboratories and libraries, provision of hostel facilities,
stipends for meritorious students, scholarshi ps for research and increase
in salaries of university teachers. In the course of second five year plan,
seven new unive rsities are to be establi shed. munotes.in

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Allocation of Funds to
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55
5. Technical education: In the second plan, a provision of about Rs.48
crores has been made for techni cal edu cation. In the course of the second
plan the Indian Institute of Technology, Kharagpur, will be fully
developed for under -graduate and post - graduate studies. Post -graduate
courses and re search in engi neering and technology at other selected
centres will also be organi zed. New schemes to be undertaken in the
second plan include Higher Technological Institutes establi shed in a
phased programme of these in the Western, Northern and Southern
Region s in the county. Each Institute when fully developed will provide
for a total student body of 1,200 for under -graduate courses and 600
for post-graduate courses and research.

Increasing demands for skilled workers and foremen a nd other superviso ry
personnel will need to be met during the second plan.

6. Social education: The total allotment in te plan for social education is
about Rs.15 crores, including about Rs.10 crores in the national
extension and community development progr ammes.

7. Higher rural education: To provide (a) fecilities for higher
studies to students who complete their post-basic or higher secondary
courses, (b) certificate courses in subjects such as rural hygiene,
agriculture and r ural enginee ring and also shorter courses, and (c)
comprehensive teaching -cum-research-cum- exten sion programmes in
rural areas, the Ministry of Education proposed to establi sh 10 Rural
Institutes in the second five year plan and have made a provision of Rs. 2
crores for this purpose.

8. Teachers: In the second plan Rs. 17 crores have been provided for
increasing training facilities for teachers and besides expanding existing
institutions, it is propo sed to establish 231 training s chools and 30 training
colleges. At the end of the second plan it is expected that the proportion of
trained teachers will increase to 79 and 68 percent in primary schools and
secondary schools respectively.

9. Scholarsh ips: With a view to providing greater equality of opportunity
in the field of e ducation and making available educatio nal facilities to
deserv ing students, about Rs.12 crores for scholarships are being provided
in the second five year plan. Scholarships are provided, amongst others,
from scheduled tribes, scheduled castes and other backward classes.

THIRD FI VE YEAR PLAN:

1. The Third Plan provides for setting up of six training centres for Bal
Sevikas. In the programme for education Rs. 3 crores have been allotted
for child welfare and allied s chemes at the Centre and about Rs.1 crores
in the State in addition to resourses available to the community
development and social welfare programmes. Schemes for child welfare
now being formulated by the Ministry of education include imp rovement munotes.in

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Economics of Education
56 of existing balwadis, opening of new balwadis , expansion of training
programmes for bal sevikas and a number of pilot projects for child
welfare in which education, health and welfare services will be organi sed
in an integrated manner.

2. Elementary education: The aim in the third plan was to provi de
facilities for the educa tion of all children in t he age -group 6-11. It was
estimated that by the end of the third plan 90 percent of the boys and 62
percent of the girls will be at school.

3. Basic education: During the third plan it was propo sed to
convert about 57,760 schools into basic s chools, to orient the remaining
schools to the basic p attern, to remodel all training institutions along ba sic
lines, to establish b asic schools in urban areas, and to link up basic
education with the develo pment activities of each local community.

4. Trained teachers for basic and other schools: By end of the third
plan, the number of training institutions for teachers will increase to 1424
and all of them will im part training on basic lines. For teacher s who
have not b een trained in basic education, short -term courses of training
in the simpler aspects of basic education are to be provided.

5. Secon dary education: In the third plan, special emphasis to be given
to strengthen the entire programme of the secondary school
reorganization, such as improvement in craft teachin g, organization of
school libraries, the better use of audio -visual techniques, etc.

6. Universi ty education: The number of universities has
increased from 27 in 195 0-51 to 46 in 19 60-61 and about a dozen more
universities are likely to be added during the third plan. In t he third pl an
larger f acilities are being provided for diverting students to vocation al and
technological edu cation.

7. Social education and adult literac y: The Ministry of Education
provides programmes for soc ial education. The educational plans of
states provide for libraries and continuation classes and
adult literacy. Altogether in the third plan, about Rs. 25 crores are
expec ted to be ava ilable for social education.

FOURTH FIVE Y EAR PLAN: The most important feature of the fourth
plan for education was i ts thrust on manpower planning. The plan
recogni zed that educat ional development at the higher level should be
broadly related to the patt ern of jobs and the estimates of demand in the
country for educated manpower. It was reali zed that as manpower was not
homogeneous, manpower planning had to conce rn itself with different
categories, such as doctors, nurses, engineers, agricultural graduate s and
craftsmen each hav ing its own level of education and specialization. It was
emphasized that a suitably oriented system of education could fa cilitate
and p romote social change and contribute to economic growth by training
skilled manpower for specific task of development. munotes.in

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Allocation of Funds to
Education in the 5 -Year Plans
57 1. Elementary education: The Fourth Plan recognized that
facilities f or elementary educat ion were a pre-requisite for quality of
opportunity and keeping this fact in view the provision of facilities for
girls and backwar d areas was accorded first priority. Efforts were directed
to remove the imbalan ces within states.

2. Secon dary education: It was expected th at the new pattern of
secondary education as recommended by the Education Commission
(1964 -66) would be impleme nted in many states during the Fourth
Plan. The main teacher education programmes needed attention were:
improving the quality of teacher education th rough in -service educa tion,
training of more women teachers and teachers from tribal communi ties
and training of mathematics and science teachers.

3. Higher education: In the field of higher education it was proposed to
extend correspondence courses to science disciplines also. The
Plan cautioned that proposals to set up new unive rsities would be
carefully examined by the University Grants Commission.

4. Technical education: Keeping in view the large scale
unemplo yment of engineers the main emphasis in technical education in
the Fourth Plan w as on improving its quality and standards.

5. Adult literacy: Mobilisation of volun tary effort and local
community resources was considered very vital for spreading adult
litera cy.

FIFTH FIVE YEAR PLAN: The Fifth Five Year Plan was
prematurely abandoned by the Jana ta Party Govern ment at the Centre. In
general terms the Fifth Plan paid emphasis on ensuring equality of
opportuni ties as part of the over-all plan of ensuring social justice.

1. Non formal education: From July 1975, programme of non- formal
education was introduced by the government of India to cover children
and also younger group who did not have opportunity for formal schooling
or left school for one reason or the other. The major categories of
population which received priority were (i) children in the age group of 6-
14, (ii) uneducated youth in the age group of 15 -35, (iii) specific groups of
men and women engaged in development activities or having common
occupational or social and cultural identity.

2. Secon dary education: In the secondary education secto r, efforts
were made to implement the new pattern of education, i.e. 10+2

3. Universi ty educati on: The main emphasis in university
education is on con solidation and impro vement. Provision is, however,
being m ade to provide additi onal educatio nal facilities to weaker sections
of society and in the backward areas. Facilities through e vening
colleges, corresponden ce courses and priva te study will be expanded.
Post-graduate education and research will continue to be strengthened munotes.in

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Economics of Education
58 through the d evelopment of centres of advanced study, science service
centres, common computer facilities and regio nal instrumentation
workshop s. Programmes of faculty development, like summer institutes,
seminars and orientation courses will be stepped up.

SIXTH FIVE YEAR PLAN: The Sixth Plan (1979 -83) initiated by the
Janata party Government was abandoned by the Congress Party after it
was voted back to power in 1980. The Congress Party changed the years
of the plan 1978 -79 to1984 -85 to 1980 -85. The emphasis in the
development of education in the Sixth Plan was on the optim um
utilizati on the educational services to the socially deprived sections of the
community. It was highlighted that while financial outlays were important
and necessary to create additional infrast ructure, it was equally important
to bring about changes and improvements in the system t hrough increased
attention to non - monetary inputs, i.e., environment conducive to growth
and development, participatory manage ment techniques invol ving the
teachers’ and the students skill s, development of a relev ant academic
ethos opportunities for learning by doing and appropriate consideration to
the problems of education of the first generation planners.

1. Prima ry education: The Plan proposed a ten-year strategy to realize
the Constitutional Directive of providing free and compulsory
education to all children up to the age of 14 – an objective which should
have been achie ved in 1960, i.e., ten years after the commencement of the
Constitution. The S ixth Plan proposed unive rsalisation of primary
education for the age group 6 -11 to be achieved by the end of the Plan in
1985 and universali sation of middle le vel by 1990.

2. Higher e ducation: The sixth Plan launched by the Janata Party
Government had virtually declared a freeze of higher education. The
Congress Party which was also awa re of the undesirable growth of general
higher education and that especially at the undergrad uate level,
emphasiz ed the scope for and possi bility of greater use of infrastr uctural
physical facilities and resources which might need minimum addit ional
support to make them critically vi able.

3. Adult education: In the designing of strategy of adult
education, it was observed that the lot of the weaker sections like
women, scheduled castes, scheduled tribes and agricultural labourers as
well as slum dw ellers would be given priority.

SEVEN TH FIVE YEAR PLAN: Educational poli cies and programmes
during the Seventh Plan were undertaken in the light of the directions
contained in the National Policy of Education formulated in 1986.

1. Elementary education: Overriding priori ty will be given to realizing
universalisation of elementary education for children in the age group 6 -
14 years by 1990; this will continue to be part of the Minimum Needs
Programme. The emphasis will shift from mere enrolment to retention
of pupils in schools and to the attainment by them of basic e lements of munotes.in

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Allocation of Funds to
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59 learning. The objective is sought to be achieved throu gh a combination of
formal an d non -formal methods, focusing sharply on the needs of girls
and of children belonging to the economically and socially weaker
sections.

2. Adult education: Eradicati on of adult illiteracy and the
development of a programme of continuing adult edu cation i s a major
thrust area in the Seventh Plan.

3. Secon dary educati on: In view of the i mportance of linking education
with productivity, a major impetus will be given in the Seventh Plan to
vocationalisation of the higher secondary stage. Facilities for vocat ional
educati on will be suitably di versified to cover a large number of fields in
agriculture, industry, trade and commerce and services.

4. The main emphasis in higher educa tion will be on con solidation,
improvement in standards and reforms in the syste m to make higher
education more relevant to nation al needs and to forge forward and
backward lin kages of higher education with employment and e conomic
development. Expansion of general higher education facilities will be
carefully planned so as to take car e of the need to provide large access to
weaker se ctions and first generation learners from backward areas. In
doing so, emphasis will be laid on providing access to existing institutions
through appropriate reservation, scholarships, provision of hostel
facilities. A ne twork of fa cilities will be provi ded through open
universities, correspondence courses and part-time education to meet
social dema nd and the needs of continuing education.

5. Technical education: In the con text of the rapid modernization of the
economy in the near future and given the Seventh Plan objective of
improvement in productivity, technical education has to pl ay a lea ding
role. T he main emphasis will be on: Cons olidation of infrastructure and
faciliti es already created; optimum utilizati on of the existing facilities
with attention to cost effectiveness; identification of critical areas with a
view to strengthening the facilities in the fields whe re weakne sses exist in
the system at present; improvement of qualit y and standards of technical
education; modernization of engineering laboratories and workshop in
the technical education institutions, etc.

EIGHT FIVE YEAR PLAN:

1. Elementary ed ucation: Early Childhood Education(ECE) would be
expanded by a ttaching p re-primary classes to selectd primary schools.
Voluntary agencies and o ther NGOs would be encouraged and pro vided
finan cial as sistance by reorganizing the scheme of ECE. Integrated
Child Developme nt Schemes(ICDS) model would be supplemented by
Balwadis, Creches and Vikas Wadis.

2. Prima ry education: primary schools or alternatives to primary
schools li ke non -formal centres et. Would be provided to every child munotes.in

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Economics of Education
60 within a walking distance of one kilometer, with suitable adjustment f or
special cases. Voluntary agencies, factories, cooperati ves etc. would be
encouraged to set up part -time primary schools to serve several gropus of
children belonging to hilly, desert, forest areas and nomadic tribes, etc
with freedom to adjust the numbe r of school days, instructional hours and
appoint teachers on contract basis.

Besides expansion of school facilities, there will be need to improve the
quality of education by providing existing schools with sufficient
facilities. Therefore, the “operatio n blackboard” scheme will not only
be continued and compl eted during the eighth plan in relation to primary
schools but also extended to upper primary schools.


3. Teacher education: A large number of te achers will be covered
through in -service program mes, both institutional and distance education,
and reputed prof essional organizations will be encouraged to
conduct in -service and refresher courses for teachers. Open universities at
the national and sta te level will be encouraged to introduce i nduction
teacher training courses to supplement the efforts of the exis ting training
institutions.

4. Secon dary education: The expansion of seconda ry schools would
be regulated and new schools opened on selective basi s, particularly to
cater to the needs of deprived sections like gi rls and SCs/STs and in rural
areas generally. Quality improvement and the raising of the internal
efficiency of the existing (10+2) system would be emphasized.

5. Vocational educati on: Special attention will be given to parame dical
vocational courses to meet the needs of health manpower in the eight
plan. In addition to vocational courses forming part of the higher
secondary courses, efforts would be made to offer varied courses of
suitable duration to women, rural and tr ibal s tudents and deprived
sections of society.

6. Universi ty and Higher education: At present, the higher education
system c omprising of gene ral, technical, medical a nd agricultural streams,
is fragmen ted in terms of structures and poli cies. Greater cooperatio n
among the streams should be encouraged by promoting network ing,
sharing of facilities and development of manpower including
teachers’ trainin g/ orientation facilities. There should be greater
coherence in policy and planning.

NINTH FI VE YEAR PLAN:

1. Elementary education: The problem of universal elementary
education and litera cy is tackled through a strong social movement with
clearly perceived goals and invol ving the Sta te and Central Governments,
Pancha yat Raj Institutions, Urban Local Bodies, volun tary agencies,
social action g roups, the media and every supportive element in society.
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Allocation of Funds to
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61 2. Adult education: To spread lite racy in the rural and tribal areas which
are lagging behind, a disintegrated and de centralized mode of planning
and implemen tation will be adopted. Interlinkage of the adult education
programme with income generation, better health and nu trition, women’s
empowerment and overall rural de velopment wi ll be focused upon.
At the grass -roots level, people’s pa rticipation will be ensured in planning
and imple mentat ion of local prog rammes.

3. Secon dary education: The ninth plan will lay emphasis on the
revision of curricula so as to relate these to work opportunities. Girls and
members of disadva ntaged groups will be provided with scholarships,
hostels and other incentives, for facilitating their participation in
secon dary education. Compensatory education will be provided, whe re
necessary, for meeting the equity criteria. Pre -vocational trining at the
secondary level and employment -oriented courses at the higher secondary
level, suited both to industrial and agricultural d evelopment, will be
provided along with hands -on training. The Open Learning system will be
expanded and a wide v ariety of courses offer ed.

4. Universi ty and Higher education: The priority for the Ninth plan
will be the expans ion of education mainly in the unserved areas and with
a focus on impro ving the coverage of women and the disadvantaged
groups, using financial assis tance as a leve rage to secure better
performance of the system, updating of syllabi to enhance their relevance,
improvement in internal resource generation and implemen tation of a
model code of governan ce to reduce non-academic influence in the higher
education system.

3. Expenditure on education and national econo my:
Over the years, the percen tage of GNP spent on education has been
increasing which can be explained with the help of following table.

Financial Allocation to Ed ucation in Five Year Plans

(Rs. In crores)



Plan
Total
Plan
Outlay
Expenditure
Outlay
on
Educat
ion
Expenditur
e on
Educati on Percenta g
e of Plan
Outlay
on
Educati on
to Total
Plan
First Five Y ear
Plan( 1951-56)
2,356
1,960
169
153
7.2
Second Five
Year
Plan( 1956-61)

4,800

4,672

277

273

5.8
Third Five
Year
Plan( 1961-66)
6,209
8,557
560
589
6.9 munotes.in

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Economics of Education
62
Annual
Plans(1 966-69)
6,756
6,625
331
321
-
Fourth Five
Year
Plan( 1969-74)

24,882

16,160

822

786

5.0
Fifth Five Year
Plan( 1974-79)
53,411
42,300
1,285
912
3.3
Sixth Five Y ear
Plan( 1980-85)
1,72,210
1,49,750
2,524
2,943 2.7
Seventh Five
Year
Plan( 1985-90)

1,80,000

-

5,733

-

3.5
Eighth Five
Year Plan
-
-
-
-
4.9
Ninth Five
Year Plan
-
-
-
-
6.2

Expenditure on Ed ucation in Five Year Plans (Per cent of Total)



















From the above tab le it has been observed that, during the first three Five -
Year Plans, on average about 7 per cent of the total Five -Year Plan
expenditure was spent on education, the corresponding proportion
declined to 5 per cent in the Fourth Five - Year Plan. It further declined to
3.3 per cent in the Fifth Five -Year Plan and again down to 2.7 per cent
in the Sixth Five-Year Plan. The propo rtion of national inco me allo cated
to education in India crossed 4 p er cent in the early 1990’s, but the level
could not be maintained. The allo cation in the Ninth, and probably in the
Tenth Plan is still much below the allo cation made in the very First Five -
Year Plan.

While there may be several factors, such as the war , drought and inflation
that led to this trend, the most unfortunate and disturbing long -term trend munotes.in

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Allocation of Funds to
Education in the 5 -Year Plans
63 in this regard is the slackening of governme nt effort to mobili se required
resources during the period of high economic growth (1986 -87 to
2001 -02).

3.5 EX PENDI TURE ON EDUCA TION, PUBLIC
EDUCATION AT DIFFERENT LEVE LS (CENTRAL
AND STATE LEV EL) IN INDIA:

Major share of expenditure on education is incurred by the central and
state depart ments of education. In addition, many other de partments also
undertake education and training activities. The expenditure on education
by the cen tre and the states is shown in the following table.

Plans Outlay and Expenditure on Education: Share of the
Centre and States

Sr.
No
. Outlay for
Education
(Rs. in crores) % outlay for
Education to
Total Plan Expenditure on
Education
(Rs. in crores)
1. First Plan
Centre State
Total
44
126
4.9
8.7
32
131
2. Second Plan
Centre State
Total
70
207
2.7
9.2
70
203
3. Third Plan
Centre State
Total
148
412
560
4.1
10.6
7.5
152
437
589
4. Fourth Plan
Centre State
Total
271
551
3.1
7.8
241
454
5. Fifth Plan
Centre State
Total
405
880
2.1
4.5
-
-
6. Sixth Plan
Centre State
Total
735
1789
1.6
3.6
601
2288
7. Seventh Plan
Centre State
Total
1739
3994
-
-
-
-
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Economics of Education
64 As discu ssed in earlier topic s, under the Constitution, education is a
concu rrent subje ct and educational planning. It is done at two levels –
Central lev el and State. In the course of planning, an elaborate
organizational machine ry has grown at the Central and State levels for the
formation of Five Year Plans. To assist in the formulation of the plans at
the Central level, the Education Divi sion of the Planning Commission
works in close liaison wi th the Educat ion Division of the Ministry of
Human Resource Development. At the State level the Planning and
Education Departments prepare detailed plans of educational development
in the State concerned.

3.6 TYPES OF PLANS

The Planning Commi ssion is a high-powered Central agency constituted
in March 1950 to prepa re a blue-print for develop ment of the country. It
has been entru sted with the task of a ssessing the resources of the
country, drawing up Plans for the development and utili zation of
resources within the framework of specified national priorities, and
determining conditions, modalities a nd adjustments needed for the success
of the planning process. The commission also appraises the progr ess of the
plans from time to time.

The Prime Minister is the Chairman of the Commission. In order to
achieve co-ordination among the States in implementing the plans and
to achieve targets s et in the Plans, an advisory body called National
Deve lopment Council (NDC) was set up in 1952, with the Prime
Minister as Chair man and Chief Ministers of all the States and
Administrators of the Union Territories as members.

Broadly speaking t e National Plans are formulated and finali zed in the
stage s. In the fir st stage, the rough projections and estimates, prepared by
the Planning Commission in consultation with the Central Ministries and
State Governments against the background of the long -term pe rspective,
are approved and modified, if necessary, by the NDC in the for o f
prelimina ry instructions.

In the second stage, State Governments/Union Territories prepare their
own Plans and send them to the Planning Commission which
dovetails these schemes, programmes and projects into an integ rated Plan
called the “Draft Plan”. The Draft Plan is then released for public
discussion.

The third stage consists of prolonged dis cussions between the members of
the Planning Commission and the representatives of different Central
Ministr ies, state Governments and Union T erritories, for arriving at an
agreement on the nature and the size of the Plan.

These tentative agreements are sent to the NDC after examination by the
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Allocation of Funds to
Education in the 5 -Year Plans
65 Planning Commission gives the final shape to the Plan, which
subsequently becomes the official national plan.

The Five Year Plan specifies the allocation, chalks out the poli cies and the
programmes, and sets targets of achievement s. There is a provi sion
for periodical apprais al of the Plan performance and every year
‘Annual Plan’ is drawn up with due modification but within the
framework of the Five Year Plan.

Central a nd state P lans: Under the Constitut ion, education is a
concurrent subject and educational p lanning, ther efore, is done at two
levels – Central and State. At the Central level, the Planning Commission
and the Ministry of Human Resource Development prepare a national plan
of educational de velopment which con sists of two parts – first, a central
plan dealing w ith the direct responsibilities with the Govern ment of India
regarding education including schemes of financial a ssistance to State
Governments for educational development in certain spe cific areas known
as the Centrally -sponsored schemes and second, an in tegrated summary of
the State Plans of educational development. At the state level the
Planning and Education Depar tments prepare detailed plans of educational
develop ment in the State concerned.

In the course of five de cades, an elaborate organi zational machinery has
grown at the Cen tral and State levels for the formation of Five Year Plans.
To assist in the formulation of the plans at the Central level, the education
Division of the Planning commission works in close liaison w ith the
Education Divi sion o f the Ministry of Human Resource Development.

In the planning of higher education, Education Department of the Ministry
is assisted by t he University Grants commission. Similarly for school
education, it is assisted by the National Coun cil of Educational Research
and Training.

Instit utional planni ng: can be discussed under three heads

1. School Principals a nd Institutional Planning: In his capacity as the
leader of a school, the Principal has to discharge two functions: as an
administrator and as the Supervisor.

To be an effective leader/supervisor, the Principal must posse ss three
types of skills: technic al skills, personal and social skills and co job of
the concep tual skills. The first job of the Principal should be to look at
the whole school system , assess the strengths and weaknes ses of his
staff members, and carefully create the ground work for various changes.
He will have to proceed in a planned manner. Five steps in Institutional
planning:
a) Individual and group conference s;

b) Discus sion with teachers and experts and identification of
problems;
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66 c) Survey of resourses;

d) Preparation of improvement programmes;

e) Evaluation of the programme

2. Institutional Planning and Teachers colleges: As for the
improvement of the syllabu s, a long-term planning is needed through
which we could in volve more and more teachers in revising the syllabus
and making it more up to date. There should be a better
representation of the teachers on the Board of Studies. All teachers
should continually review themselves and their contribution.

3. Role of Educational administrations in Institutional Planning:
Just as the community development programme is the people’s
programme so is the Institutional Plan, the plan of the school communi ty
consisting of the principal, the teachers, the students and the local peop le
for the improvement and development of physical and educational
facilities in the Institution. The suc cess of the programme depends on the
participation of the people concerned with the programme. This is the
basis for a sound national plan.

The success of institutional planning, implementation and proper
evaluation will depend on the dynamic lea dership, initiati ve and
personality of the District Educational Officer. He will be instrumental in
encouraging good work by securing special development grants for the
schools on the basis of performance.



 

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67 4

HUMAN RESOURCE DEVELOPMENT

Unit Structure
4.0 Object ives
4.1 Introduction
4.2 Relationship between Hum an Resources Management (HRM) &
Human Resource Developm ent (HRD)
4.3 Approaches to HRD
4.4 Need for HRD
4.5 Signifi cance of Education in Human Resourc e Development
4.6 Concept of ‘Manpower planning’
4.7 Need for Manpower planning
4.8 Importance of the need for human resource in relation to other form
of resources
4.9 Need of Manpower Planning
4.10 Human Capital in Relation to other forms of Resources
4.11 Purpose of Economics of Teacher Provision
4.12 Concepts of Demand and Supply of Teachers
4.13 Problems associated with Estimating Demand and Supply
4.14 Policy Implications of economics of teacher provision

4.0 OBJECTIVES

This unit deals with the con cept, approaches, need and signifi cance of
Human Resour ce Development and hence by the end of the unit you will
be able to:
• Describe the concept ‘Human Resource Development’
• Explain the need for Human Resource Development
• Discuss the implicati ons of H uman Resource Develop ment
• Describe the significance of Development of human recourses
through education
• Describe the Concept of ‘Manpower planning’
• Discuss the need for Manpower planning
• Explain the importance of the need for human resour ce in
relation to other form of resources
• Explain the need for economics of teacher provisi on’
• State the various factors on which demand and supply in
teacher education is linked,
• Discuss the concepts of demand and supply, munotes.in

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Economics of Education
68 • Describe the various policy impli cations for the difficulties in
estimating demand and supply in teacher education

4.1 INTRODUCTION

A well -prepared and motivated workforce is pos sibly the most
important of the three intangible assets to support an organisation’ s value
creating processes. According to Peter Drucker “The most valuable
asset of a 20th century company was its production equipment. The most
valuable asset of a 21st century institution will be its knowledge workers
and their productivity ( Drucker 1999). A great deal exists in the literature
about the provision of staff development and training as investment for
organisations. Staff development and staff training are parts of the bigger
concept of human resource devel opment (HRD). Traini ng is just one
possible way to organ ise and im plement lea rning processes in
organisations and not always the most effective one. Training and
development have come to be viewed as lifelong activit y, rather than the
front end acq uisition of qual ifications. As a result, the focus of concern
has shifted from what the trainer does, to what the learner requires. The
ultimate aim of the training and development process has been
characterised as the creation of the learning organisation, constantly
reviewing its mistakes and successes and adapting its activities
appropriately. The issues of workforce demographics, desirable
charac teristics of the workforce and the obstacles to achieving the
workforce which is well prepared, motivated and strate gically ready are
key elemen ts considered when dis cussing hu man resource development.

4.2 RELATIONSHIP BETWEEN HUMAN RESOURCES
MANAGEMENT (HRM) AND HUMAN RESOURCE
DEVELOPMENT (HRD)
The Human Resources Management (HRM) function includes a
variety of activitie s, and key among them is deciding what staff ing
needs you have and whet her to use independent contractors or hire
employees to fill these needs, recruiting and training the best employees,
ensuring they are high performers, dealing w ith performance issues, and
ensuring your personnel a nd management practices conform to various
regulations. Activities also in clude managing your approach to employee
benefits and compensation, employee recor ds and personnel policie s.
Human Resource Development (HRD) serves communiti es and people's
needs by develop ing resources that provide opportunities and e ssential
services such as health and nutrition, emergency services, affordable
housing, Head Start, youth development, volunteer oppo rtunities,
transportation, energy assistance and conse rvation and community
development.

Human R esource D evelopment (HRD) is the framework for helping
employees develop their pe rsonal and organi zational s kills, knowledge, munotes.in

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Human Resource Develop ment
69 and abilities. Human Resource Develop ment i nclud es such opportunities
as employee training, employee ca reer development, performance
management and development, coaching, mentoring, succession planning,
key emplo yee identification tuition assistan ce and organiza tion
development.

The focus of all aspects of human resource development is on developing
the most superior w orkforce so that the organization and indi vidual
employees can accomplish their work goals in service to customers.
HRD enc ompasses the broad set of activities that improve the
performance of the indivi dual and teams, hence the organi sation.

Human re sources is a term wi th which many organizations describe the
combinat ion of traditionally administrative personnel functions with
performance management, Employee Relations and res ource planning.
The field d raws upon concepts developed in Industrial/Organizational
Psycho logy. Human resources has at least two related inte rpretations
depending on conte xt. The original usage de rives from political ec onomy
and economics, where it was traditionally called labor, one of four factors
of production. The more common usage within corporations and
businesses refers to the indi viduals within the firm, and to the portion of
the firm's organization that deals with hiring, firing, training, and other
personnel issues. This article addresses both definitions.

4.3 APPROACHES TO HRD

Human d evelopment and HRD: Competing approa ches
Human development refers to the capacity of individuals to reach their
potential within a socie ty where political and economic processes are
transparent and sufficient to provide participation in decision -making. As
President of the World Bank Group, James Wolfensohn, has asserted,
"The message for countries is clear: educate your people; ensure their
healt h; give them voice and justice;... and they will respond." (World
Bank, 1998) Thus from the World Bank's per spective, human
development depends on investment in social and politi cal capital,
which when integrated with infra structure, and 'sound' and
appropriate economic and financial poli cies, mean that indiv iduals and
societies reach their potential. More explicitly, then, develop ment is: ... a
process of expanding the real freedoms that people enjoy. These
freedoms are both the primary ends and principal means of development.
They include the freedom to pa rticipate in the economy ... freedom of
political expression and participation, social opportunities including
entitlement to education and health se rvices, transparency guarantees
involving freedom to dea l with others openly, and protective security
guaran teed by social safety nets, ... honest governments, open legisla tive
and transparent regulatory systems ... an effective and impartial legal
system, with protection of and support for rights ... [as well as] physical
infrastructure .. energy, roads, transportation and t elecommunications.
(Sen and Wolfensohn. 1999). The goals of human development, then, are
not simply wealth -driven, although economic growth is necessary.
(Sen, 1998; Stiglitz, 1999) Ra ther the goals of human development are
directed at obtaining the benefits of, at least, core standards of health, munotes.in

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Economics of Education
70 welfare and education which are essential for citizens to participate fully
in all aspects of social, economic a nd politi cal life. (World Bank, 1999;) If
these latter are to be achieved then social, economic and politi cal policies
must be congruent with these objectives. Thus ideal models of human
development are multi - dimensional, with ea ch of the dimensions being
integrated into the broad fr amework as set out by Sen and Wolfensohn
(1999).

For many the noti on of HRD re tains its e arly and br oadest definition as
the process of increasing the knowledge, the skills, and the capacities
of all the people in a society. In economic terms it could be described as
the accumulation of human capital and its effective investment in the
deve lopment of an econo my. In political terms, human resource
development prepares people for adult participation in political proce sses,
particularly as citizens in a democ racy. From the social and cultural points
of view, the development of human resources helps people to lead fuller,
richer lives ...(Harbison and Myers, 1964, cited in de Silva, 1997).

The traditional ide al of HRD h as multiple dimensi ons which reflect the
full gamut of individual needs and rights. In this respect human resource
development focuses on capabilities and entitlements within a society.
As such human resource development is integrated with other
development issues such as, infrastructure and basic human rights.
Thus for development centred analysts, HRD is a subset of that much
wider set of processes pertaining to human development. Within this
approa ch HRD, is "the process of increasing the knowledge, the skills,
and the capacities of all the people in a society", is thus a necessary but
not sufficient element of the broader development objective.

Economic Approach to HRD
This economic or development approach to HRD has a very long history
with high levels of scholarship in the mode rn era. Adam Smith noted that
the capacities of individuals depended on their access to education. In the
1950s the de velopment centred HRD approach encompassed the new
development economics, (Hirschman, 1981; Lewis, 1955; Myrdal,
1968) augmented, inter al ia, since then with the development of human
capital thesis and the writings of develo pment economists such as rec ent
Nobel Pri ze winner Amartya Sen. The develop ment orientation indeed
draws heavily on work of scholars like Sen, who focus on core capacitie s
and entitlements of individuals as the basis for analysis. To expand
individual's "entitlements" and "capabilities" (Sen, 1992) is to
'develop' that indi vidual in order to develop the society and
economy. In other words, the development orienta tion to HRD is a subset
of the broader issues of development and is based on broad goals of
enhancing individual s' rights and capacities. Such an approach is different
from the narrowly economic perception of development as financial -
economic expansi on and trade growth. These we re the priorities of major
international bodies such as the IMF and World Bank until the late 1990s.
Economic growth was perceived to lead automatically to wealth creation,
which served as a proxy for development. Under t his regime, free markets
and trade liberalisation were prescribed as the means to economic
growth and so development. Under such a paradigm measuring munotes.in

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Human Resource Develop ment
71 development occurred by simple indicators such as GDP per capita or
economic growth rates. However , it has been recognised that such
prescriptions would lead to human development left too much to chance
and, it has been widely demonstrated that indicators such as GDP per
capita give no information on distributional is sues, who has a ccess to
benefits or how far these obtain the capability to be healthy or to choose
not have children.

4.4 NEED FOR HRD
Human resources development, education, training and lifelong
learni ng policies facili tate:

(a) lifelong learning and emplo yability as part of a range of policy
measures designed to create decent jobs, as well as to achieve sustainable
economic and social devel opment;

(b) give equal consideration to economic and social objectives,
emphasize sustainable economic development in the context of the
globalizing econ omy and the knowledge- and skills-based society, as
well as the development of competencies, promotion of decent work,
job retention, social development, social inclusion and poverty reduction;

(c) stress the importance of innovation, competitiveness, productivity,
growth of the economy, the creation of decent jobs and the employabili ty
of people, considering that innovation creates new emplo yment
oppor tunities and also requires new approaches to education and train ing
to mee t the demand for new skills;

(d) address the challenge of transforming activities in the informal
economy into decent work fully integrated into mainstream economic life;
policies and programmes should be developed with the aim of creating
decent jobs and opportuni ties for education and training, as well as
validating prior learning and skills gai ned to assist workers a nd employe rs
to move into the formal economy;

(e) promote and sustain public and private investment in the
infrastructure needed f or the use of informat ion and communication
technology in education and training, as well as in the training of teachers
and trainers, using local, national and international collaborative networks;

(f) reduce inequali ty in the participation in e ducation and training.




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Economics of Education
72 4.5 SIGNIFICANCE OF EDUCATION IN HUMAN
RESOURCE DEVELOPMENT

Education plays a dominant role as an effective instrument for large
scale achievement and revolution in all spheres. Purposeful
education enables the individual to understand a nd study the real life
situation a nd to develop an opportunity for creating confidence in the
minds of younger ge neration, and provide a strong base for rational and
value ori ented and nation building pro gress (Myers & Harbison, 1965;
Mingat and Tan, 198 6). The Government is investi ng heavily on human
resources development in the conviction that among its best resources are
its people. The World Bank (2000) has also acknowledged the importance
of techni cal and higher education for countries not to be left behind in a
global economy based on knowledge. Criticizing an analy sis that
measures the benefits of higher educa tion s olely in terms of incremental
earnings accruing to indi viduals, higher education is regarded as
‘simultaneously improves individual’s li ves and enriches wider society’
(World Bank, 2000: 37).

Further, education is a lifelong process. What a student obtains from the
school and college is only a small part of the education that the individua l
needs for the economic and so cial life of human being. Thus, both in the
case of man who is determined to reach the summit, and the man who
wants to make a complete success of his life, additional education is
imperative to develop the special skills. Th erefore, the education must be
constant and continuous programme (Myers & Harbison, 1965; Bacchus,
1992, Rena, 2005c).

Human resource d evelopment (HRD) in itself can be understood in
different ways: HRD in its broadest sense is an all inclu sive concept,
referring to the pro cess of ‘i ncreasing the knowledge, skills and capacities
of all people in a society’ (Tseggai, 1999: 216), encompassing in
economic terms the ac cumulation of human capital, in political terms
preparing people for participation in democra tic political processes, and in
social and cultural terms helping people to lead fuller lives, less bound by
tradition (Tseggai, 1999). The dominant human capital theory h as,
however, narrowed HRD down to its economic aspects, or its human
capital component (World Bank, 1995).

The role of higher educati on within the national HRD strategy
broadly follows the pattern advo cated by Thompson and Fogel (1976) for
educational development in developing countries, in whi ch higher
education shou ld be strongly embedded into the national community as a
whole ins tead of being an elitist institution which is removed from the
realities of the majority of the population. The role of the universities
in specific and education at la rge should be that of a ‘developmental
unive rsity’, an institution first and foremost concerned with the
“solution” of the concrete problems of societal developme nt’ (Coleman,
1994: 334). Such a university sets out to ‘ensure that the development
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Human Resource Develop ment
73 development plan s’ (Coleman, 1994: 343). For hu man resource
development to happen both the formal and informal training programmes
at different levels within the society are of para mount importance.

Check your Progress
Q.1. What do you understand by Human Resource Development? Discuss
the various approaches to Human Resource Development.
Q.2. “Human Resou rce Development is to 'develop' that individual in
order to develop the soc iety and economy” Discu ss this statement in
relation to the need for human resource development.
Q.3. Discuss the significance of edu cation in the development of Human
resources.

4.6 CONCEPT OF MANPO WER PLANNING
Manpower Planning which is also called as Human Resource Planning
consists of putting right number of people, right kind of people at the right
place, right time, doing the right things for which they are suited for the
achievement of goals of the organization. Human Resource Planning has
got an important place in the arena of industrialization. Human Res ource
Planning has to be a systems approach and is carried out in a set
procedure. The procedure is as follows:

1. Analy sing the current manpower inventory
2. Making future manpower forecasts
3. Developing employment programmes
4. Design training programmes

4.7 STEPS IN MANPOWER PLANNING

1. Analysing the current man power invento ry- Before a
manager makes forecast of future manpower, the current manpower status
has to be analysed. For this the follow ing things have to be noted -
• Type of organization
• Number of departments
• Number and quantity of such departments
• Employees in these work units

Once these factors are regis tered by a manager, he goes for the future
forecasting.

2. Maki ng future manpo wer forecasts - Once the factors affecting the
future manpower forecasts are known, planning can be done for the future
manpower requirements in several work units.

The Manpower forecasting techniques commonly employed by the
organizations a re as follows:
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74 i. Expert Forecasts: This includes informal decisions, formal expert
surveys and D elphi technique.

ii. Trend Analysis: Manpower needs can be projected through
extrapolation (projecting past t rends), indexation (usi ng base year as
basis), a nd statistical analysis (central tenden cy measure).

iii. Work Load Analysis: It is dependent upon the nature of work
load in a department, in a branch or in a division.
iv. Work Force Analysis: Whenever production and time period
has to be anal ysed, due a llowances have to be made for getting net
manpower requirements.

v. Other methods: Several Mathematical models, with the aid of
computers are used to forecast manpower needs, like budget and
planning analysis, regression, new venture analy sis.

3. Developi ng empl oyment programmes - Once the current inventory
is compared with future forecasts, the employment programmes can be
framed and devel oped accordin gly, which will include recruitment,
selection p rocedures and place ment plans.

4. Design traini ng programmes - These w ill be based upon extent of
diversification, expansion plans, development programmes, etc. Training
programmes depend upon the extent of improvement in technology and
advan cement to take place. It is also done to improve upon the skills,
capabilities, knowledge of the workers.

4.8 IMPORTANCE OF MANPOWER PLANNING

1. Key to managerial functions - The four managerial functions, i.e.,
planning, organizing, directing and controlli ng are based upon the
manpower. Human resour ces help in the implemen tation of all
these managerial activities. Therefore, staffing becomes a key to all
managerial functions.

2. Efficient utilization - Efficient manag ement of personnels becomes
an important function in the industrialization world of today. Seting of
large scale enterprises require management of large scale manpower. It
can be effectively done through staffing function.

3. Motivation - Staffing function not only includes putting right men on
right job, but it also com prises of motivational programmes, i.e., incentive
plans to be fra med for further participation and employment of employees
in a concern. Therefore, all types of incentive plans becomes an integral
part of staffing function.

4. Better human relations - A concern can stabilize itself if human
relations develop and are s trong. Human relations become strong trough
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Human Resource Develop ment
75 leadership in a concern. Staffing function also looks after training and
developm ent of the work force which leads to co -operation and better
human relations.

5. Higher productivit y- Productivity level increases when reso urces
are utilized in best possible manner. higher productivity is a result
of minimum wastage of time, money, efforts and energies. This is pos sible
through the staffing and it's related activities (Performance appraisal,
training and development, remuneration)

4.9 NEED OF MANPO WER PLANNING

Manpower Planning is a two -phased process becau se manpower
planning not only analyses the current human resources but also makes
manpower forecasts and thereby draw employment programmes.
Manpower Planning is advantageo us to firm in following manner:

1. Shortages and surpluses can be identifie d so that quick action can be
taken where ver required.

2. All the recruitment and selection programmes are based on manpower
planning.

3. It also helps to reduce the labour cost as excess staff can be identified
and thereby ove rstaffing can be avoided.

4. It also helps to identify the available talents in a concern and
accordingly training programmes can be chalked out to develop those
talents.

5. It helps in growth and diver sification of business. Through manpower
planning, human resources can be readily available and they can be
utilized in best manner.

6. It helps the organization to realize the impor tance of manpower
management which ultimately helps in the stability of a concern.

4.10 HUMAN CAPITAL IN RELATION TO OTH ER FORMS
OF RESOURCES

To m ost people, capital means a bank account, a hundred shares of IBM
stock, assembly l ines, or st eel plants in the Chicago area. These are all
forms of capital in the sense that they are assets that yield income and
other useful outputs over long periods of time.

But such tangible forms of capital are not the only type of capital.
Schooling, a computer training course, expenditures on medical care, and
lectures on the virtues of punctuality and hones ty are also capital. That
is because they raise earn ings, improve health, or add to a person’s
good habits over much of his lifetime. Therefore, economists regard
expenditures on education, training, medical care, and so on as
invest ments in human capital. They are called human capital because
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Economics of Education
76 values in the way they can be separated from their financial and physical
assets.

Education, training, and health are the most important investments
in human capital. Many studies have shown t hat high school and college
educa tion in the United S tates greatly raise a person’s income, even after
netting out direct and indirect costs of schooling, and even after
adjusting for the fact that people with more education tend to have
higher IQs and bet ter-educated, richer parents. Similar evidence
covering many years is now available from more than a hund red
countries with different cultures and economic systems. The earnings of
more -educated people are almost always well above average, although the
gains are generally larger in less-developed countries.

The economics of human capital have brought about a particularly
dramatic change in the incentives for women to in vest in college
education in recent decades. To illustrate; Prior to the 1960s,
Americ an women were more likely than men to graduate from high
school, but less likely to go to college. Women who did go to college
shunned or were excluded from math, scien ces, economics, and law, and
gravi tated toward teaching, ho me economics, foreign languag es, and
literature. Because relative ly few married women continued to work for
pay, they rationally chose an education that helped in “household
production” —and no doubt also in the marriage market —by improving
their social skills and cultural interest s.

All this has changed radically. The enormous increase in the labor
participation of married wo men is the most important labor force change
during the past twenty -five years. Many women now take little time off
from their job s, even to have children. As a result, the value to women of
market skills has increased eno rmously, and they are bypassing traditional
“women ’s” fields to enter accounting, law, medicine, engineering, and
other subjects that pay well. Indeed, women now constitute about one-
third of enrollmen ts in business schools, more than 45 pe rcent in law
school s, and more than 50 percent in medical schools. Many home
economi cs departments have either shut down or are emphasizing the
“new home economics” —that is, the economics of whe ther to get
married, how many children to h ave, and how to allo cate hou sehold
resources, especially time.

Of course, formal education is not the only way to invest in human capital.
Workers also lea rn and are trained out side school s, especially on the j ob.
Even coll ege graduates are not fully prepa red for the labor market when
they leave school and must be fitted into their jobs through formal and
informal training programs. The amount of on-the-job training ranges
from an hour or so at simple jobs like dishwashing to several years at
complicated tasks like engineering in an au to plant. The limited data
available indicate that on -the-job training is an important source of the
very large increa se in earnings that workers get as they gain greater
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Human Resource Develop ment
77 influen ce of families on the kn owledge, skill s, health, v alues, and habits of
their children. Parents affect educational attai nment, marital stabilit y,
propensities to smoke and to get to work on time, and many other
dimensions of their children’s live s.

The enor mous influence of the family would seem to imply a very close
relation between the earnings, education, and occupations of parents
and children. Therefore, it is rather surprising that the positive relation
between the earnings of paren ts and children is not so strong, although the
relation between the years of schooling of parents and their children is
stronger. For example, if fathers earn 20 percent above the mean of their
generation, sons at similar ages tend to earn about 8 -10 percent above the
mean of theirs. Similar relations hold in Western European countries,
Japan, Taiwan, and many o ther place s. Statisticians and economists call
this “regression to the mean.”

New technological adv ances clearly are of little value to countries that
have very few skilled workers who know how to use them. ECONOMIC
GROWTH closely depends on the synergies between new knowledge
and human capital, which is why large increases in edu cation and t raining
have accompanied ma jor advances in technological knowledge in all
coun tries that have achieved significant e conomic growth.

Check your Progress
1. What do you understand by the term manpower planning?
Discuss the need for Manpower plannin g.
2. With the help of suitable illustrations discuss the various steps of
manpower planning in an educational institu tion.
3. “Need for Re training of human capital is of paramount
importance in any organization”
Discuss this statement with respect to human resource
development and education

4.11 PURPOSE OF ECONOM ICS OF TEACHER
PROVISION

Although concerns about future teacher su pply and demand seem to be
perennial, their con tent chang es to suit the times. The alarms heard not so
long ago about an imminent general teacher shortage have receded, to be
replaced by increasing attention to the adequacy of prospective supply
in science, mathematics, special education, and other particular
teaching fields. Discus sions of adeq uacy are now at least as likely to
focus on teacher quality as on teacher numbers. The lesson seems to have
been absorbed, after much content ion over whether there will be "enough"
teachers, that quantity per se is not the cen tral problem. Given the
willin gness to pay and/or sufficient flexibility abo ut standards, we can
always hire enough people —and usually enough nominally qualified munotes.in

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Economics of Education
78 people —to fill the classrooms. But whether we can find teachers good
enough to produce the educational performance gains the nation so
urgently needs or to reach the ambitious national education goals that high
officials have recently proclaimed are quite different matters.

In these respects, the adequacy of the tea cher supply is very much in
question, and the future supply -demand balance is a major policy
concern. Policy makers' questions about prospects for staffing the
schools have stimula ted efforts over the years to generate better
information on the outlook for teacher supply and demand. Many of these
efforts have focused on creating the data bases on which supply and
demand analysis necessa rily depends —data on the size and ma keup of the
teaching force, on teacher assignments and career patterns, on persons
trained and certificated to teach, on teacher training inst itutions and
programs, and on the agencies (mainly local scho ol districts) that recruit,
employ, and seek to retain teachers.

At the same time, other efforts have focused on creating, and then
applying, the analyti cal tools needed to make the data meaning ful and to
provide poli cy makers and other users with the information they need —
not just the facts, but estimates, inferences, and judgments as to what the
facts imply.

4.12 CONCEPTS OF DEMAND AND SUPPLY OF
TEACHERS

The demand for teachers can be defin ed in the aggregate, as the total
number of teaching positions funded by educatio nal agencies
(government/private and private aided) i.e., the number of teachers that
all agencies put together are able and willing to employ at a given
time. Total demand thus defined is the end result of a number of
considerations leading to the establishment of teaching positions.

The main factors determining teacher demand in any particular year are
the number of students enrolled in public sch ools, poli cies per taining
to curriculum and teache r-pupil ratios, prior commitments to employed
teachers, educational agencies funding capacity, and the prices that must
be paid for various types and qualities of teachers.

Aggregate demand, however, is of little u se in understanding the dynamics
of demand for the teaching force or in designing poli cies to ensure an
adequa te supply of teachers. For these purposes, total demand must be
specified in greater detail, i.e., disaggregated by teaching assignment and
geographic distribution of the teaching po sitions.

More specifically, computations of disaggregated teacher demand should
be stratified by subject matter, grade level, preparation for serving the
special needs of students (especially handi capped studen ts and tho se with
limited Engli sh proficien cy, region of the country, and urban city of munotes.in

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79 schools within which teaching positions have been establishe d. In
addition, demand should be specified by the attribu tes of teachers desired,
especially teache r qualifications (their training, degree le vel, licensure,
and experience) and ra ce/ethnicity. When specified at this level of
detail, teacher demand can be c ompared with information about teacher
supply to examine supply -demand relation ships.

The supply of teachers in any year is defined, in the aggregate, as the
number of eligible individuals available from all sources who are willing
to supply their services under prevailing conditions. The supply includes
qualifi ed indi viduals who (a) currently hold teaching position s, (b) seek
to enter the profession by applying for open positions, and (c) would
apply for positions if suitable openings exi sted.

The main factors determining who is available to teach are considered to
be the availability of teaching positions relative to the availability of
positions in other o ccupations, teacher wages relati ve to wages in
competing occupat ions, and working conditions in teaching relative to
conditions in other occupations.

Unfortunately, no sources of data ar e capable of p roviding adequate
information about the total supply of teachers thus defined (Gilford
and Tenenbaum, 1990). What is known with reasonable precision is the
annual number of teachers hired from among those available through
sever al sou rces of supply. That is, the number of individuals continuing
in public school teaching from one year to the next is known, as is the
number of indi viduals entering public s chool teaching annually. The
former group is often called con tinuing teachers, and the latter group is
often called entering teachers or new hires. Colle ctively, continuing
and entering teachers constitute the cohort of individuals employed as
teachers (in short, the teaching force), a group representing an unknown
proportion of the potential total supply of teachers. Aggregate information
about the size of the teaching force is of only modest value for
understanding teacher supply. In practice, it is virtually the same as
aggre gate demand. To be useful in understanding the teaching force,
information is needed about various sources of supply of individuals
hired as teachers, as well as about the composition and distribution of the
teaching force. Information at this level of detail could then be
related to comparable inform ation about teacher demand in efforts to
understand the degree to which teacher demand is being met by qualified
individuals, as well as the sources of teache rs that might be manipulated
by policy in o rder to provide a more adequa te supply. In practice, th e term
supply (as in teacher supply and demand) is typically used imprecisely.
Instead of referring to total potential supply, the expres sion teacher supply
is used loos ely to refer to the composition of the a ctual tea ching force, to
potential sources of e ntering teachers such as recent graduates of teacher
preparation programs, and to teacher supply shortages that occasionally
occur in some subject matter fields at various geographic locations. The
total potential supply of hirable indi viduals almost alw ays equals or
exceeds the number of available teaching positions. There fore, in the munotes.in

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Economics of Education
80 aggre gate, the size of the teaching for ce is usually determined by the
demand for teachers as defined by the number of funded teaching
positions, not by supply constr aints.

Sources of Supp ly
As previously mentioned, the teaching force is comp osed of two large
groups —employed teachers continuing from year to year and entering
teachers in any yea r. Both are broad categories drawn from more specific
sources.

Continuing teachers typically ha ve the option of remaining in the same
position from one year to the next. Nonetheless, many practicing teachers
choose to apply for tea ching positions in other schools, in other subject
matter f ields, or both. Furthermore, some employ ed teachers may be
reassigned to different teaching assignmen ts within a school or reassigned
to a different school within the same institution or agency/management.
Thus, the flows of practicing teachers within the public education system
constitute a maj or source of teachers hired into, or reassigned to, open
teaching positions. Due to attrition of teachers from the profession and
gradual expan sion of the total number of teaching position s, a large
number of additional indi viduals are also hired by the public education
system each year (Rollefson, 1992). So such entering teachers are drawn
from four sources:

• A reserve pool of qualified teachers composed of:
(a) experienced former teachers and
(b) graduates of teacher prepara tion programs from pri or years
(sometimes called delayed entrants);

(c) Recent graduates of teacher preparation programs (some of whom are
also experienced teachers);

(d) College graduates who have not completed a teacher
preparation program and who have not pr eviously taught (sometimes
referred to as entrants via alternate routes); and

(e) Teachers employed in private schools who migrate to teaching
positions in public schools.

In view of this comple xity in the sources of employed teachers, detailed
informa tion about flows of teachers into and within the profession
is vit al to understanding the relative importance of these sou rces of
teacher supply.

Numerous factors mentioned as influencing supp ly and
demand in teaching are specified as follo ws:
Facts Influencing Supply -

A. Factors which cause an oversupp ly.

1. The tendency for former teachers to return to the teaching
profession
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Human Resource Develop ment
81 2. Teaching salaries co mparati vely more attractive than formerly

3. Reduction in non-teaching oppor tunities causing the preparation for
short -time teaching by many who formerly planned other occupations

4. Reduction in the number of women leaving teaching to get married

5. The output of trained teachers

6. Migration from position to position and from state to state

7. Lack of inter-institutional co -operation

8. More men in teaching

B. Factors which reduce an oversupp ly-
I. More careful selection and guidance of teachers
2. Higher standards of teacher tra ining
3. Higher certification standards
4. Revival of business Factors Influen cing Demand

A. Factors which cause need for fe wer teachers
I. Decreased birth rate
2. Increased pupil -teacher ratio a) Elimination of small classes
b) Increas ed size of classes
3. Contraction or elimination of school servi ces Kindergarten, pre -school,
special subjects, adult education, night schools, continuation schools,
correspondence courses
4. Longer tenure of teachers
a) Fewer women leaving to get married
b) Fewer leaving t o enter other gainful occupations

B. Factors which cause need for more teachers -
I. Increase in enrollment
a) Changes in the compulsory -attendance age
b) Changes in the enforcement of compulsory -attendance laws
c) Increased yea rs of average attendance

C. Factors which cause change in demand -
I. Provision for equalizing opportunities in the elementary and secondary
fields
2. Expan sion of school services Kindergarten, special subjects, adult
education etc.
3. Better opportunities for professional advancement
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82 5. Changes in the number leaving teaching
6. Changes in qualifi cations demanded for teachers ; Age, sex, training,
experience, marital status
7. Removal of personal and politi cal prejudices and favoritism

4.13 PROBLE MS ASSOCIATED WITH ESTI MATING
DEMAND AND SUPPLY

The teaching force is distribu ted among public and private schools that
vary by type, grade level, and location. A major concern and
challenge is that teache rs are maldistributed among schools in terms of
qualifications, experience, race/ethnicity, and other dimensions of the
teaching force. For example, high schools in large u rban areas usually
attract a teaching force that is less experienced, younger, and less well
prepa red to teach high sch ool subjects than teachers hired at
nearby subur ban schools.

Therefore, information about the distribution of the teaching for ce needs
to be presented in terms of teacher variables (such as qualifications) to
understand fully how well the supply of teachers meets the demand for
teachers at schools of various types, levels, and locations. Such analyses
of the teaching force are possible with existing teacher data bases.
Little is known, however, about the cha racteristics of applicants (from
which entering teachers are selected) as a function of school location.
Unless info rmation about applicants is known, it is not possible to
determine whether the supply of teachers available to various schools
is adequ ate, or whether difficulty in hiring qualified teachers is due
to hiring practices or other factors. This distribution problem stems from
teachers' behavioral response to s chool lo cation, one of the many variables
affecting the supply of teachers available to a school. Supply obviously
can vary from school to school since supply is a relationship between the
number of qualified individuals who would be willing to teach and such
incentives as the salary, working conditions offered, the location of the
school, and other alternative career opportunities.

Another main factor behind tea cher demand, namely change in pupil
numbers due to population growth and expanded access to education. It
looks at the size of primary and secondary teaching forces across the
world and how numbers have changed over time. Patterns in population
and pupil growth affect the aggregate demand for education which can
lead to increases or reductions in staff size, especially at the primary
level whi ch is typically considered compulsory.









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83 4.14 POLICY IMPLICATIONS OF ECONOMICS OF
TEACHER PROVISIONS

Evenden (1952) made a presentation and analy sis of fifteen factors
influencing teacher supply and of fifteen factors influenci ng teacher
demand in the National S urvey of the Education of Teachers. He show ed
the influence of teacher mobility on su pply- demand relation ships. An
interesting sixteen -item formula for estimating demand was set up. The
suggestions by Evenden (1932) for solving the teacher supply -demand
problem included: an inventory of the professional equipment of teachers,
the development of a program of teacher education, the e stimation and
control of the demand, and estim ation and control of the supply. Howe ver,
it found that in most countries there was not sufficient information
available for estimating the demand, and little was being done toward
controlling the supply. It was recommended that the Association's
resources be used in stimulating provisions for securing the necessa ry data
through the various state departments of education and for bringing about
cooperative action toward a satisfactory solution of the problem. Elliott
(1945) proposed coordination of teacher -training institutions with each
other, and with state departments of education. Townsend (1950)
suggested nationwide cooperation in bringing the supply and
demand together. In his estima tion, it is necessary to predict future needs
as well as future supply, to lengthen the period of t raining, to discontinue
permanent certification, and to study thoroughly educational trends in
order to anticipate new areas of demand. Several authors recommend
careful selection of students and limited enrolment. Parsons (1945)
certification stand ards should be raised. The recommendation that the state
should assume an increasing responsibility for the certification and
selection of teachers was also made by different edu cationists. Elliott
(1965) presented nine recommendations for improving conditions in the
teaching p rofession. These are: (a) creation of a state educational planning
board; (b) functional organization of the state board of education; (c)
continuous s urvey of personnel needs; (d) certification limited to
state b oard of education; (e) contraction of teacher production during
depression periods; (f) study of institutional competi tion and
dupli cation; (g) test ing of those planning to enter the profession;
(h) raising of certification standards ; and (i) adoption of the county
sociological unit plan. There was a recommendation to adopt what he
called the "sabbatical stagger plan." This plan involves the grant of a
year's, or a half year's leave of absen ce with half-pay to teachers
who have been i n service to the state for a period of six years or more. To
take the place of teachers who have been granted such leaves, substitutes
would be employed at salaries equal to but not exceeding one -half of the
salaries of teachers on leave. The substitutes w ould be selected from the
army of unemplo yed teachers. A. F. Myers (1972) stated that not more
than 10 percent of the states have departments of education adequately
staffed to carry out plans for controlling teacher supply. He would
have quotas a ssigned to institutions. He pointed out that vested interests in
teacher training must be faced in any program of supply and demand. munotes.in

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84
In a country like India, the effects of an oversupply that are often
ment ioned are reductions in teachers' salaries; longe r tenure and fewer
turnovers; and the tende ncy of the better teachers to leave the profession.
The hazard of unemployment is not limited to recruits without teaching
experience. An oversupply of inexperien ced teache rs with a minimum of
training makes t he experienced, more capable tea cher's position either
precarious or economically unprofitable.

Some writers claim that a certain amount of oversupply is a good thing in
that it p ermits employers to secure better teachers for each po sition.
However certai n sociologists contends that an oversupply of teachers is
not so bad, since a great deal of the training for teaching is also a training
for parenthood; and since we need not feel that it is a greater waste to
prepare teachers who will never have classroom s than it is to prepare
others who will ne ver follow their professions, or indeed than it is to
invest in the ordinary liberal arts course without specific goal. Such
arguments are not convin cing to the prospective teacher, who, having
spent much time and money seriously preparing them -selves to teach,
find themselves upon graduation unemployed and in debt.

The usual recommendations are made; namely, that state departments of
education should raise the certification standards; that teacher place ment
should be more co-operative and state- wide; that there should be
interstate co -operation in selection, preparation, and placement of
teachers; more emphasis upon guidance of prospective teache rs;
inducements for rural and elementary teaching. Howe ver the state and the
national bodies of teacher education need to look into the various models
of demand and supply in tea cher edu cation and adopt a strategy to solve
this problem.

UNIT END EXERCISE


1. Explain the terms Demand and Supply in the con text of teacher
education

2. Identify the various factors that influence the over supply problem of
teacher provision in India. Illustrate with the help of suitable examples.

3. With the help of suitable exa mples discuss the various proble ms faced
in the estimation of demand and supply of teacher provision in
India.

4. Discuss the various policy implications for the economics of teacher
provision.




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85 5A
EDUCATION AND ECONOMIC
DEVELOPMENT
Unit Structure :
5A.0 Objectives
5A.1 Introduction
5A.2 Development of the subject
5A.3 The concepts of economic developme nt and economic growth.
5A.4 Need / Importance of subject
5A.5 Education as a prerequ isite as an accelerator and a major
determinant of economic development:
a) Scope Economics of the Education
b) Nature and its functions
5A.6 Suggestions for improvement in the educational system for
enhan cing and sustaining economic development.
5A.7 Principles of Economics of Education
5A.8 Interrelation between education and economic development
5A.9 Resource constraints and Resource mobilizatio.
5A.0 OBJECTIVES
After reading this unit you will be able to :
• Define Econom ics of Education
• Discuss the concept and meaning of Economics of Education
• Justify its need and development of Economics of Education
• Explain its scope and present status Principles of Economics of
Education relation ship be tween Economics and Edu cation
• Explain the education and econom ic development in rural and urban
areas
5A.1 INTRODUCTION
Economics has an i mportant role to play in the development of economics
and democratic ideals. The teaching p rofession has developed mainly
since the ear ly 1800’s, when teacher training schools became popular munotes.in

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Economics of Education
86 in Western Europe. Before then education, it’s planning and financing
received very little attention.
According to “The New Encyclopedia Britannica (1985),” “Measured in
terms of its members, teaching is the world’s biggest profession.” As the
human development has taken place the growth in Education system was
also noti ceable. The need was felt that if human resource is to be utiliz ed
to the optimum, the plan ning of economics of education and it’s f inancing
cannot be neglected.
So the new branch of econo mics under the main head of education with
the name ‘Econom ics of Education’ was born 1960’s.
Nearly fifty years ago when researches started taking interest in this
new field ther e appeared to be a near unanimous welcome be economists
to this new dimension of India’s progre ss. But a majority of contributors
in the discipline of educa tion recei ved it with a feeling of di scomfort and
resentment. The major reason of this discomfort wa s firstly that :
First in India basic education to masses is the responsibility of
Gover nment.
Secondly they opined that Economics of Educati on may increase the
differences between haves and have not.
These feelings of elation and distr ess are both quite j ustifiable.
In 1963, T .W. Schult z, one of the pioneers of economics of education
concisely summarized the then prevailing view point. Those who value
schooling highly which includes most of those who are a part of the
educational e stablishment are likely t o look upon an effect such as this as
an intrusion which can only deba se the cultural purpose of education. In
this view education lies beyond the economics calculus, becau se they
believed that education is much more than a matter of costs and returns.
5A.2 DEVELOPMENT OF THE SUBJECT
Though the great founder of modern economics, Adam Smith, in his
“An enquiry into the nature and cause of wealth of Nations” publi shed in
1776, placed great stress on education, yet economics of education
and inves tment remained one of the neglected subjects in the science
of education.
The con ceptuali zation of economics of education has undergone note
worthy changes. Ind ia is neither economically advanced nor educationally
advances. Over a period of time as the e conomic development in the
country has taken place the educational develop ment also was exhibited.
“The edu cation has become major source of skills and trained talent.
Indeed, from one point of view, this is education’s critical ec onomic role.”
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Education and Economic
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87 5A.3 CONCEPT AND MEANING
The proce ss of development in the Country is determined by a harmonious
functioning of the triangular of economy, education and polity. Education
is conceived as a critical particip ant of a triangular relation ship and its
process whi ch cumulatively leads to change, development and progress in
a society in a planned manner.
The economy, education and polity of a country in the modern world
are one the one hand, powerful i nstruments of power with tremendous
potential, both positive and negative. On the other hand, they are
extremely potent tools for the development of the people provided they are
utilized to the maximum. This means each of three sides of the triangle
themselves relate itself positively, wi th the other two sides of the triangle
for the appropriate development.
In the opinion of the committee on Educational Planning and
Administration and Evaluation in the Fourth – Fifth year plan presided
over by Mr. J. P. Naik Adviser, Ministry of Education, Government of
India : “The Fir st” important reform needed was preparation of a
comprehensive pan w hich should deal into merely with the allocation of
the resou rces provi ded by the Central and State Government to different
sectors of education and within a given sec tor but different types of
programmes but also with the present educational si tuations, education
objectives in view and the programmes proposed to reali ze these
objectives. It should t hus cover planned as well as non p lanned
programmes that involve finance and those that do not and also
programmes for better utilization of existing facilities and eco nomizing
expenditure. The linkage with programmes of social and economic
development should be much closer than at present.”
On the ba sis of the resources that are likely to be availabl e, three questions
are posed : (1) What type of education can the country afford? (2) How
much or for whom? (3) What should be the priorties on available funds?
The policy approach must keep in consideration both, the educational
consideration and financial constraints.
So, economics of education is considered as the stu dy of the allo cation of
resources among educat ional institutions and acti vities and of the returns
obtained both by individuals and nations.
5A.4 NEED / IMPORTANCE OF SUBJECT
As econo mics deals with planning, financi ng and app ropriate utilization of
resources and basic education is the fundamental right to all in India; it
becomes very essential to equate the available resources.
The present time educationis ts as well researcher s also endorsed the
viewpoint of some of the economists of 1963, that economics of education
is the need of the hour. Although some of the researchers have expressed
their resentment and oppo sition that consideration of econo mics aspect of munotes.in

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Economics of Education
88 education would completely overshadow its other i mportant dimensions,
but majority of economists and educationsits of our country are now
prepared to accept the need and importance of the subject for the
following specific reasons :
1. Rising Cost. The proportion of natio nal income spent on education has
increa sed in the recent years.
2. Seconda ry Industries : As individuals becomes richer the proportion
of their income de voted to food and o ther basic necessities drop. The
amount they spent on health, education etc. rises.
3. Technological Transformation. The ba sis of the technologic al
transformation of the world economy can be found in the accumulation of
knowledge.
4. Health and productivi ty : The low producti vity of many workers in
various countries is directly attribu table to their poor physical state. This
in turn depends to a considerable extent on the type of education that the
workers receive.
5. Shortage of Skills. It is a common belief that a shortage of skills
holds back e conomic grow th. An effe ctive edu cation plan must be based
on the needs of skill manpower of all sorts. An unplanned system of
education results in unemployed persons and depri ves the nation of their
contributions to the growth of national income. Thus the specialized role
of manpower forecastin g brings the economics of education into
prominence.
6. Demand of Scarce Resources : Education can be made cheap in the
developing countries in the sen se that there is a superabundance of
manpower which can be harnessed very conveniently. Education thus
makes limited demands on the scarcest resources of the country. The
under developed countries are short of physical and sometimes of natural
resources. This implies that the use of abundant supply of manpower and
its endowment with skills is likely to be one of the major objectives of
any programme, planning, financing through the understanding of
economics of education.
7. Extra ordinari ly high moneta ry cost of education : Education in the
developing countries is most prominently poorly administe red,
lacking in planning and co ordination. And one of the most striking
features of education reform in the poor countries has been their extra –
ordinarily high monet ary cost. For the most efficient mobilization of
country’s resources, it is par amount importance that the plans for the
development of economy and for developing human resources must be co -
coordinated. Education can not be left of the general plan. The neglect of
education means overlooking the importance of an adequate supply of
skill ma npower and the efficie nt uses of resources in education. John
Vaizey observes : “since education makes large demands on public
funds about 20% of government expenditure in recently developed
countries it is an important part of economic p rogramme, because of its munotes.in

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Education and Economic
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89 cost alone. But it has also an important positive contribution to make to
economic growth.”
5A.5A) SCOPE OF ECON OMICS OF EDUCATION
Economics of edu cation as a systematic body of knowledge was born as a
reaction to the difficulty faced by economics in their research rather as a
spontaneous recognition of the economic dimensions of education. In
other words, this new discipline is a by product of economic research.
Interest in knowing the basic determinants of economic development, the
‘growth economi sts’ came across a residual in growth which could not be
explained in terms of the conventional factors of production i.e. labour and
capital. In their trial and error approach for identifying the other logical
and statistical grounds, was fo und to be very important v ariable,
explaining more than 66 percentage of the residual.
Robert Solow’s earlier study on aggregative production function p rovided
the necessa ry theoretical ba se for this new branch. The contributions of T.
W. Schuiltz, Becker Vaizy etc enriched this theore tical foundation.
The scope of economics of edu cation however was widened subsequently
as a natural corollary of the theory. Attempts have been made to esti mate
the e conomics r eturns different types and levels of accordan ce and to
develop models of planning of education in acco rdance with econo mic
requirements of the indi vidual and of the economy. The literature on these
aspects has developed at such a rapid pace that economics of education
has now come to receive a st atus of a significant branch of economic s.
Even some of the universities in India have now separate units of
economics of education in their department of economics : Mumbai
University is one such example.
Status of Economics of Education in present time :
One needs to asses the value of the subject and its existence in the
system. There a re two criteria for a particular subject being studied or
taught in a given course of study.
1) Theoretical consideration:
The subject should be a body of funda mental knowledge which is a
prerequisi te for the understanding of other subjects.
2) Practical consideration:
The subje ct should have a practical signifi cance in the sense that its
understanding would be useful in taking efficient decisions in some of
the practical proble ms.
Let us focus whether economics of education satisfies these criteria of
assessment.
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90 Economic s, according to Marshall, is a study of man’s actions in the
ordinary business of life. It inquires how man gets his income and how he
uses it. The other side of the thought is – how much investments does he
make in generating his personal a nd national Income.
While it cannot be confidently asserted that economics of education is a
fundamental di scipline it cannot be denied that resource has to be taken to
this subject to explain some of the fundamental puzzles in economics
theory. For examp le the residual in economic growth skewness in income
distribution even with normally distributed abilities, emplo yer’s interest
in the welfare of the employees in developing countries. Leontief
Paradox in the theory of international trade etc. is a few such riddles
in theory which can be solved with the aid of the principle of
economics of education.
5A.5.B) NATURE AND ITS FUNCTIONS
1) Villagers to not send their c hildren to primary schools de spite the
provision of free primary education. Failure of compulsory primary
education programme is largely due to the lack of proper responses from
these people. This is because people know that opportuni ty cost of
primary education is higher than that of other activities.
2) For the same reason of high opportunity cost of primary
education the dropout rate of child ren of poor farmers is found to be
higher.
3) High opportunity cost of education is one of the factors
preventing from the full use of the concessions under prospective
discrimina tory measures in education, so far the scheduled ca ste and
scheduled tribe people are concerned.
4) Since the various conces sions and benefits of increasing e ducation
expenditure have been accruing to the richer than to the poorer people
and since richer people are politically more influential, larger
expenditures on edu cation are made on higher education. Education
expenditure are a more defini te and a subtler form of benefiting a
particular group in the society, without causing any open resentment be
others. It is for this reason that expenditure on higher education in our
country has been increasing much faster than expenditure on school
education. This is so because higher education by and large benefits
the richer and upper income more than the poor and low income group
people.
5) It is for the same reason expenditure on education in urban areas
has been rising than in rura l areas.
6) Expenditure of larger economics benefits from surer that employment
and larger earnings – from education is the main reason for greater rush of
students to professional colleges.
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91 7) Since general school educat ion is pre ferred for admission in colleges
and since employment and earnings are less attractive for technical
schooling there is ove rcrowding in general s chools that in technical
schools.
5A.6 SUGGESTIONS FOR IMPROVEMENT IN THE
EDUCATIONAL SYSTEM FOR ENHANCING AND
SUSTAIN ING ECONOM IC DEVE LOPMENT
The following websi tes provi de us the ways to improve the Educational
system for enhancing and sustaining economic growth. These sites need to
be quoted: http://www.icrier.org/pdf/WP_179.p df
1. What are your views regarding the ways to improve the educational
system for enhancing and sustaining economic growth?
Read Knowledge commission repo rt and provide su ggestions. Reference s:
Prof JB Tilak
5A.7 PRINCIPLES OF ECONOMICS OF EDUCATI ON
In recent years there has been a great emphasis on the economics of
education by keeping following factors into consideration:
Planning and econo mics have something in common – both of them are
responses for the challenges arising out of scarcity of res ources and
possibility of alternative uses and maxi mum utilization of limited
resources.
Planning for economic development has become basic necessity all over
the world.
Educational panning is a major part of over all planning for social and
economic development.
The basic principle of objective of education is to find a major place
in overall planning and plans have to provide for financing educational
development for meeting these educatio nal objectives. Education is in
addition a p ublic service, demand for which is in excess of the su pply that
any Government is able to make. This is because of the unchanging birth
rate, falling dea th rate and the consequent growth of population in the age-
group between 5 -24 and the rising de mand fo r education.
5A.8 INTERRELATION B ETWEEN EDUCATION AND
ECON OMIC DEVELOPMENT
The relationship between economics and education can be very well
understood by analyzing the concept of econ omic development and
Educational development.
Education as Human Gro wth :
It has been generally observed that some of the economically
developed countries are also educa tionally advan ced. They have almost
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92 the school. As opposed to thi s there are some countries which are not
economically much developed but they have registered tremendous
educational progress. The most relevant examples of some countries
are Sri Lanka, china, Myanmar (Burma) & Philippines. On the contrary
there a re so me counties which are e conomically well off but they are
educationally backward. The Gulf countries are the obvious examples
of this type.
The overall situation which emerges is that generally the countries having
higher levels of income or economical ly advanced also ha ve higher level
of educational attainment. The economically poor coun tries are likely to
remain educationally backward if they do not give importance to
education and / or do not allocate more funds to it and ensure optimum
utiliza tion of the availa ble resources.
Education as econ omic investment:
It is only in recent years that a growing nu mber of economists have
been making it one of their principal preoccupa tions, and that the words
“human capital”, is coming into wid espread use. It is gradually being
realized that education has a major rote not only in promoting social peace
and harmony and self– improvement, but also in the process of wealth
creation itself.
Education as National Development :
One needs to agree that a subs tantial portion of per capita income in the
developed count ries is caused by education. The difference of the degree
of per capita income and rate of its increase depends very largely
upon how drastically the country is willing to change the school system
and what price it is willing to pay socially and culturally to b ring about
the high i ncome. All other factors remaining the same i.e. location of the
country, it’s physical and natu rally resources etc. perhaps the strongest
reason for bel ieving that educa tion properly designed can have a powerful
effect in increasing the income of any country in the world.
The value of economics of education however, needs to be recognized
more for its practical s ignificance rather than it’s the oretical s ignificance.
Whether the educationists, economists and researchers recognize this and
are at consensus to each other or not, people in gene ral have amply
showed their awareness of th economic aspects of education.
5A.9 RESOURCE CONSTRAINTS AND RESOURCE
MOBILIZATION
Resource Constraints
Resource constraints r elate to the lack of adequate resources
which may force parallel acti vities to be performed in sequence. The
consequence of such a change in network relationships is delay in the
completion date of the project. We will examine the nature of resource
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Education and Economic
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93 The most important resources that policy makers and stakeholders need to
plan and manage the day-to-day functioning of the Education sys tem that
comprises of People -Administrators, Principals /Heads, Teachers, students
and Support staff and Infrastructure -Materials and equipmen ts, laborotary,
Library, Play ground and Working Capital.
Obviously, if these resources are available in abundance then t his
could ac celerate the g rowth and functioning of the system efficiently, to
achieve shorter project duration. On the other hand, if these resources are
severely limited, then it creates blocks and barrier in the effect ive
funct ioning of the educa tion s ystem in stipulated time.
A careful planning is required at different levels, and if one has limited
nature of resources, thoughtful consideration should be given to the
resource requirements; the implementation of the plan should be refined
when necessary so that it is practical.
The process of refining the plan to effect ively manage and schedule
resources (sometimes referred to as resource modeling) comprises four
major stages: resource definition, resour ce allo cation, resource
aggregation, and resource l eveling (which include re source smoothing).
The following websites provide the details of resource constrain ts in
Indian Education System.
http://www.ugc.ac.in/financi alsupport/intro1.html
http://www.dreducati on.com/2009 /12/2010 -trends -indian -educati on-
sector.html
https://courses.world campus.psu.edu/welcome/pmangt/samplecont
ent/520les son08/lesson08_03.h tml
UNIT END EXERCISE
1. Explain the meaning of Economics of Education?
2. What is its nature and scope?
3. What is t he need of Economics of Education in present time?
4. Explain the functions of Economics of Education?
5. What are the principles of Economics of Education?
6. Explain its relationship with education?
7. Prepare a report on Education and Economic devel opment in Urban
areas.
8. Explain the educational and economic development in rural areas

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94 5B
CONTRIBUTION OF EDUCATION TO
ECONOMIC GROWTH
Unit Structure
5B.0 Objectives
5B.1 Introduction
5B.2 Approaches other than Cost Benefit Analysis
5B.2.1 Correlation Approach
5B.2.2 Residual approa ch
5B.2.3 Manpower Forecasting Approach
5B.2.4 Wage -differential Approach.
5B.0 OBJECTIVES
• To examine the relationship between education and economic
growth
• To evalua te whether education is consumption or inve stment
• To critically evaluate the various approaches adopted to study the
education’s contri bution to economical growth.
• To compare and contrast betw een the different theories/approaches.
• To dedu ce merits and shortcomings of the different
theories/approaches.
5B.1 INTRODUCTION
Relationship between education and economic growth:
Education is defined as the acquisition of the art of utilising knowledge
for moral and material development, the discipline of economics deals
with the study of how indi viduals choose to deploy resources on various
activities f or maximising social and economic returns'.
While the economy of a society provides resources to fulfil the
educational aspirations of its members, the education systems , in
turn, help in equipping the society and the economy with the required
types and levels of manpower which are needed for expedi ting the process
of socio-cultu ral transformation and economic modernisation.
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95 The creation and expansion of educational opportunities at all levels
have been actively pursued all over the world, in the belief that education
does contribute to economic growth by way of :
a) creating a more productive labour force and endowing it with increased
knowledge and skills w hich increa se producti on;
b) providing wide spread employment and income -earning opportunities
for teachers, s chool building and construction workers, textbook
printers, school uniform manufacturers, etc.;
c) creating a class of educated per sons to fill va cancies created by
departing expatriates (in the case of countries recently freed from
colonia l occupation) or otherwise v acant positions in governmental
services, public corporations, private businesses and professions; and
d) providing the kind of training and education that would promo te
literacy, numeracy and basic skills while encour aging mo dem attitudes
on the part of diver se segments of the population.
Is Education Cons umption or Investmen t?
Governments choo se to spend money on edu cation for many different
reasons, and it is helpful to distinguish between t wo groups of reasons,
making use of a familiar economic distincti on: that between Consu mption
and Investment,
Broadly speaking, we distinguish between consu mption expenditure -
which is incurred now for the benefits it will provide in the prese nt and
investment expenditure, which is incurred now for the benefi ts it will
provide in the future . Another way of putting it is to say that the
resources devoted to consumption are, literally, consumed in the
present, but that investment is a way of increasing productive capacity, or
wealth, in the future. Education is regarded as both a type of
consumption and investment» People want schools sometimes, as they
want TV sets - as a status symbol» They want their child ren to learn to
read because they will enjoy life more as a result. These are just some of
the consumption benefits of education. But education is also a form of
investment in hu man capital. Future levels of production are not
dependent simply on labour and physical capital - but on technical
knowledge and the
skills of the labour force - and these are pro vided by education. So the
answer to the question 'is education consumption or investment?' is simply
'Both'.
EDUCAT ION IS BOTH – CONSUMPTION AND INVE STMENT
Education in itself is consump tion as well as investment. The activities of
an edu cated person such as enjoying non -pecuniary (non -monetary)
benefits like read ing stories and poems, enjoy ing higher so cial status, etc.
are activities of consumption a nd the monetary gains from a lifetime's
earnings are taken as inv estment. Also, the absorption of a large n umber of munotes.in

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96 educated persons by the education system itself for car rying out teaching
and research responsibilities refers to consumption whereas the
surplus educated manpower constitutes investment whi ch contributes
to human capital formation in the economy and forms the basis for raising
the level of production.
In other words, Edu cation is treated as consumption when it is acquired
for the sake of pleasu re or pursued with the intention of getting a degree.
In this sense, formal education is conside red consumption. For
instance, the education of women i mproves their prospects in the job
market. Here education is a consumption good. Education, in terms of on -
the-job training, preservice training, devel opment and maintenance of
skills, is clearly an i nvestment in human resources.
Check your Progress 1
1. Describe the interdependen ce of education and economic grow th in
your own words
2. ‘Education is both consumption as well as investment’. Do you
agree? Ju stify your answer.
5B.2 APPROACHES OTHER THAN COST BENEFIT
ANALYSIS
If education is a form of investment one of the first questions to spring
to mind is how mu ch does it contribute to economic growth,
compared with other for ms of investm ent? This question rather
dominated/dominates the economics of education. The following are the
main approaches adopted to understand the contribution of education to
economic growth.
5B.2.1 CORRELATION APPROACH
The first attempts to demon strate that education was investment
consisted in si mply correlating some index of educational progress - for
instance expenditure on education, per head, or enrolment rates, with an
econo mic index - such as GNP per head.
The correlation is positive: the more a country spends on education, the
richer it is. This suggests that education does add to wealth.
Unfortunately the relationship can just as easily be stated the other
way: the richer a country is, the more it spends on education. So although
simple correlat ion shows that there is a relationship between education and
econo mic progress, it does not prove ca use and effect. Education and
income are positively correlated. But we do not know if one caused the
other. It might be that having more education cau ses a person to earn a
higher income. It might be that having a h igher in come allows a person to
go to school more. It might also be some third variable. A
correlation tells us that the two variables are related, but we cannot say
anything about wheth er one caused the other. This method does not
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97 On the relationship between literacy and per capita income in selected
states in I ndia indicates a correla tion coefficient of 0.756 which is very
positive and significant; and that per capita state domestic product in 1991
was higher in the case of states (like Maharashtra, Gujarat, Punjab)
with higher literacy rates, and lower in the case of states with lower
literacy rates (like Bihar and Mad hya Pradesh ). Source: (i) Economic
Survey 1997 -98, Govt. of India.
The theo retical expectation that education and t raining contribute to
economic growth requires to be quantified so as to assess the nature and
the extent of the relation ship between the varia bles characterizing
education and e conomic ac tivities. Such calculations and information are
very useful for policy makers and
planners, who are necessarily concerned about the relationship between
two or more variables, especially from the po int of view of preparing the
development plans determini ng the appropriate allo cation of funds. The
approa ch which is generally used to study such aspects is known as the
correlation method which, when employed, indicates the nature and
strength of the relationship bet ween the chosen variables.
5B.2.2 RESIDUAL APPROACH
The residual approa ch is used to measure the ex tent to which
different factors are responsible for contributing to economic growth. The
rate of increase in the aggregate output is compared, unde r this approach,
with the agg regate input. The sources of the economic growth are
identified to the extent possible in measurable inputs like capital and
labour. The unexplained or residual part is attributed to an unspecified
input, i.e., Education and advances in technolog y. The results obtained
on application of this approach have been largely responsible for
generating interest in investment in human resources and al so in
recognizing the fact that educational expenditure needs to be regard ed
as an investment owing to its crucial role in determining economic
growth. The residual approach, by identifying the contribution of the
given types and le vels of education and training to outpu t~ economic
growth, provides reasons for increasing investment in human resources
in general, and in tho se who belong to the identified type and le vel of
education , in particular.
CAPITAL ,LABOUR (INPUT) ECONOMIC GROWTH (OUTPUT)



Residual factor – (Quality of la bour) – educated, skill ed, technologi cal
knowledge
Solow (1957), Svennilson (1964) and Deni son (1962) suggested that
improvements in the quality of labour force, including increased
education, were important together with other factors such as
technologic al progress and economi es of scale and constitute an important
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98 Later eco nomists like Griliches and Jorg enson (19 66) were also of the
same opinion and argued that the residual was not "a coefficient of
ignorance", as some critics (Balo gh 1963) argued. Human capital,
parti cularly edu cation, fo rms a significant proportion of this re sidual.
Though the residual was believed to comprise economies of scale,
technologi cal progre ss, external economies, improved health, education
and skill of labour force, better
management etc., it was also felt that among all education was an
important factor. With Denis on (1962, 1964) and Griliches (1964,
1970) works, it was made clear that education could enter as an important
variable (input) in the production function analysis of economic growth.
For an economy, education can increase the human capital in the labor
force, which increases labor productivi ty and thus leads to a higher
equilibrium level of output.
The residual approa ch, by iden tifying the contribution of the given types
and le vels of edu cation and training to output - economic growth,
provides reasons for increasing investment in human resources in general,
and in tho se who belong to the identified type and le vel of education, i n
particula r.
Check your Progress 2
1. Describe and evaluate the correlation Approach.
2. Distinguish between correlation and cau se and effect. Why is it stressed
that there is correl ation between economic g rowth and education but it
is not a cause effect relation.
3. In what way does education contribute to economic growth according to
the residual approach?
4. What are the adv antages of Residual Approach of education with
reference to economic growth
5B.2.3 FORECASTING MAN POWER NEEDS
APPROACH
The objecti ves of all forecas ting of human resource needs are to wo rk
out the future nee ds of the e conomy for persons with various kinds and
levels of training. Such forecasts can be expressed in terms of broad
groupings of people. For example:
1. the number of persons required in each occupation in the
economy for any future year;
2. the present number of pe rsons in each occupation;
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99 3. the annual number of withdrawals from each occupation due to death,
retirement or movement out of labour force and;
4. the annual number of separa tion from one occupation and
accessions to another as the r esult of job change, etc.
A variety of methods have been used in a rriving at human resource
projections. For example, employers are asked to speci fy how many
persons with certain kinds of qualifi cation may be needed in a given
number of years in the future, which are then added up to arrive at the
aggregate figure for the total requirement of human resource with the
specific expertise. Further, the calcul ated ratios of trained human
resource for total employment are also projected into the future on the
basis of demographic information.
The importance of this approa ch has been well recognized because it
offers definite guidelines framed in the terms in whi ch decisions must
actually be made. Whereas the returns to educa tion approach reveals
whether the gi ven level of spending on education is too mu ch or too lit tle
on edu cation, manpower studies indicate that 'X' number of new
student places in the field 'Y' could be created by the year '2'. This
type of information is obviously much more useful to the policy maker
and planner. The greater the detail in the manpower forecasts, the more
refined can be educational planning.
This approach has, however, been widel y criticized because it has been
viewed that the human resource projections have not succeeded in taking
account of the flexible p ossibilities of substitution between capital and
labour, and between highly trained human resource and not so highly
trained h uman resource. Moreover, this approach is not really directed at
assessing the economic contribution of education.
On the basis of the criticism raised it could be said that human resource
forecasting ought not to be viewed as an alternative metho d of
working out the investment requirements of the education sector, but as
a way of obtaining information whi ch can be analyzed usefully for
effective planning and management of education system.
Check your Progress 3
1. Elucidate the merits and shortcomings of estimating future
manpower requirements.
2. What are the different ways of forecasting future manpower
needs?
5B.2.4 WAGE DIFFERENTIAL APPROACH
Wage differential refers to differences in wage rates due to the location of
company, h ours of work, working conditions, type of product
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Economics of Education
100 workers with different skills working in the same industry or workers wi th
similar skills worki ng in different industri es or regions .
For exa mple, wage differen tials may also be used to compare wages
between genders, union and non-union jobs, or wages of emplo yees
with and without college degrees.
Wage differential can have multiple meanings; generally it refers to a gap
in wag e rates (for similar jobs) that can occur because of:
* Different location of company
• In two distinct countries
• Within the same country;
* Hours of work;
* Workers skills; (For more information see: High -skilled labor)
* Gender and ethnic discri mination. (See also Racism)
A differen ce in wage rates between two ty pes of worker. Wage
differentials may be on account of different levels of skill, different
formal qualifications, between unionized and non - unionized firms,
or between wor kers of different age, s ex, or ethnic groups.
In the UK wage differentials based on age are legal, while those based on
sex or ethnic group a re not. The desire of groups to maintain traditional
differentials within occupations makes some economists fear t hat
minimum wage laws would not just affect the unskilled, but would lead to
general wage inflation. The de sire to maintain differentials between
occupations makes inflationary wage rises tend to spread around the
economy.
The chief factor determining the excess earning of trained personnel over
minimum wage is the cost of i nvestment in education, including time
spent on education, the excess earning being meant to compensate for the
inves tments and time spent in education.
Secondly, in the ca se of top managerial personnel, they have
adequate technical experien ce of management, they have to carry risks of
business and a re responsible to produce results. Their job is more
than full-time. Therefore, they are to be paid higher salaries to
compe nsate for the risks and for sacrificing all their time for
business. Such managerial talents are rare to be found and therefore,
they have to be adequately compensated and retained. How does it happen
that a film star receives a remuneration which is so mu ch higher than that
of a street cleaner? Why does a foreman receive more than an unskilled
worker, or an accountant more than a sweeper Foremen and
accountants are few have to spend long years in t raining and unskilled
workers and sweepers are available in plenty and they need no training.
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Contribution of Education to
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101 The actual higher or lower wages depend upon the scarcity of
labour in that category.
The country needs to reward pe rsons who have put in more efforts to
acquire specialised skills, as long as better quality or talent is sought to be
recruited or trained. Moreover the differentials will c ontinue to exist when
the intellectu al capital of a person, skills and experience a cquired differ
from person to person. This also differs from industry to indust ry. In
a labour intensive industry say cotton textile indus try, where wages
constitute 25% of the total costs, we see that wages per worker are lower
than in a capital intensive industry li ke petro -chemi cals or fine chemicals.
Again a small industry or an industry in rural area is not expected to
pay the same wages and fringe benefits to workers as in large -scale
industry. The capaci ty and profitabili ty of such industries is much less,
and the skills required from workers in such small units are also less.
We can hope that over a period of time these differentials will narrow.
Thus the differentials in wages a re bound to persist and it is difficult to
eliminate them. Their differential ratio perhaps can be brought down by
judicious wage policies to be pur sued at the enterprise level. It is up to the
managem ent of the enterprise to initiate action.
(1) WOMEN AND WAGE DIFFERENTIAL
Within the workforce, two kinds of wage differentials have been found to
exist. In the infor mal sector —where most women are employed —there is
eviden ce of women directly being paid lower wages than men, especially
in the agricultural labour sector and the urban info rmal labour sectors
where little effec tive legi slation exis ts as a disi ncentive for this practice.
In the organised sec tor, where equal remuneration laws are more directly
enforceable, pure wage discrimination (differential pay for the same job)
has not been found to exist. However, differential levels of education and
differ ential returns to that education implies that women are usually less
skilled than men and thus can attain only lower level jobs even within the
organised sector, lea ding to a high wage differential.
In the agricultural sector, it appears that a trend of ri sing wages for women
has ceased. Male -female wage dif ferentials had declined steadily to fall
to 1.3 in 1987 -88 from 1.7 in 1965. After 1996, however, the
differential stagna ted in most states, and even rose in a few others (Unni
1998 ). Less favourable con ditions of employment for female agricult ural
workers in recent years, attributed by many to the effect of the SAPs,
is thought to be primarily responsible for this trend. Education has been
found to greatly influence wage differential s. Studies fo und that the
female - male wage ratio in urban India was 0.59 for female illiterates
and 0.82 for literates (Deshpande and Deshpande 1992). Another study by
Kingdom et al., however, found that even after controlli ng for gender,
only 22% of the gap in wages could be explained by the lack of female
education —78% of the wage gap, thus, is due to differential returns to
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102 Check your Progress 4
1. Describe the determ ining factors of wage differential?
2. Write a short note on women and wage di fferential approach.
3. Examine the role of education and training in wage differential
approach
4. How does cost bene fit analysis affect the investment in
education?
5. Which, according to you, is the best approach of education‘s
contribution to econom ic growth? Give reasons?
Conclusion
To conclude, the approaches that we studied - correlation , residual,
forecasting manpower requirements , cost -benefit ,wage differential are
not totally alternatives , or exclus ive of each other as every
educational planning has to take into account the job opportunities for
educated manpo wer, the effects of changes in supply and demand on
relative wage levels, and the to tal costs and the residual role of education
in accentuating human capital. Every nation tries to co nsider education an
investment and to allo cate more funds inputs for the deve lopment of
human resources.
Suggested further reading
• Nagpal, Mittal,(1993) Economics of Education. Anmol
Publicatio ns Pvt Ltd. New D elhi
• Enaohwo. J. O (1990) Econo mics of Educa tion and the Planning
Challenge . Anmol Publications Pvt Ltd. New Delhi
• Rao V.K.R.V.(1996) Education and Human Resour ce
Develop ment Allied Publi shers,Bombay
Websites:
• www .egyankosh .ac.in/bitstream/1234567 89/25983/1/Unit -1.pdf
• unesdoc .unesco.org/images/0006/000692/ 069263eo.pdf
A special mention and acknowledgement of Indira Gandhi National
and Open Universit y’s egya nkosh for its open and free access of
simple and comprehensive resource material in co mpiling this
chapter.
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103 6A
PRODUCTIVITY AND WASTAGE IN
EDUCATION
Unit Structure
6A.0 Objectives
6A.1 Introduction
6A.2 Concept of productivity and Productivi ty of Educational system
and learning for productivity objectives
6A.3 Internal and External efficiency of the educational system
6A.4 Dual approach , process and product approach
6A.5 Wastage In Education -Meaning
6A.6. Wastage in educa tion at different levels of education.
6A.7 Types of wastage
6A.0 OBJECTIVES
After going through this unit, you should be able to .
• Describe and discuss the meaning and significance of
productivity in education system .
• Explain the internal and external efficien cy and the related
aspects to increase productivity in education.
• Describe the dual approach inclusive of process and product
approach
• Explain the estimation of drop out rates at different levels of
education

• Describe the types of wastage in education.
• Analyze the importance of human capital and ideological issues related
to overall producti vity in education.
6A.1 INTRODUCTION
In this unit deals with the concept and definition of productivity
and the various learning objectives for productivity, The input and the out
put concept is dealt in detail for ensuring the internal and external
efficiency. The role and signifi cance of education is highlighted at
prima ry, secondary and at higher le vel of education system a great deal of munotes.in

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104 caution has to be exerci sed in respect to Dual approach policy in terms of
process and product approach to opti mize educational institutions in
relation to productivity process.
The present study deals with issues and problems of drop out and
wastage in educa tion and the way to minimize wastage and maximize out
put in the form of productivity in education. We talk of estimation of the
drop out rates at different levels of education. The types of wastage in
terms of money, time, and material resources are dealt in detail. The
resources utilization increase productivity in educational system is
highlighted in relation to ideological views in terms of quality in
educational in stitutions.
6A.2 CONCEPT OF PRODUCTIVITY AND
PRODUCTIVI TY OF EDUCATIONAL SYSTEM
AND LEARNING FOR PRODUCTIVITY
OBJECTIVES
The out put of education system is conside red production by both
economi sts and educationi sts. The processes of production in an econo my
and a formal educational sys tem are compared wi th regard to their
structure, de cision making proce sses and the ultimate objectives. In
other wo rds the sys tem of formal education based on a comparable
hierarchi cal structure can be compared with the organization of the
factory (Industry) system or the functioning of an industrial plant.
Eg :-
Raw materials enter at one point and finished out put exit ata subsequent
point, a sequen ce of net values being added between the two points is
compared with formal schooling. In the later case, the raw materials, the
students en ter into the educational process which takes in other inputs like
teachers, books and equipment and the net value is added to the p roduct at
every stage in the form of scores and certificates.
The concept of productivity was introdu ced in the field of economics
to minimize the costs and maximi ze the out puts.
• Productivi ty can be defined as achie ving the maximum output of a
process with the use of minimum inputs.
• Productivi ty can be applied to the field of education similar way in
which economists analyze the relation ships between
Input Out Put
E.g.
Productivi ty in public education institutions are expected tobe
produc tive to mi nimize costs and m aximize the utilization of resources to
meet increased and diversified needs as well as to become accountable to
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105 Educational productivity is the effective and e fficient production of
educational out comes ( Rolle )
Productivity

Input Outcome
[expenditu re per student ] [ student achievement through utilization
of production function analysis]
"Productivi ty is the final out come of better input in the form of
schooli ng and educational out comes co ntrolling the influen ce of various
other aspects.”
When we talk of productivity, during 1960s econo mics of education
propagate by Schultz ( 1963 ) believed that people as producers and
consumers invested in themselves to enhance their capabilitie s, and the
largest investment in human capital was mainly schooling, while at
the time the relationship between education and produ ctivity was only
assumed, while today we have sufficient evidence to prove this the world
economy has under gone changes which ha ve put human cap ital at the
central stage of economic development.
Globalization and technologi cal changes, the use of computer
related using, interne t, e-learning, virtual classrooms and other
technological changes ha ve enhanced the capacity o f human capital to
acquire modern and higher technic al knowledge has promptly respond to
changes. The ea rly studies by Welch (1970) and Schul tz. (1975) proved
that education helped in adjusting to diseq uilibrium due to technolo gical
or allied changes and there by increasing productivity. Higher schoo ling
= higher wages, but then, there was no eviden ce of higher schooling
leading to increasing productivity of industrial employees.
Schooling increases cognitive knowledge which is essential for the
development of skills needed for productive work, there is no empirical
evidence of a direct relationship between more schooling and increase in
the w orkers productivity, but then the assumption that additional education
leads to better dec ision making and higher pro ductivity needs to be
extended to include a reali ty where the employees, be it tea chers or o ther
employees are provided wi th such responsi bilities by the e mployers, with
the advent of instructional design often is taken to connote preparation of
materials. The important steps to be taken are
• Analy sis of needs
• Goals and priorities
• Analy sis of resources
When we think of lea rning productivity, we need to keep the following
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106
• assure affordable options for post secondary education and training for
all;
• increase and impro ve the mo bility of st udent lear ners to move
across state lines to access education and promote the mobili ty of
institutions to provide access through technology to place bound
students
• improve learning productivity of students by assisting them in
achie ving a higher level knowledge and skill attainment in the most
cost effective manner. The abo ve objectives are closely interrelated.

Affordabili ty Learning Mobility and lea rning
Prod uctivity
Check your progress:
1. Describe in about 6 lines the learning productivity objectives .
6A.3 INTERNAL AND EXTERNAL EFFICIENCY OF
THE EDUCATIONAL SYSTEM
The Concept of efficiency in education is wisely unde rstood in terms of
external and internal efficiency.
Internal efficiency refers to the extent to which the educational
expenditures are prope rly utilized for immediate objectives like producing
graduates wh ich al so includes the aspec ts such as dropout rates, wastage
and sta gnation under-utilizati on of buil ding, library and laboratories.
External efficiency of the educational system relates to the realization of
the over all educa tional objectives, developing skills and productivity in
the human resou rce and the s upply of skilled human resource .
It is like comparing inputs and outputs of educational facilities. A set
of internal i nputs such as teachers, stationery, instructional materials,
building, furniture are combined in such a way that to produce better
output. The quality teaching to the students by making use of
technological devices like computers and other modern gadgets In the
classroom would e nhance effectiveness to teaching. The instruction al
material in the form of teaching aids is essential to enhan ce students
learning. Therefore it is imperative that each institution develops an Productivi ty Purposeful degree
Enrolment attainment Matching demand and technology and With capacity as rapid progress educational Regardless toward skill services Delivery of location any time munotes.in

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107 efficient (IQA) system to enhance internal efficiency and it is up to the
institution to decide the app ropriate model that fits best. Internal quality
assurance system is a system under which students + staff + management
satisfy themsel ves that control mechanisms are working to maintain and
enhance quality in education, IQA is the totality of systems, resources,
information devoted to testing up, maintaining and improving the quality
and standard of teaching, scholarship, research and service to community.
The internal efficiency be maintained well in the institution by
keeping monitorin g and evaluation instruments appropriately.
• Internal efficiency of an institution depends on the library
faculties, materials and equipment to provide a stimulating learning
environment.
• Continuation of research information, masking quality,
developing appropriate indi cators, and building local capacity to collect
and interpret local data.
The key outcomes achieved a re classified key performance out comes,
impact on service users, impact on community, Deli very of education
process es, manage ment and support of staff policy development and
planning.
The external efficien cy can be ach ieved if all the quality input parameters
are well imp lemented. The output or quality out come is expected in
terms of examination results or some other measures of output and
quality
Check your progress :
1.How do you develop internal and external efficiency in your
teaching learning pro cess ?
6A.4 DUAL APPROACH, PROCESS APPROCH AND
PRODUCT APPROACH
It is seen that approaches and methodologies are general ly employed by
the planners and researchers for assessing the contributions of education to
economic growth and social development with various approaches. Dual
approa ch in terms of process and produ ct approaches enha nce quality of
teaching learning in the educational system.
A dual approach consists of two u sually comple mentary component to
minimize the total cost and maximize the out put. This method is
widely used in the industrial and economics sector as well as in
management and educational sector.
“It is an educational procedure whi ch stimulate learning and brings better
learning outcome.”
Dual A pproach is competitively combi ning the two approaches which are
signifi cant in education system duly combines process as well as the
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108 product. It is an integ ration approach complementing the process and
product thus maximizing the output .

Process Product

Process is the way to knowledge to learn the significance of economic
product, just as in econo mics, process is the way it happens as the
outcome.
The two approaches process and product dominate teaching learning,
research or in tea ching of writing, just as in writi ng, product
approach focus language structure and model texts, while process
approach ha s personal expre ssion and composing process. In this,
the learner cop ies, imitates and transforms teacher supplied notes.
The proce ss and product approaches can be applied in the action research
in education in the form of qualitative and quantitat ive approaches to find
solution to a problem.
PROCESS APPROACH
The process approa ch emphasizes a lea rners own creative self dis covery in
reflective way (Flower 1989). It centers on continuous exploration and
reformul ation of ones own idea in order to accomplish this task, a
learner should engage in multiple drafting, brainstorming, revisin g,
editing while the students and teachers need to provide responses.
For eg: while writing research paper, while choosing the topic for
research thesis they have to choose their own topics and conduct journal
writing and pear review. The writing aspect / process is at one stretch but
interactive and recursive, The elements in the process in teract with one
another and the process repeats itself. In the mean while l earners makes
constant self reflection and receive frequent feedbacks.
The process approach is not well accepted in terms of pedagogy for
lacking social dimensions and undermining the role of teacher, however,
few conclusive researches are available on how writing in research paper
and language p rocess is actually taught and expli citly assessed in a
syste matic way in process approach. It also overlooks socio -cultural
constraints placed on wri ters by not to consider how differences in cla ss,
gender, and ethn icity influence in the writing process.
PRODUCT APPROACH
In the product approach learning to write research paper or language
writing is found as gradually gaining control of complex knowledge and
skills which are demonstrated in final writing products, wi th reference to
language, more emphasis is placed on the grammar, vocabulary,
struc ture. The assessment focuses on how far grammar is accurate
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Productivity and Wastage in
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109 with modeled samples. The learners ar e expected to ha ve repeated
assisted imitations. as prescribed by research norms or linguistic rules.
The product approach too has not been totally appreciated as the
activity of writing is seen as an “exercise in habit formation” while
students tend to avoid complexity to attain accuracy and correctness.
While dual approa ch expects the combination of both process and
product approaches. The process approach promotes wider educational
aims and objec tives, while product approach expects tangible and
immediate out comes.
They are not mutually exclu sive in classroom context. In case of
conducting action research

Dual Approach can be used in data collection

Data collection


Qualitative Approach Quantitative approach


Interviews Observat ion Surveys usage of
Statisti cal technique
Drop out rate is defined as the proportion of children cease to remain in
the schooling system. There are variety methods for estimating drop – out
rate education statistics of the ministry of human resource development is.
Grass drop out for classes from I to V can be Calculated as 1 –
Enrolment in class V during the reference year divided by enrolment in
class I Four year ago.
The data collected through DISE p rovides repeaters enrolment class wise /
sex – wise Two consecutive y ears data thus collected can be used to
gene rate a reconstructed chart which is more appropriate to estimate the
dropout rates. DISE data are school wise, using such data for the
school whi ch remained common in two consecutive yea rs, a new data
base has been generated and the drop out rates are c alculated. This
suggests that the drop out rates were 15 % in 2002 -03 which reduced to
13 % in 2003 – 04 and further redu ced to 12 % in 2004 – 05 Although the
trend is encouraging, concerned effects would be needed to ensure further
reduction.

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110 Check your progress :
a) What type of approach do you intend to you internal to
implement in your teaching learning proce ss ?
6A.5 WASTAGE IN EDUCATION -MEANING
It is seen that planne rs of education have always expressed concern about
educational was tage caused by repeaters and dropouts. Such wastage is
one of the difficul ties in fulfilling the
social demand in formal educat ion. For an effective management of
educational system, it is required that the retention rate should be
improved by reducing educational wastage, while maintaining the quality
of the system at reasonable input cost.
• Educational wastage is an econ omic term defined as the ‘total’number
of student’s years spent by the repea ters and dropouts.
• Repeater is a student who in a given school year remains in the same
grade as in the previous year while, drop outs are those who leave the
school be fore the end of t he f inal year or some where during an
educational cycle in which they are enrolled.
• Wastage refers to the benefits provided to the repeater for his/her
extra time spending in school and the benefits accruing to the drop outs
before their leaving the school.
Total Wastage = Reflect the total si ze of repetition and dr op outs in the
flow of Promo tion within on edu cation system
Repeaters = Stay in the school for longer than normal duration there
by reducing the intake capacity.
Causes of wastage and dropo uts
Drop out is frequently used term in educational settings. It concerns
students who start courses but do not complete them.
• Non starters Æ illness Æ Poor family support Æ No shows Æ Failures
Æ Lack of time In the ODL system student s who officially withdraw
/ submit assignment but do not take up exam and vice – versa Inadequate
Skills Æ Intellectual difficulties Æ Administration reasons
In all wastage is the refection of value of an estate caused by an act of
negligence or failu re to take advantage of education available.
Total optimum years
= I - ---------------- ------------------
Total actual used years

While the same procedure ca nnot be applied for quan tifying the wastage
at international le vels when comparing educational wastage across
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Productivity and Wastage in
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111 not ali ke a str uctural and p romotion poli ces and achievement norms
differ to a larger extent, when we
talk of drop out and repeaters, we have to con sider educational wastage as
the total number of pupil years. Spent by repeaters and drop outs and can
be converted into a percentage of the total number of pupil years spent by
repeaters and dropouts
The tendency of students to repeat and drop out is largely
influen ced by
• Socio economical ba ckwardness
• Educational factors
• Excessive involvement of learners in domestic work
• Parental opposition, educational states of parents
As for educational factors are concerned, stagnation or absence or
relationship between educational system and Economics needs of
the community, faulty admission policy. Lack of physic al facilities poor
institut ional en vironment are the causes of repletion and drop outs.
Factors li ke death of parents, poor physical standard of learning lead to
dropping out or repetition of grades.
Check your progress:
1. Drop out at primary level is hindrance to further education.
2. Discuss the statement I your own experience
6A.6 WASTAGE IN EDUCATION -AT DIFFERENT
LEVELS OF EDUCATION
The rates of return to educa tion and the le vels of edu cation acquired by the
human resources a re positively related, though there are differences in the
social and p rivate rates of return to education of different types and lev els,
while the social rates of return are usually estimated to be higher at the
lower levels of education like the primary and elementary stag e, the
accrual of private benefits are relatively more from the successively higher
levels of education. It is on the basis of such evidence and
reasoning that most governmen ts every where on the globe ha ve adopted
deliberate policy of providing free education for certain age groups of the
population; example up to 14 years of age in India, while the extent of
subsidy is somewhat le ss at the higher levels of education as compared to
the lower levels. However the rates of return to education, social and
private differ, not merely at different levels and types of education but
also across various regions.
A number of studies have been under taken to analy ze some of the
important proble ms the study reveal large scale drop outs at various stages
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112 In Satara estimated the appa rent wastage (proportion of the school drop –
outs to the initial cohort enrollment of infant classes to 36.20% The
financial wastage was estimated at 28 % At the collegiate stage
Kamat and Deshmukh 1963, Ferguson College, Pune estimated that
out of the initial entry of 1000 arts students only 492 students
succeeded in completing their college education indi cating a wa stage was
estimated at 28 %
In another study in Gujrat revealed that it provided a regres sion analy sis in
support of the optimum size of enrolment of a college and a school as
suggested by Kothari Co mmission. It is estimated that there is large sc ale
wastage and stagnation both at the school and college levels. This is more
so among the girls and economically weaker and s ocially backward
students.
The school education is characterized by high ra tes of dropout (The drop
out rates in India from classes I to VIII in 1995 – 96 were 54.99 percent
per boys and 61.70% per girls.
Drop out of school in Indian Context
Contrary to popular sentiment, the non availability, the non availability
schooling facilities seems to ac count for only 10 – 15 % of India’s out of
school children. Large percentage of children are unable to take ad vantage
of near by educational facilities bec ause they are needed at home to
participate in the ba sic tasks of the house hold economy most children
who are not is school are instead working outside to have income
which exists more in r ural areas a considerable proportion of urban
dropout city failure to pass examinations as their reason for discontinuing
education.
Drop out rates at primary and upper – primary levels 1999 –
204 – 05
Stage 1999 – 2000 2000 – 01 2001 – 02 2002 -03 2003 – 04 2004 – 05
Class I – IV Girls 42.3 41.9 39.9 33.7 28.6 24.82 total 40.3 40.7 39.0 34.9 31.5 28.49 Class I – VIII Boys 52.0 50.3 52.9 52.3 51.8 50.10 Girls 58.0 57.7 56.9 53.4 52.9 50.76 otal 54.5 53.7 54.6 52.8 52.3 50.39 Promotion repetition and dropout rates in 02 – 03 , 03 – 04 and 04 - 05
2002 – 03 2003 – 04 2004 - 05
Gender Promo Repeat Drop Promo Repeat drop Promo Repeat Dropo Boys 81 5 15 82 5 13 83 4 13 Girls 80 5 15 82 5 13 83 4 13 Overall 80 5 15 82 5 13 84 4 12
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113 Study Design
The stage transition ratios f rom primary to upper primary levels of
education ind icate that they are very high in most of the states. Further
expan sion of primary education will ha ve a demand for expan sion of
upper primary education even when transition ratios re main the same.
In ce rtain cases expansion of prim ary education may be a ccompanied by
an increase in the inter stage transition ratios. Under such circumstance,
the demand for expansion of upper primary education system may be
rather high. In States which are educationally more advanced, the
prima ry stage completion rates and inter stage transition rates are
nearing
100%. In States which are educat ionally less advance the primary stage
completion rates are not yet nearing 100 % but inter stage transition rates
are very close to 100% . Educationally backward States have lower
primary stage completion rates and lower in ter stage transition rates than
State which are educationally ad vanced. Hence implications for expansion
of upper primary education facilities.
The input output ratio, which is an indicator of efficiency of the
system, indicates that wastages are relatively less at the upper primary
level of education than at the primary levels of education. The input output
ratios are 1:1.24 in case of Malappuram; 1:1.41 in case of Bilaspur ;
1:1.11 in ca se of Aurangabad and 1:1.20 in ca se of Moradabad. These
input – output ratios show that wasta ge is less in upper primary school
except in Bilaspur. More importantly wastage on account of repetition is
at lea st three times higher than that on account o f drop – outs.
Check your progress
1. Explain the factors leading to drop out in Rural set up … 10 lines
6A.7 TYPES OF WASTAGE
I) MONEY
Money is an indicator justifying investment, is closely related to
education due to the fact the educa ted workers earn higher wages
than those who are illit erates or unskilled or have lower educational
qualification. The r elationship between education and monitory aspect is
important from the point of view of distribution of income and wealth
among a cr oss section of people. Wastage in terms of money would result
in output efficiency. financial resources have no meani ng unless these are
utilized to procure human a nd physic al resource for further utiliza tion. The
level of education t hat an indi vidual possesses, in on form or the other is
positi vely correlated with the amount of personal earning. The
number of years of successful education is the best p redictor of the
eventu al occupational status of earning of an entrant into the labor force
market. The earning profile of workers with different levels of education
shares the foll owing characteristics.
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114 The wastage of money would lead to improper out put.
• The average earnings of all workers
• The higher the level of educational attainment
• The workers with higher level of education reach their maximum
earning capacity faster
The wastage of money will hi nder not only the quality of education but
also hinder Economics Development
II) Material Wastage
Material wastage is one of the most important aspects in educational
system. Wastage in material resources result in wastage in generating
non human resources. Material wastage resources include bo th physical
and financial resources.
Wastage in terms of non human resource like and building, administrative
block, lect ure roo ms, library, computer room, sport room, hostel building,
book imp lement and tools, teaching aids, models technological gadgets
like radio, T. V. tape recorder, overhead projector, film p rojector, slide
projector, if these materials are negle cted by not utilizi ng frequently it
would l ead to huge wastage. Apart from this material usage the
consumable items li ke power, drinking water, statione ry, news paper /
magazines be appropriately used by the teacher and students, It would
remain as waste, hence th e authority con cerned along with teaching and
non teaching in the institution need to optimize the utility purpose and
not as a wastage product.
III) Human Capital
Human beings inv est in themselves to acquire more education and
training and better health condition which, in
essence. For human capital which has both qualitative and quantitative
dimensions. Qualitati ve dimension of human capi tal invol ves the
acquisition of varie ty of skills, extent of knowledge abilities and other
desirable attribu tes that affect human capabilities of under taking
productive work to maximize out puts.
Quantitative dimension means the number of people performing a
particular task, the p roportion of people who enter into the labour force or
in gainful e mployment and the time devoted to completing a particular
task. The factors determine the human capitals are.
Education =--------- -> Health Services ----------- -> On job training
--------- > Not formal Education ---------- > Modernization of techni cal
Education
If the human capital in the a bove aspects are not p roperly utiliz ed, it
becomes wastage more so in the field of ed ucation. This wastage
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115 is the level of educational attainment the gross number of persons in
the total population who ha ve comple ted successive levels of education
like primar y, secondary and higher education; of the last two are
important in indicating the stock of high le vel human resources. Thus
decline in human capital result in maximum wastage which would hinder
quality education. Human capital in education includes teaching
administration technical and professional staff.
IV) Ideological
Ideological refers to the nature of range of i ssues raised and how they are
raised to the systems of representation that they are promoted or excluded
in expli cit or implicit terms.
The question raised is what a re the constitutive issues at stake in the first
place mainly in terms of wastage in educational activities? When it comes
to asserting important categories
The ideological is the analy sis of indi vidual curricular a nd co- curricular
activities and the text relation is main unde rstanding the ideologi cal news
on education. This analysis perspective as sumes that educa tion offer and
provides a particular conver sely abstract truth.
If these required ideologies are not followed in the educational
system, it may not reach up to concrete values which are essential be it
technology or educatio n?
The wastage in terms of ideological comp onent is mere was as it does not
help in the quality of education that is the imparted to student community,
the teache rs in educational insti tution need to keep this component clearly
during teaching learning pro cess. Thus ideologi cal factor can become
useful if kept in practice, otherwise it would mean decline of educational
input / output
Check your progress
1.What are the other types of wastage leadi ng to hinder quality
education?
References:
1) Dlaug, M (1972 ) The correlation between Education and Earnings :
what does It signify ? Higher Education, (1) 53 – 76
2) Elchann, C (1972)Economics of Education Massachusetts : D. C.
Heath & Co.
3) Galbraith,J.K (1969) Econom ics Development Massachusetts :
Harvard University Press.
4) NCERT (ED.) (1968) Stagnati on and wastage in primary and
middle Sc hool , New Del hi NC ERT. munotes.in

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116 5) Pandit, H. N. (Ed.) Measurement of cost productivity and Efficiency of
Education, New Del hi : NCERT.
6) Patel, M. L (1969) ‘The R ationa l of Human Capital and its
Productivity Analy sis’ in Pandit H. N. (Ed) (See above).
7) Psacharppulos, G.(1981)Returns to Education : An Updated
International Comparison , Comparative Education , 17 (3), 321 -341
8) Psacharopoulos, G. (1987) Econom ics of Education Research and
studies, USA : Pergamon.
9) Rumble, g (1997) The costs and economics of open and
Distance Learning, London : Kogan page and IET.
10)Woodhall, M (1965) Producti vity Trend in British University
and Blaug, M E ducation 1938 – 62 , Minerva, 3, 483 - 498


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117 6B
EDUC ATIONAL EQUITY MEASURES

Unit structure:
6B.0 Objectives
6B.1 Introduction
6B.2 Causes of inequality in educational opportunities
6B.3 Meaning of equality and equality at different levels
6B.4 Equality for women
6B.5 Equality for disabled chil dren
6B.6 Some inherent contradictions
6B.7 The cost benefit criterion: Equity in the provision of education
6B.8 Equity in the distribution of public spending in ed ucation (Income
Variance and distribution)
6B.9 The ability to pay criterion
6B.10 Tool s to assess the equity and income distribution
6B.10.1 The Lorenz curve
6B.10.2 Gini coefficient
6B.10.2.1 Gini Index calculation
6B.10.2.2 Generalized inequality Index
6B.10.2.4 Advantages of Gini coefficient as a measure of inequality
6B.10.2.5 Disad vantages of Gini coeff icient as a measure of inequality
6B.11 General problems of measurement
6B.12 Other uses
6B.0 OBJECTIVES:
After going through this unit you will be able:
• To unde rstand the causes of inequality in educational
opportunities
• To know the meaning and nature of equality in educati on munotes.in

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Economics of Education
118 • To understand the inherent contradictions in the equalization of
educational opportunities
• To explain the equity criteria in opportunities and public
spending
• To under stand the issues involved in the cost benefit in
education
• To under stand the problems involved in the ability to pay
criterion
• To explain the Lorenz Curve
• To define and explain the Gini coefficient
• To calcula te the Gini Index
• To explai n the advantages, disadvantages and general
problems of Gini coeff icient as a measure of inequality
6B.1 INTRODUCTION:
Is education an equalizer? Edu cation has great potential to decrease the
inequality. But th is potentiality itself seems to be governed by the existing
system of str atification.
To achie ve the goals of ec onomic, social and cultural development,
adequate provisions of educa tion is necessary. With inadequate education,
the persistence of economic disabilities, regional i mbalan ces and social
injustice will be prolonged leading to a possible build up of disinte grative
tensions. Th rough proper education, the achie vements of economic and
social development can be facilitated and expedited. The human resource
would have a multiplier effect on the utilizati on of all the resources. That
is why education has been increasingly accepted as and that is why the
Education Commission Report spoke of education as the only instrument
of peace ful social change.
The Constitution of India has s pecific expression of liberal ideology. It
declares the society to be open and assures equality of opportunity to one
and all in all realms. ‘The claim of the individual to welfare is sacred
and irrefutable’ in such a constitution and it
‘partakes of the character o f a natural right’ (Marshal: 38). With the
intention of bringing the socially and economic ally backward (normally
the Scheduled Caste and Scheduled Tribes), the state has assumed the
role of a generous donor and bears the responsibility for providing the
necessary help to uplift in the form of protective discrimination.
An integral feature of economic planning is the faith that is reposed in
education as an instrument in national development. This see ms to
be based on the fact that with the growi ng complexity of urban -
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119 have become intertwined, each affecting the other in signifi cant ways.
Economists have been awa re of the importance of this relationship and its
implication for development in general.
Alfred Marshall emphasized the importance of education as a national
investment by underscoring the point that the most valuable of all capital
was that ‘invested in human beings’.
The relationship between education and economy is reflected in
the close link that has developed between education and occupation in
modern urban -industrial societies. Occupations have become, by their
very nature large and dependent and the process of production very
complex. Mental work as different from manual work has gained
importance. Modern occupations call for trained talent in the ap plication
of vision, knowledge, and concepts. In short, the increasingly techni cal
nature of industry has raised the level of education required in occupations
of all types.
Educat ion influences economic development. Education system provides
the labor force that matches the needs of economy. This is called ‘the
man power allo cation function of education ’. Education is a prerequisite
of economic growth. Economic development assumes a pa rticular set of
attitudes and values. Education is capable of generating a climate for
growth. It is wide spread belief that now that in context of
economic development education can yield both financial and non
financial ret urns. For a proper understanding of the various aspects
that come into play in the field of education, it is essential to the
opportunity available for different sections of people, who bears the cost
and who benefits, and the ability to pay for education by different sections
of people.
6B.2 CAUSES OF INEQUALITY IN EDUCATIONAL
OPPORTUNITIES:
1. Inequaliti es of educational opportunities: Inequalities of educational
opportunities arise in various ways. In places whe re no primary, secondary
or colle giate inst itutions exist, c hildren do not have the same
opportunity as those who have these facilities in the neighborhood.
This should be overc ome by the widest di spersal of educational
institutions con sistent with economy, and efficiency, by instituting
adequate scholarship programs, by providi ng the needed hostel facilities
or by making suitable transport arrangement.
2. Pover ty: Poverty among a large section of the population and the
relative influence of a small minority a cts as a hindrance in achie ving
equality in edu cational opportunities. Even if educational institutions
are av ailable in the neighborhood on an equal basis, children from poor
families do not have the same chance as those who come from richer
ones. To overcome these hand icaps, it is desirable to aboli sh fee
progressively, to provide free books, stationary and even school meals and
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120 3. Differences in the standards of schools and colleges: Differences in
the standards of schools a nd colleges c reate an extremely intractable form
of educational inequalit y. When admission to an institution such as a
university or profession al college is made on the basis of marks obtained
at the public examination at the end of the higher secondary stage, as often
happens, the marks do not at all provide a common yardstick for a student
from a rural area who attend an ill -equipped school in his village and a
student from an urban area who attends a good city school. To
overcome this to some extent at least, it is n ecessary to evolve more
reliable and egalitarian methods of selection, whether for admission to
institutions or for award of scholarships.
4. Differences on home environment: A child from a rural household or
an urban slum having non-literate parents does not have the same
opportunity which a child from an upper class home with highly
educated parents has. These inequalities are obviously the most
difficult to overcome and here the progress essenti ally depends
on the general improvem ent in the standard of living of the population.
Here, special attention at school can be paid to children from the
underprivileged groups and provision of day study centers or boarding
houses to overcome this problem.
5. Gender inequali ty in education: A peculiar situation in Indian
context is the gender inequality education. There is wide disparity
between the education of boys and girls at all stages and in all levels of
education. Various steps like reser vations for girls in educational
institu tions of various branches of studies have been effected. Also
steps like fee concessions, scholarships and other incenti ves are
made available for girl students in order to enhance girl s’ education.
6. Dispari ty between adva nced classes and back ward classes:
There is a wide gap of educational development between advanced
classes and the backwa rd ones-the scheduled castes and scheduled
tribes. On grounds of social justice as well as for furtherance of
democ racy, it is essential to make special efforts to equalize educational
opportunities between these group s.
7. Absence of earnest striving to achieve equali ty of
opportunities: To achie ve perfect equality may be unattainable.
But an impassioned fai th and earnest striving is in the direction is very
essential. In a good system of education there should be a continuous
attempt to identify factors which tend to create signi ficant form of
inequality and to adopt measures either to eliminate t hem altogether or
at least to reduce them to the m inimum.
6B.3 MEANING OF EQUALITY OF EDUCATIONAL
OPPORTUNITY
Equality of educational opportun ity has been interpreted “as the
opportunity to start together, to benefit from staggered starts, to remain on
the same track, and to remain or progress together.” According to NPE munotes.in

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121 1986, equality of educational opportunity means “to provide for equal
opportunity to all not only in acce ss but also in the conditions for
success.” Equality of educational opportunity has been taken a s “success
by manipulation of educational inputs (li ke physic al facilities and
equipment in schools, quality of teachers a nd curriculum, and finan cial
assistance for the poor.) to others it meant an equali zation of resul ts of
education well, that is equal ization of educational achievement and
benefits accruing from it.
Up till now the term equality of educational opportunity was generally
interpreted as open ings of schools within wal king distance for
childre n, providing residenti al facilities to childre n, admission of children
of all commun ities to schools, reducing the dropout rate and increasing the
retention rate of children through various measures, provision of non -
formal education centers for the non attending children, grant of pre -
metric and post -metric stipends and provi sion of vari ous ancillary services
to facilitate schooling of children. It is common observation that such
provisions have either not been fully utilized or not understood in the right
perspective by the benefi ciaries. Economic po verty, though a major
reason, is not the only constraint in the educational development of the
educationally bac kward sections of Indian society. There are other factors,
such as sociological a nd psychological restrains lack of motivation in
child ren, a low s elf-concept of their parents, inad equate facilities
at home, and the passive attitude of teachers to the educational
progress of learners from backward communities. Teachers’ active
participation in the educational deve lopment of these communit ies in
general and individual attention to their children in particular, will
definitely pave the way for their success in education.
Equali ty of educational opportunities at the prima ry stage: Primary
education ca ters to the most fundamental needs of all men and women
and it that stage of education, without which men cannot qualify
themselves for a group life. Therefore, Article 45 of the Directive
Principles of state policy in the Constitution of India declares. “The sta te
shall endea vor to provide….for free and compulsory education for all
child ren until they comple te the age of fourteen years.” Thus to provide
equal opportunity to all children primary education (referred to as
Elementary Educa tion in India) has been mad e compulsory, free and
universal.
The Indian government has al so banned child labour in order to ensure
that the children do not enter unsafe working conditions. Howe ver, both
free education and the ban on child labor are difficult to enforce due to
econom ic dispari ty and social condi tions. 80% of all recogni zed schools at
the Ele mentary Stage are go vernment run or supported, making it the
largest provider of education in the Country. Howe ver, due to sho rtage
of resources and lack of politi cal will , this system suffers from massive
gaps including high pupil teacher ratios, shortage of infrastructure and
poor level of teacher tra ining. Edu cation has also been made free for
children for six to 14 years of age or up to class VIII under the Right of
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122 There have been several effor ts to enhance quality made by the
government. The District Primary Education Programme (DPEP)
was launched in 1994 with an aim to u niversalize primary education in
India by reforming and vitalizing the existing primary education system.
85% of the DPEP was funded by the central government and the
remaining 15 percent was funded by the states. The DPEP, which
had opened 160000 new schools including 8400 0 alternative edu cation
schools delivering alternative education to approximately 3.5 million
child ren, was also sup ported by UNICEF and other internation al
programmes. This primary education scheme has also shown a high
Gross Enrollment Ratio of 93–95% for the last three yea rs in some states.
Significant improvement in staffing and enroll ment of girls has also been
made as a part of this scheme. The current scheme for Universalization of
Education for All is the Sarva Shiksha Abhiyan which is one of the largest
educat ion initiatives in the world. Enro llment has been enhanced, but the
levels of quali ty remain low.
Equali ty of educational opportunities at the secondary stage:
Provision of equalization of oppor tunities is a universal demand. This
arises mainly from two considerations. 1) The fi rst being t he purely
ideologi cal demand that the right to education is a human right. Act. 26 (1)
of the unive rsal de claration of Human Rights envisages this right to every
citizen. Hence education is a fundamental right and so it cannot be
denied on any ground such as caste, color, creed, race, etc. 2) this
demand arises out of the desire of people for more educat ion. People
belie ve that mo re education can improve their socio -economic status.
The National Policy on Educat ion (NPE), 1986, has provided for
environment awareness, science and technology education, and
introduction of traditional elements such as Yoga in to the Indian
secondary school system. Secondary education covers children 14-18
which covers 88.5 million children according to the Censu s, 2001.
However, enrolment figures show that only 31 million of these
children were attending schools in 2001 -02, which means that two -
third of the population remained out of school. A signifi cant feature of
India's secondary s chool system is the emphasis on inclu sion of the
disadvantaged sections of the society. Professionals from e stablished
institutes are often called to suppo rt in vocational training. Another feature
of India's secondary school system is its emphasis on profession based
vocational training to help stud ents attain skills for fin ding a vocation of
his/her choosi ng. A significant new feature has been the exten sion of SSA
to secondary education in the form of the Madhyamik Shik sha
Abhiyan.
A spe cial Integrated Education for Dis abled Children (IEDC) programme
was started in 1974 with a focus on prima ry education, but it was
converted into Inclusive Education at Secondary Stage Another notable
special programme, the Kendri ya Vidyalaya project, was started for
the employees of the central government of India, who are distributed
throughout the country. The government started the Kendriya Vidyalaya
project in 1965 to provide u niform education in instituti ons following the munotes.in

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123 same syllabus at the same pace rega rdless of the location to which the
employ ee's family has been transferred.
A multilingual web portal on Primary Education is available with
rich multimedia content for children and forums to discuss on the
Educ ational issues. India Development Gateway is a nation -wide
initiati ve that se eks to facilitate rural empowerment through provision of
responsi ve information, products and services in local languages.
Tertia ry or Universi ty Education:
Our university syst em is, in many parts, in a state of disrepair...In almost
half the d istricts in the country, higher education enrollmen ts are
abysmally low, almost two-third of our universities and 90 per cent of our
colleges are rated as below average on q uality parameter s... I am
concerned that in many states university appointments, including that of
vice-chancellor s, have been politi cized and have become subject to
caste and communal considerations, there are complaints of favoritism
and corruption. – Prime Minister Manmohan Singh in 2007
Educational progress of SC/ST studen ts: According to the 1981 census,
the all India literacy rates of Scheduled castes and Scheduled Tribes stood
at 21.38 and 16.35 percent respectively, as against 41.20 percent of the
non-Scheduled Ca ste and non - Scheduled Tribes population sectors. The
literacy rates of women of the SC and ST were 10.93 and 8.04 percent as
against 29.43 percent of other popula tion sectors. The inciden ce of higher
education is dismally lo w. The imbalan ce in educational development
among different popu lation sectors lead to many social and economic
ills, in addition to the loss of hu man resour ce development in the country
in general, and the non harmonious development of the indivi dual
learner’s personality.
Objectives of Equa lization of Educati onal Opportunities for
SC/ST Students:
1. Educational backwardness amongst the Scheduled Caste and
Scheduled Tribes has been due to social depri vation and economic
poverty meted out to these co mmunities for centuries. Hence
corrective measures have to be taken.
2. To minimi ze by special efforts the inequalities in educational
development between educationally bac kward communities and other
sections of Indian society.
3. To eradicate the behavioral discrimination shown towards the
children of the SC and ST even inadvertently, that results in their
disinterest in studies, early withdrawal and de velopment of low esteem
of self.
4. To bring forth teachers who play a special role towards the
education of these communitie s, especially the first generation
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124 5. To sensiti ze parents and community members of ST and SC on the
schemes and in centives for them and to motivate to educate their
child ren.
6. To develop a crash p rogram for universal functional literacy with
teachers’ wholehearted partic ipation to bridge the gap and imbalan ce
in the education of ST and SC and other communities.
6B.4 PROV ISION OF EQUAL OPPORTUNITY OF
EDUCATION TO WOMEN:
The NPE 1986 with regard to educa tion for women’s equality states,
“Education will be used as an agent of basic change in the status of
women. In order to ne utralize the accumulated distortions of the past,
there will be a well -conceiv ed edge in fav or of woman.” Education s ystem
will play a positive interventionist role in the empowerment of women.
The removal of women’s illiteracy and obstacles inhibiting their access to
and retention in, elementary education will recei ve overdoing priority,
through provis ion of special sup port services, setting of time targets, and
effective monitoring. Major emphasis will be laid on women’s
participation in vocational, technical and professional education at
diffe rent levels. The policy of non - discrimination will be pu rsued
vigorously to eliminate sex stereo - typing in vocational and profess ional
courses and to promote women’s participation in non -tradit ional
occupations, as well as in existing and emergent technologies.
6B.5 PROV ISION OF EQUAL OPPORTUNITY OF
EDUCATION TO DISABLED CHILDREN :
Impairment, disability and handicap are not synon ymous terms. Not every
impairment resul ts in disability and not every disa bility results in
handicap. Impairment refers to biologi cal forces and is nothing but the
physi cal defect of an individual. It deve lops due to ove rwork, accident or
due to hereditary factors. It decreases mobility, limits the range and depth
of interpersonal a nd social relationships which causes psychological
problems.
Disability refers to how a culture deals with impairment. It is the behavior
evolving from the impairment. Impairment imposes limitations upon an
indivi dual’s capacities and levels of functioning. Disability has a cultural
aspect also. H ow the culture of a particular society deals with impairment
determines disability. In most cases, the negati ve feelings and reactions
from the physi cally able children may develop a tendency towards
disab ility. The visually impaired or the hearing impaired or the men tally
retarded are permanently disabled.
Handicap depends on how the ind ividual deals with the physical
impairment. Anything is a handicap if it prevents someone from doing
what he wants to do. Handicap as a technical term refers to
conditions such as blind ness, deafness or very low intelligen ce. There munotes.in

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125 are 10 offic ially recognized categories of disabled children. 1) blind
2) partially blind 3) deaf 4) partially hearing 5)educationally abnormal 6)
epileptic 7) m aladjusted 8) physically handi capped 9) affected by speech
defect and 10) deli cate. It is a fact that the nationa l goals of development,
integration, excellen ce, and e quity cannot be attained without ensuring
that every child in the country crosses a mini mum threshold of
education. Even for facing the challenges of the world today a minimum
level of educat ion is essential. Also for the development of individual
personality, appreciation of the constraints and potentials of
environment, internalizing the value system, imbibing and beco ming
aware of the social responsibilities and the acquisition of specific
capab ilities to deal with life. Realizing this importance, the inclusi ve
education is earnestly pursued in the present time.
Unless the disabled children get equal opportunity for education, we
cannot achieve our national goal. So it is of prime importance to bring
effective measures to promote academic development and vocational
possib ilities, achieve ment of self sufficiency and independence of the
disabled. So it is important for the parents, educators and administrators to
work hand in hand.
Recommendations of NPE 19 86 on Equal Opportunity of Education to the
Disabled: the NPE s tates that the objective is to integrate physically and
mentally chall enged with the general community as equal partners, to
prepare them for normal growth and to enable them to face life with
courage and confidence. The following a re some of the important
recommendations.
1. Wherever it is feasible, the education of children with motor
handi caps and other mild handi caps will be common with that of
others.
2. Special schools with hostels will be provided as far as possible at
district headquarters, for the severely handicapped children.
3. Adequate arrangements will be made to give vocational to the
disabled.
4. Teachers training programs will be reori ented to deal wi th handi capped
children.
5. Voluntary effort for the education of the disabled will be encouraged
in every possible manner.
6B.6 SOME INHERENT CONTRADICT IONS IN THE
EQUALIZATION OF EDUCATION AL OPPORTUNITY:
In the effort to equalize educat ional oppo rtunity to all, one should not
lose sight of the hierarchical school system in the
country reflecting and perpetuating social inequality. The schools vary in
terms of the sources of finance, machinery for social control, medium of munotes.in

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126 instruction, social milieu, process and direction of socialization and , not
the least, the class clientele. At the top of the hierarchy are the so called
‘publ ic’ schools - schools from which “the great majority of the public are
precluded from ente ring’ – and their slightly faded versions in
priva te/convent Engli sh medium schools. At the bottom are the majority
of the ill -managed (more so in rural areas) vernacular medium schools run
either by the government itself or with its aid by private management s.
The former category o f schools caters mainly to the children belonging to
the ruling class, pro fessional elite, and some middle - class mobiles. By
and large these schools are exclusive and inacces sible to the oppressed.
These s chools serve the ruling class’ interest by socializi ng
successive generations of civil servants, army officers, profess ional
elite and managerial magnates who have, as is to be expected
internalized the values necessa ry for their dominance in the existing
order.
On the other hand, th e ‘state’ s chools, whi ch depend almost entirely on the
public exchequer, cater to the oppressed by way of realizing the statutory
objective of Univer salization of elementary education. These schools, no
doubt, provide a schooled and differentiated labor fo rce for the economy.
But given the worsening crisis due to socio -economic contrad iction s, they
also constitute the breeding ground for discontentment and a mass
base for a potential revolution and a th reat to the establishment.
Values are embodied in a culture and socially rooted. The promotion of
certain values through the curriculum cannot per se represent the interests
of all sect ions of society. Thus the question arises whose values are
going to be embodied in education and with what consequen ces?
We talk of ‘uniquely Indian values’ and a search word by inference imply
that the government is disillusioned with the values enshrined in the
Constitution, such as equality, social justice and freedom of opinion. In
fact, these values which are most i mportant for the oppressed in the
present order are substituted with values ‘uniquely Indian’ which have
pernicious consequences for the oppressed. The fact that the schooling
of the oppressed is controlled by the state predominantly that the state
is a handm aid of the dom inant classes and groups, and that the move is a
search for ‘uniquely Indian values’ outside the Consti tution,
would assuredly result in education being fostering a ‘ culture of silen ce’
among the oppressed.
A curso ry look at the data on the socio economic background
of our school teachers confirms that by and large they belong to the
dominant sections rather than to the oppressed. These teachers have as
much a vested interest in the present system as those who manipulate,
direct and control it. As such what would be their predispo sitions to
the oppre ssed and the latter’s emancipation can be anybody’s guess.
A report in the Indian Express, Bangalore, 15 February 1984, about a
school in Mehekar village in Amravati Dist rict in Maharashtra where the
seventh standard students alleged ly tore off pages from a book containing munotes.in

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127 a lesson on Dr. Ambedkar following an o rder from their teacher,
according to whom Dr. Ambedkar was an un touch able and not a fit topic
for instruction is a pointer.
A few teachers from among the oppressed sections are also made
instruments of manipulation at the hands of the dominant classes. E ven the
teachers’ training programs also follow this line of thinking a nd provide
legitimacy to what they already been doing. An ideal society focuses on
the promotion of ‘the good of every man and the whole man.’ the
oppres sed sections of the society who are in effect defenseless should be
strengthened and made prepared to deal criti cally with the oppressive
elements of reality. The oppressed should al so be enabled to believe in
their own power if change is to be made in this regard.
One aspect of the reformism is the notion that the oppressed have been
provid ed with the opportunity of ‘qu ality edu cation.’ This notion has made
the oppressed the object of humanitarianism and the implied ‘false
generosity.’ If the oppres sed are unable to benefit from the state
generosi ty, the blame is squarely placed upon them by individuali zing
failure, ignoring the socio-economic reality. In fact, considering the
role that education can play in bringing about a revolution or preventing it,
one is reminded of the need to ‘rescue education from the inf luence of the
ruling c lass’ recognized by Marx and Engels as early as 1848.
Exercise:
Answer the following questions in not more than 150 wo rds.
1. What do you mean by equality of educational opportunity? How can
you provide equality of educational opportunity to the students at the
primary and secondary stage of education?
2. Discuss the objec tives of equalization of educational opportunities
for the SC/ST students.
3. How can equal opportunity of education be p rovided to the gi rl
students?
4. Who are the disabled children? How can we provide equal
opportunity to the disabled children?
6B.7 EQUALITY IN THE PROVISION OF EDUCATION
In most s ocieties, equity in the distribution of income, wealth, or prestige
is an important con cern. Sin ce education affects this dis tribution, its
impact is a natural topic of analysis. It is often useful to document the
level of equity associated with the current characteristics in the education
sector and to estimate the cha nge that might result from alternative
education policies. E quity is one among many other objectives of
educational poli cies. Yet equity often arises in the analysis of o ther
problems in the sector. The following a re some of the basic methods for
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128 1. Studies that assume education is benefi cial withou t specifying its
nature or value. The main focus is on the access of specific levels or types
of education. E quity is analyzed by u sing such indi cators as relative rates
(or indices) of entry, transition, and success among various population
groups differe ntiated, for example, by sex, region, ethnicity, or
socioeconomic status of parents.
2. Studies that focus on the value educa tion confers on the educated. This
value may mater ialize while a person is being educated or after gra duation
from the system. In t he first case, the benefits consists of the public
resou rces that accrue to people who are enrolled in the system; in the
second, those benefits appear in the form of higher earnings (or in come)
and upward so cial mobility.
3. Studies that assess who pays for and who bene fits from the provision
of education. Included in this category are studies on the distributional
effects of education. Two kinds of analy ses can be made. The first is
cross -sectional, a comparison of the contribution of various groups to the
public budget for education and the share of that budget that they receive
throu gh public education. The second kind of analysis is longitudinal,
comparing what a person receives from public spending on education
with his or her lifetime contribu tion in the form of taxes.
All three approaches are relevant to the analysis of e quity in education.
But not all of them are feasi ble in sector work. The issue of who pa ys and
who benefits is more appropriately the subject of a specific study than of
secto r work.
Among the three types of studies distingui shed above, the first is clearly
the most feasible in sector work. It should be taken into consideration
that though the results do not provide a great deal of insight into the
proble ms of educational equit y because t he analy sis is somewhat limited
in depth. One way to expand the assessment is to document the
distribution of public spending on education among people belonging to
the same generation.
(a) The Equal Opportuni ty Criterion:
Indicators of equity traditionally measure variation in the access to and
success in edu cation among different groups in the population. They
usually are c alculated from data o the gender, location, or socio -economic
chara cteristics of the student body and a reference populati on (for
examp le, all children of school age).
Table 11 a. 1. Access to primary schooling by sex.
Student population Reference populationR atio (1)/ (2 Relative Index
(percent) 1 (percent) 2 girls=1
Girls 40 50 0.8 1.0
Boys 60 50 1.2 1.5
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129 Table 11 a -1 shows the difference between boys and girls in their access to
primary schooling. The reference population is children of primary school
age, and half this population will no rmally be girls. Th e index in the last
column ind icates that boys are 1.5 times as likely as gi rls to enroll. The
same table could be calcula ted for other levels of education, and the
results would show how this pattern becomes more or less prominent as
the level of educatio n rises.
Table 11. a-2. Transition from Primary to Secondary Schools by
Region
Region Primary (p ercent) Seco ndary intake (p ercent) Ratio Relation
index
(1) (2) (2)/(1) (north =1
North 15 6 0.4 1
South 25 30 1.2 3.0 East 40 50 1.25 3.1 West 20 14 0.7 1.75 Total 100.0 100.0 1.0

Table: 11. a - 2 provides eviden ce on the transition be tween pri mary and
secondary schools by region of the country. It shows that primary scho ol
students in the north are le ss likely than students in other regions to
continue beyond primary level. This outcome is distinct from the fact that
the primary school enrollment ratios are low in the north. Although the
figures do not identify the reason s for the regional differences in the
access to se condary schooling - such as low demand or inadequa te supply -
they highlight this issue as a topic for further analysis.
6B.8 EQUITY IN THE DISTR IBUTION OF PUBL IC
SPEND ING ON EDUCATION
The distribution o f public spending may be addre ssed by focusing on a
given level of education. The calculations compare the of public
spending received by various groups in the student body with the
distribution of a reference population (such as all parents with children in
the relevant age groups).the analysis may be broadened by documenting
the ori gins of the state budget, so as to measure the contribution of each
group against what each receives through the children’s - edu cation. To
gain a sense of the overall situation , a general asse ssment may be enough
to point out, for example, that although the taxes on agricultural products
make up the bulk of physical reven ues, public spending on education
benefits mainly urban families.
People receive public resourc es as long as they remain in the
education system. The longer they stay the more resources they
accumulate. Equity in the distribution of public spending is therefore munotes.in

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130 Highest
Educational Numb er Cumulative public
of expenditure Aggrega te
cumulative Share of total
aggregate expendit ure No schooling 40 0 0 0.0 Prima ry 35 100 3,500 29.7
Seconda ry 20 260 5,200 44.1
Higher 5 620 3,100 26.2
All 100 11,800 100.0 influenced not only by the pattern of spending per pupil at each level of
education, but al so by the structure of enrollme nt pyramid.
Observe table 11 a-3 on the unit cost of education and enrollment ratios in
countries A,B, and C. the school age population is the same in all
three countries, as is the size of the public budget for education. These
countrie s differ, however, in their choice of the structural characteristics of
education.
Table: 11 a-3. Structure of Enrollment and Unit Cost in
Three Countries
Countries A and B spend the same amount per pupil at all three
corresponding levels of educa tion, but country A has placed more
emphasis on en rollment in p rimary schooling, while country B has
emphasized higher education at the expense of primary schooling. In fact
one can conclude that public spending on education is more highly
concen trated in county B than country A.
Now turn to countries B and C . the structure of enrollment is identical, but
substantial differences exist in the pattern of spending per pupil. Country
C is more elitist in that higher edu cation is more heavily funded at the
expen se of lower per pupil spending in primary sc hooling. The data
shows that the distribu tion of public spending on education is less
equitable in country C than in country B.
Equity in the distribu tion of public resources for education depends on two
features of the education system -the quali ty (unit cost) and the quantity
a9enroll ment r atio). To give a comprehen sive picture of equity, the
analysis consider how the enroll ment pyramid affects the distribution of
educa tion (mea sured by the number of years of schooling re ceived) am ong
people in the same generation, and how this distribution in turn i nteracts
with the s tructure of unit costs to determine the distributi on of
accumulated public spending on education.
Table 11-a-4: Distribution of Cumulative Public Spending
onEducation (Rupees)

Attainment students per student expenditure

Enrollment ratio Country A Country B Country C Primary 60 40 40 Secondary 25 25 25 Higher 3 10 10 Public unit Cost Primary 100 100 70 Secondary 200 200 200 Higher 600 600 900 munotes.in

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131 The aggregate amount received by this population, grouped by level of
schooling, is obtai ned by multiplying the number of p ersons in each group
by the public spending accumulated indi viduall y. In this example, 5
percent of the populations (those who attain higher education) receive
26.2 percent of the accumulated public spending on edu cation. But 40
percent (those with no s chooling) get nothing, and 75 per cent (those with
primary schooling or less) get only 29.7 percent.
The resul ts in table 11 -a-4 can be presented in a Lorenz Curve*
(please refer to chapter 11 -d) To plot the graph, groups in the population
are ra nked according to the highest level of education they attained.
Each point on the Lorenz Curve reflects cumulative shares of population
and public spending on education. For example, point B shows that 75
percent (40+35) of the population leaving the school -age range obtained
29.7 percent (0+29.7) of the accumulated pu blic spending on education.
The closer the Lorenz Curve is to the diagonal OD, the more equally
distributed is public spending among a generation of children.
b) The Cost Benefit Criter ion:
Who Actual ly Paid for my Education? [Originally published in
soc. Culture; Indian in 2000.]
It will be interesting to note what a foreign national w ho had his school
education and his masters in engineering in India has to say about Indian
education s ystem and the cost benefit criterion as existing in India.
“India suffers from very low literacy even compared to other developing
countries. Yet one gets to hear about the tremendous impact that Indian
doctors, engineers and scientis ts have had around the world. This conveys
the impression that the Indian schooling system works. I believe that that
impression is wrong and that in fact the Indian school system is
inefficient and bia sed against the poor.
I spent many years the Indian school system and I must admit that I
received very good schooling. My eleven years in a pretty good high
school in Nagpur was practically free. I was given a scholarship during
my bachelor’s degree in engineering. At IIT Kanpur, while doing a
master’s degree in compute r sciences, I received a stipend which was
sufficient to pay for all normal expenses. I estimate that my enti re
education in India, including a master’s in computer science, cost me less
than US$ 100 in today’s terms.
How is it that a poor society can affo rd to educate its children for free? I
come from a middle - class family and I am sure we could have afforded
more than that. I am also sure that if the edu cation had been priced at full
cost, we could not have p aid for it up front. Someone else paid for my
education. That is true for a very large number of people w ho are educated
in India’s premier institutions – someone else paid.
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132 Nagpur is a medium -sized city by Indian standards. It has a bunch of good
high schools. You ha ve to have a middle -class or bett er background to get
into those becau se competitive pressures keep the poor out. But if you
get in, and don’t goof off too much, you can do well in the competition
for admission into a good engineering or medical coll ege. And then
you get h eavily subsidized education in college. Armed with all the
advantages, you fill out a bunch of applications, write the GRE and the
TOEFL and off you go to the US, never to return”.
It was fashionable in the 1970s and 80s to refer to the migration of traine d
doctors, scientists and engineers to the advanced industriali zed countries
as a “brain drain.” Actually, it was a “resource drain” rather than a “brain
drain.” India ne ver really had a shortage of ba sic brains. There are
hundreds of millions of basic bra ins in India. However it takes
resources to train a basic brain and turn it into a useful brain. These
scarce resources are lost to the economy when used to train brains that
eventually migrate.
Just like capital flight from poor economies to the rich ones, the migration
of trained manpo wer, human capital flight, is enormously expensi ve. It is
an even more of a burden when the training is publicly fu nded. When a
trained engin eer migrates to the US, it is totally indistinguishable from a
gift of US$ 100,000 from India to the US. Over the years, the total impli cit
subsidy from India to the US could be estimated to be of the order of
hundred billion dollars.
When an educated person leaves India, there is a first -order loss to the
economy if the education was pu blicly funded. There is no comparable
first-order loss if p rivate resources were invol ved in the training. But in
either ca se, the economy los es the life -time stream of economic
contributions that the migrant would have made. This is a second -
order loss. There is what can be considered a third -order loss that is
harder to estimate but whose impact may be the most damaging in the
long run. This arises from publicly subsidi zing higher edu cation at the
expense of primary education.
Prim ary education, somewhat li ke primary health care, has characteristics
of what economists call a “public good.” The positi ve effects of primary
education spill over into the larger economy more than that of higher
education, which is more like a private goo d. Markets efficiently provide
optimal quantities of private goods but are known to under -provide
public goods. The market understandably fails in the case of primary
education. The solution is straightforward: the public sub sidy of primary
education.
The essen tial point is that the subsidi zing higher education is an inefficient
use of resources which could have been used for primary education. And
this distorted system has real -world consequences: the shameful neglect of
primary education.
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133 Gambia 20%
Mali 18%
Senegal 15%
Tanzania 17%
Burkina Faso 25% [Source: Human Development Report 1999. UNDP. Dismal Statisti cs
The Indian constitution mandates universal primary education for all
(see Article 8 of the Indian Constitution). Yet, 41% of children do not
reach grade 5 in India. Compare that to some other countries:




Of the countries that rank lower than In dia in the human development
index, only about four have higher percentage of children that do not
reach the fifth grade. Mozambique does worse
than India, for instance. But ne ver mind small strange sub -Saha ran African
countries. Take Indonesia for example : only 11% of its children don’t go
past the fifth grade. Or take Mexico with its 14% figure. Compare India
with neighboring Sri Lanka with its 17%.
The failure of Indian primary education is hard to escape. Sixty years after
India’s political independence , Ind ia is placed 126th out of 175 countries
ranked in the 2006 Human Development Report. India’s adult literacy rate
is a dismal 61%, below Cameroon (68%), Angola, Congo, Uganda (67%),
Rwanda (65%), and Malawi (64%). That 40% of today’s Indian adults
cann ot even “both read and write a short, simple statement related to their
everyday life” implies that they did not get the equivalent of the most
basic of primary education. Compare that to China’s 90% adult litera cy.
[Source: UNDP Hum an Devel opment Report.]
The argu ment is often advan ced that the Indian education system must be
world -class. After all, doesn’t it produce world -class NRIs (non-resident
Indians) like Vinod Khosla and Rajat Gupta? And don’t they turn
around and give millions of dollars to suppor t the IITs? Yes, of course.
Sure the NRIs send some money home. But what is the ratio of the amo unt
India spends on their edu cation to what these worthies send back home?
Even then, who could be so cra ss as to measure eve rything in terms of
dollars? Surely there is something more important than money. And it is
the untapped hu man capital that India has in abundance and whi ch it
criminally neglects. It neglects them because the powers that be ha ve it
made under the current syst em and it serves their narrow p urposes.
For all our vaunted world -class scienti sts, doctors and engineers, India
ranks miserably in the number of scientists and technicians it has: 0.3 such
per 1,000 populations. Co mpare that to: China 0.6, Islamic Rep of Iran
0.7, South Africa 1.7, and Korea 2.9.
Unless we recognize the basic problem, examine it dispas sionately, we are
unlike ly to even consider solving the problem. In a sort of defense th rough munotes.in

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134 denial, we may declare that the problem does not exist. But the probl em
does exist which has w ide ranging impli cations. The most devastating
impact of our dismal educational system is that we are condemning
ourselves to a future of exceedingly low eco nomic development. If there
is one thing that developmental economi sts have lea rnt, it is t his:
education is the most important factor in economic growth than natural
resources, foreign i nvestment, exports, and imports, whatever. Neglect
education and you may as well hang you and save yourself the pain of a
slow miserable death.
So who paid for my education? It is the poor rural children,
thousands of them, who paid for my education by losing their opportunity
to become semi -litera te. The system is tilted against them and unless there
is a radical change in the way that educati on is funded , they will continue
to pay the pri ce for subsidizing the US for decades to come.
What is the solution? One solution to the problem could be of pricing all
higher educ ation at full cost. If a year of engineering school costs Rs 3
lakhs, price it at that. Then give loans to every student that needs it to pay
the price. The loan is repayable up on employment and in terms
commensurate with the level of employment. If you earn big dollars in the
US, pay in big dollars. If you work as a doctor in a small village in India,
pay small amounts in rupees. Essentially, with the loan system in place,
there is no need for public sub sidies for higher education.
Under the existing Indian scena rio, a large chunk of students who vie for
higher education may not be even eligib le to get an educational loan since
they are not able to fulfill the requirements needed to secure it from the
bank. In such cases the Government can stand guarantee after securing
neces sary undertakings from them to ensure the repayment of the loan.
This could be a second option.
A third option could be provi ding subsidies to those students who are
economically backward. There are difficulties in identifying those who
really deserve under this criterion. Though there could be some
manipulation on the part of beneficiaries, a strict and sincere
scrutiny can segregate the really deserving ones to a greater extent of
accuracy.
6B.9 THE ABILITY TO PAY CRITERION
The third option mentioned abo ve is the reality in the Indian context. With
the Government aided institutions being very meager and the private
playe rs and foreign educational insti tutions who are mostly driven by
profit motive have made higher education beyond the reach of the
majority of students. Not only that education has been commercializ ed,
but the quality provided by them is questionable. Through various
promotional programs by the Government and N GO’s, a demand for
education has been created among the public, but thousands of aspirants
are unable to fulfill their desire for education es pecially higher education
due to various reasons. The exorbi tant cost of education, the munotes.in

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135 uncertainty of job after comp letion of studies, the failure of successive
governments to create additional job opportunities and the corruption
rampant in every field has deterred thousands of youngsters especially
from the lower strata from the portals of educational institutions.
The commerciali zation of edu cation, the arrival of foreign universitie s, the
liberali zation policies, the privatization of education, the deg radation of
education from merit goods to non-merit goods, the withdrawal of
government from funding edu cation, the low allo cation of GDP for
education, and dive rsion of funds meant for education to other activities of
government, difficulty to get educati onal loans have all pulled education
in India backward and kept a sizable number of Ind ian children and youth
from the precincts of education institut ions. Poverty among the masses,
the exorbitant cost of education, poor infrastructure, lack of will among
the governments, unemplo yment, non-availability of quali ty educational
institutions within reasonable reach are also deterring factors in the
progress of education in India. Considering the peculiar situation
prevailing in India, the system needs an overhauling and finds new ways
to achieve the goals envisaged in the Constitution of India. Ind ia has
followed a discriminatory reservation policy, espe cially in the field of
education. But the gap between the poor and rich increasing day by day,
more a nd mo re number people who are not listed in the scheduled
category and being side lined since they are not able to bear the
cost of education. So a re -look of the po licies to include the non
scheduled poor masses is also warranted. It is true t o implement this
proposition is plagued with a number of roadblocks.
Unit end exercise:
1. What are the different methods followed in the assessment of equity
in education?
2. How is the equal opportunity criterion lopsided between sexe s?
3. What are the anomalies in the distribution of public funds in
education in India?
4. What solutions do you suggest to have fairness in the
distribution of public funds in the field education?
5. Suggest ways and means to attain equality in educatio nal
opportunities in education.
6B.10 TOOLS TO ASSESS THE EQUITY AND INCOME
DISTRIBUTION
The most commonly used inequality measures are the Gini coefficient
(based on the Lorenz curve) and the percentile or share ratios . These
measures try to capture the o verall dispersion of income; however, they
tend to place different levels of importance on the bottom, middle and top
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136
6B.10.1 THE LORENZ CURVE
Lorenz curve identifies the share of the nation’s income earned by
different seg ments o f the popula tion. It is a very useful tool to measure the
income distribu tion. Economists in their efforts rely on tools like Lorenz
Curve to trace certain changes to understand how a particular nation is
dealing with ongoing problem of scarcity; economist s compile a wide
range of statistics and plot them on a variety of graphs and charts. But
these are only the starting point in their analy sis. According to the game of
economic principles, breaking down the numbers is just the first step in
assessing econo mic conditions.
Economis ts also use Lorenz Cu rves to measure changes in the distribution
of income. In 1947, the income was distributed like this:
Table 1.
Lowest 20% earned 5.0% of the national in come. Next 20% earned 17.0%
Next 20% earned 23.1% Highest 2 0% earned 43.0%
Figure 11. d. 1.
And the Lorenz Curve for the above data looked like this:










In order to gain a clearer sense of the distribution of income, a line of
equality is drawn. If inc ome was equally distributed, 20% of the public
would ha ve earned 20% of the nation’s income, 40% of population 40%
of the income etc. The corresponding Lorenz Curve would look like the
above with d ifference between the two lines illustrating the gap be tween
the perfe ct and the actual distribution of income. The curve also indicates
that the lower 60% of the population receive only 33.9% of the national
income whereas the upper 40% of population get 66.1% of the total
National income. That means the income i s not evenly distributed.
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137
A comparison of the 1947 and 2005 Lorenz Curves suggested that the
personal distribu tion of income is less equal than it was 58 years ago.
Now why it is so, and why it may or may not be significant is another
question. But the Lorenz Curve does a nice job of visualizi ng the
empirical fact.
Figure11.d.2.
Comparison of the 1947 and 2005 distribution of income:












Fig. 11 d. 3. Lorenz Curve, India


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138 Table 11 d. 4.

Lorenz Curve is of great importance in today’s macroeconomic stats
which run into big numbers. The US GDP is now about $15 trillion. (That
is, $15,000,000,000,000.) Such big numbers are not ea sy to comprehend
and analyze the distribution trend. In such cases the Gini coefficient.
6B.10.2 GINI -COEFFICIENT
The Gini coefficient is a measure of statistical dispersion developed by the
Italian statistician Corrado Gini and published in his 1912 paper
"Variability and Mutability" ( Italian : Varia bilità e muta bilità )
The Gini coefficient is a mea sure of the inequality of a distribution, a
value of 0 expres sing total equality and a value of 1 maximal inequality.
The Gini coefficient operates on a scale of 0 to
1 (0 being a perfect score where everyone earns equally.) the higher
the Gini coefficient, the higher is the dispa rity and India’s Gini
coefficient has risen fro m0.32 in mid-80s to 0.36 in the mid2000s. It has
found application in the study of inequalities in disciplines as di verse as
economic s, health scienc e, ecology , chemistry and engineering . It is
commonly used as a measure of inequality of income or wealth
Worldwide, Gini coefficients for income range from approximately 0.23
(Sweden) to 0.70 (Namibia) although not every country has been asses sed.
DEFINITION
The Gini coefficient is usually defined mathematicall y, based on the
Lorenz curve , which plots the propo rtion of the total income of the
population (y axis) that is cumulatively earned by the bottom x% of the
population. The line at 45 degrees thus represents
perfect equality of incomes. The Gini coefficient can then be thought
of as the ratio of the area that lies between the line of equality and the
Lorenz curve over the total area under the line of equality.
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139 The Gini coefficient can range from 0 to 1; it is sometimes multiplied by
100 to range b etween 0 and 100. A low Gini coefficient indicates a
more equal distribution, with 0 corresponding to comple te equality, while
higher Gini coefficients indicate more un equal distribution, with 1
correspon ding to complete inequality. To be validly computed, no
negati ve goods can be distributed. Thus, if the Gini coefficient is being
used to describe household income inequality, then no household can have
a negati ve income. When used as a measure of income inequality, the
most unequal society will be one in which a single person receives 100%
of the total income and the remaining people receive none (G=1); and the
most equal society will be the one in which every person receives the
same income (G=0).
Some find it more intuiti ve (and it is mathematically equivalent) to think
of the Gini coefficient as half of the relative mean difference . The
mean difference is the average absolute difference between two items
selec ted randomly from a population, and the relative mean difference is
the mean difference divided by the average, to normalize for scale.
6B.10.2.1 GINI INDEX CALCULATION
The Gini index is defined as a ratio of the areas on the Lorenz
curve diagram. If t he area be tween the line of perfect equality and
the Lorenz curve is A, and the area under the Lorenz curve is B, then the
Gini index is A/(A+B). Since A+B = 0.5, the Gini index, G = A/(0.5) =
2A = 1-2B. If the Lorenz curve is represented by the func tion Y = L(X),
the value of B can be found with integration .
There does not exist a sample statistic that is in general an unbia sed
estimator of the popula tion Gini coefficient, like the relative mean
difference.
Sometimes the entire Lorenz c urve i s not known, and only values at
certain intervals are given. In that case, the Gini coefficient can be
approximated by using various techniques for interpolating the missing
values of the Lorenz curve. If (X k , Y k ) are the known points on the
Lorenz curve, with the X k indexed in increasing order ( X k - 1 < X k )
The Gini coefficient can be calculated if you know the mean of a
distribution, the number of people (or percentiles), and the
income of each person (or percentile). Princeton devel opment economist
Angus Deaton (1997, 139) simplified the Gini cal culation to one easy
formula:
Where u is mean income of the population, Pi is the income rank P of
person i, with inco me X, such that the richest person receives a rank of 1
and the poore st a rank of N. This effectively gives higher weight to poorer
people in the income distribution, which allows the Gini to meet the
Transfer Principle.
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140 6B.10.2.2 GENERALIZED INEQUALITY INDEX
The Gini coefficient and other standard inequality indices are reduc ed to a
common form. Per fect equality —the absence of inequalit y—exists when
and only when the inequality ratio, equals
1 for all j units in some population; for example, there is perfect income
equality when everyone’s inco me xj equals the mean in come , so that
rj = 1 for everyone). Measures of inequality, then, are measures of the
average deviations of the rj = 1 from 1; the greater the average
deviation, the greater the inequality. Based on these observations the
inequality indices have this common form.
Where p j weights the units by their population share, and f(rj) is a
function of the deviation of each unit’s rj from 1, the point of equality. The
insight of this gene ralized inequality index is that inequality indices differ
because they empl oy different functions of the distance of the inequality
ratios (the r j) from 1.
GINI COEFFICIENT OF INCOME DISTRIBUTIONS
While developed European nations and Canada tend to have Gini
indices between 24 and 36, the United States' and Mexico's Gini indices
are both above 40, indicating that the United States and Mexico have
greater inequality. Using the Gini can help quantify differences in
welfare and compensation policies and philosophies. However it
should be borne in mind that the Gini coefficient can be misleading when
used to make politic al comparisons between large and small countries
(see critici sms section).
6B.10.2.3 ADVANTAGES OF GINI COEFFIC IENT AS A
MEASURE OF INEQUALITY
• The Gini coefficient's main advan tage is that it is a measure of
inequality by means of a ratio analy sis, rather than a variable
unrepresentative of most of the population, such as Per Capita Income
or Gross Domestic Product .
• It can be used to compare income distributions across different
population sectors as well as countries, for example the Gini coefficient
for urban areas differs from that of rural areas in many countries
(though the United States' urban and rural Gini coefficients are nearly
identical).
• It is sufficiently simple that it can be compa red across countries and be
easily interpreted. GDP s tatistics are often criticized as they do not
represent changes for the whole population; the Gi ni coefficient
demonstrates how in come has changed for poor and rich. If the Gini
coefficient is rising as well as GDP, poverty may not be improving for the
majority of the population.
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141 • The Gini coefficient can be used to indicate how the distribution of
income has changed within a country over a period of time, thus it is
possible to see if inequality is increasing or decreasing. The Gini
coefficient satisfies four important principles:
1. Anon ymity: It does not matter who the high and low earners are.
2. Scale independen ce: The Gini coefficient does not consider the size of
the economy, the w ay it is measured, or whether it is a rich or poor
country or average.
3. Population independence : It does not matter how large the population
of the country is.
4. Transfer principle : If income (less than half of the difference), is
transferred from a ri ch person to a poor person the resulting distribution
is more equal.
6B.10.2.4 DISADVANTAGES OF GINI COEFFICIENT AS A
MEASURE OF INEQUALITY
• While the Gini coeffi cient measures inequality of income, it does not
measure inequality of opportunity . For examp le, some countries may have
a social class structure (Indian cast system) that may present barriers to
upward mobili ty; this is not reflected in their Gini coefficients.
• If two countries have the same Gini coefficient but one is rich and
the o ther is poo r, it can be seen to measure two different things. In a poor
country it measures the inequality in material life quality while in a rich
country it measu res the distribution of luxury beyond the basic necessities.
• The Gini coefficient of different sets of people cannot be
averaged to obtain the Gini coefficient of all the people in the sets: if a
Gini coefficient were to be calcula ted for each person it would always be
zero. For a large, economically diver se country, a much higher
coeffic ient will be calculated for the country as a whole than will be
calculated for each of its regions. (The coefficient is usually applied to
measurable nominal income rather than local purchasing powe r, tending
to increase the calculated coeff icient across larger areas.)
• The Lorenz curve may understa te the actual amount of
inequality if richer households are able to use income more efficiently
than lower income h ouseholds or vice ver sa. From another point of view,
measured inequality m ay be the result of more or less efficient use of
household incomes.
• Economies with similar incomes and Gini coefficients can still have
very different income distributions. (This is true for any single measure of
a distribution .) This is because the Loren z curves can have different
shapes and yet still yield the same Gini coefficient. For example,
consider a society where half of indi viduals had no income and the other
half shared all the income equally (i.e. whose Lo renz curve is linear from
(0,0) to (0.5 ,0) and then linear to (1,1)). As is easily calculated, this munotes.in

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142 society has Gini coefficient 0.5 -- the same as that of a society in which
75% of people equally shared 25% of income while the remaining 25%
equally shared 75% (i.e. whose Lorenz curve is linear from (0,0) to
(0.75,0.25) and then linear to (1,1)).
• It measures income rather than wealth. A society in which
everyone earned the same final amount over a lifetime would appear
unequal because of people at different stages in their life. Howev er,
Gini coefficient can also be calculated for any kind of single -variable
distribu tion, e.g. for total wealth.
• Gini coefficients do include investment income; however, the Gini
coeffi cient based on net income does not accurately reflect differences in
wealth —a possible source of misinterpretation. For example, Sweden
has a low Gini coefficient for income distribution but a significantly
higher Gini coefficient for wealth (for instance 77% of the share value
owned by hou seholds is held by ju st 5% of Swedish sha reholding
households). In other words, the Gini in come coefficient should not be
interpreted as measuring effective egalitariani sm.
• Too often only the Gini coefficient is quoted without describing the
proportions of the quintiles used for measurement. As wi th other
inequality coefficients, the Gini coefficient is influenced by the
granularity of the measure ments. For example, five 20% quintiles
(low granularity) will usually yield a lower Gini coefficient than
twenty 5% quinti les (high g ranularity) taken from the same distribution.
This is an often encountered problem wi th measurements.
• Care should be taken in using the Gini coefficient as a measure of
egalitariani sm, as it is properly a measure of income dispersion. For
exam ple, if t wo equally egalita rian countries pursue different imm igration
policies, the country accepting higher proportion of low-income or
impoverished migrants will be assessed as less equal (gain a higher Gini
coefficient).
•The Gini coefficient is a point-estimate of equality at a certain time;
hence it ignores life -span changes in income. Typically, increases in the
proportion of young or old members of a society will drive apparent
changes in equality. B ecause of this, factors such as age distribution
within a population and mobility within income classes can create the
appearance of differential equality when none exist taking into account
demographic effects. Thus a gi ven econ omy may have a higher Gini
coefficient at any one point in time compared to another, while the Gini
coefficient calculated o ver individuals' lifetime income is actually lower
than the apparent ly more equal (at a given point in time) economy's.
Essentially, what matters is not just inequality in any particul ar yea r,
but the composition of the distribution over time.
6B.11 GENERAL PROBL EMS OF MEASURE MENT
• Comparing income distributions among countries may be
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143 countries give benefits in the form of money while others give food
subsidy , which might not be counted by some economists and researchers
as income in the Lorenz curve and therefore not taken into account in the
Gini coefficient. Income in the United States is counted before benefits,
while in France it is counted after benefits, which may lead the United
States to appear somewhat more unequal vis -a-vis France. In another
example, the Soviet U nion was measured to have relatively high income
inequality: by some estimates, in the late 1970s, Gini coefficient of its
urban population was as high as 0.38,[16] which is higher than many
Western countries today. This number would not reflect those benefits
received by Soviet citizens that were not monetized for measure ment,
which may in clude child care for children as young as two months,
elementary, secondary and higher education, cradle-to-grave medical care,
and heavily subsidized or provided housing. In this example, a more
accurate comparison between the 1970s So viet Union and Western
countries may require one to assign monetary values
to all benefits – a difficult task in the ab sence of free markets. Similar
problems ari se whene ver a comparison between pure free -market
economies and pa rtially so cialist economies is attempted. Benefits may
take various and unexpected forms: for example, major oil producers such
as Venezuela and Iran provide indirect benefits to its citizens by
subsidi zing the retail price of gasoline. India gives subsidy in various
aspects like edu cation, oil, fertili zers, food sub sidy through Pu blic
Distribution System.
• Similarly, in some societies people may have significant income in
other forms than money, for example through subsisten ce farming or
bartering . Like non -monetary bene fits, the val ue of these incomes is
difficult to quan tify. Different quantifications of these inc omes will yi eld
different Gini coefficients.
• The mea sure will give diffe rent results when applied to
individuals instead of househo lds. When differe nt populations are not
measured wi th consistent definitions, comparison is not meaningful.
• As for all statistics, there may be systemat ic and random errors in the
data. The mean ing of the Gini coefficient decreases as the data become
less accurate. A lso, countries may collect data differently, making it
difficult to compare statistics between countries.
6B.1 2 OTHER USES
Although the Gini coefficient is most popular in economics, it can in
theory be applied in any field of science that studies a d istribution.
For exa mple, in ecology the Gini coefficient has been used as a measure
of biodiversi ty, where the cumulati ve proportion of species is plotted
against cum ulative proportion of individuals.
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144 In health, it has been used as a measure of the ineq uality of health rela ted
quality of life in a population.
In education, it has been u sed as a measure of the inequality of
universities.
In engineering, it has been u sed to evaluate the fairne ss achieved by
Internet routers in scheduling packet transmissions from different flows
of traffic.
In statistics, building decisi on-trees, it is used to measure the purity of
possible child nodes, with the aim of maximi zing the average purity of
two c hild nodes when splitting.
The Gini coefficient is al so commonly used for the measurement of the
discriminatory power of rating systems in credit risk management. The
discriminatory power re fers to a credit risk model's ability to
differentiate between defaulting and non- defaulting clients. The Gin i
index for the entire world has been estimated by various parties to be
between 56 and 66.
An example of Lorenz curve and Gini coefficient:
Observe the following table. The table shows the cumulative public
expenditure on 100 children (students) who attain differe nt levels of
education.
Table 11-d-2: Distribution Education (Rupees) of Cumulative Public Spending on Highest Number Cumulative public Aggregate Share of total Educational of expenditure cumulative aggregate Attainment students per student expenditure % expenditure No schooling 40 0 0 0.0 Primary 35 100 3,500 29.7 Secondary 20 260 5,200 44.1 Higher 5 620 3,100 26.2 All 100 11,800 100.0
The aggregate amount received by this population, grouped by level of
schooling, is obtai ned by multiplying the number of persons in each group
by the public spending accumulated indi viduall y. In this example, 5
percent of the populations (those who attain higher education) receive
26.2 percent of the acc umulated public spending on edu cation. But 40
percent (those with no s chooling) get nothing, and 75 per cent (those with
primary schooling or less) get only 29.7 percent.
The resul ts in table 11 -d-3 can be presented in a Lorenz Curve*(Figure
11.d.6.) To plo t the graph, groups in the population are ranked according
to the highest level of education they attained. Each point on the munotes.in

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145 Lorenz Curve reflects cumulative shares of population and public
spending on education. For example, point B show s that 75 percent
(40+35) of the population leaving the school -age range obtained 29.7
percent (0+29.7) of the accumulated public spending on edu cation. The
closer the Lorenz Curve is to the diagonal OD, the m ore equally
distributed is public spending amon g a generation of children.
Fig.11.d.6. Lorenz curve and Gini coefficient:

A summary statistic associated with the Lorenz curve is the Gini
coefficient, defined as the ratio between the area OABCD and triangle
OED in the graph. The coefficient has a range of 0 to 1. The smaller
it is, the more equal is the distribution of public spending on
education. It can be calculated as follows.
Area ABCDE=area AGB+ area BGFC+ area CFED
= [(0.5 x 35 x 29.7) +10.5 x (29.7 +73.8) x (95-75)]
+[0.5x(73.8+100x( 100-95)]
=1989.25
Gini coefficient =area OABCD/a rea OED
=(5000 -1989.25)/5000
=0.60.
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146 The Gini coefficient is useful for comparing countries and regions and for
tracing trends and measuring the impact of policy changes in the same
country. The foregoing cal culations can be disaggregated -by gender,
region, urban -rural location, socioeconomic group, ethnicity and so on - if
the data are available on each group’s share in total enrolment at the three
levels of education.
Does the Gini reflect the Indian scenario correctly?
If people are totally free, the most talented (and lucky) will get far
richer than the dullest and unluc kiest. So freed om will create
inequality. Communist countries aimed at equality of outcome through
totalitarian controls, but this was hypoc risy: there was no equality of
power be tween tho se laying down the rules and th ose forced to obey.
To ease the tension between l iberty and equality, countries typically aim
for equality of oppor tunity, not outcome. Yet inequali ty exists al most
everywhere m easured by economists in terms of outcome, not of
opportunities.
The following table lists the six most equal and unequ al major states
in terms of consumption.
Gini Coefficients of Major states, 2004-05 Rural Urban Bihar 0.17 0.31
Assam 0.17 0.3
Jharkhand 0.2 0.33
Rajasthan 0.2 0.3
UP 0.23 0.34
MP 0.24 0.37
Gujarat 0.24 0.32
Punjab 0.26 0.32
Tamil Nadu 0.26 0.34
Maharashtra 0.27 0.35
Kerala 0.29 0.35
Hariyana 0.31 0.36
ALL INDIA 0.25 0.36
Source: Economic Survey,2010 -11

The table shows, dramaticall y, that areas with the most consumption
equality (i.e., with the lowest rural Ginis) are the poorest. Bihar and
Assam are the most equal, with Ginis of just 0.17. But they do not
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147 Recently, Bihar witnessed record growth and improved governan ce under
Nithish Kumar government. The 2009 -10 data shows that inequality of
consu mption has increa sed in Bihar. Analysts may condemn this as a s ign
of rising unfairness. But the fact is that, in such states, opportunities of
improvement have improved and that matters more than the equality of
outcome. This fact is reinforced by the fact that the incumbent chief
ministers of such states that suddenly g row fast (Bihar, Orissa, and
Chhat tisga rh) get re -elected with large majorities despite worsening Ginis.
The most unequal states in rural Gini are the richer ones. Haryana leads
with 0.31, followed by Kerala (0.29) Maharashtra (0.27) Tamil Nadu
(0.26) Punjab (0.26) Gujarat (0.25). C onsumption equality in the poor
states is almost invariably below the all India average of 0.25 and in rich
states invariably above. Such equality in poor states is a sign of distress
more than fairne ss or satisfact ion.
People have long migrated f rom relat ively equal b ut poor states to
relatively unequal but richer states. People also mig rate from villages
which are relatively equal to towns which are relatively unequal in terms
of consumption. The greater the gaps between the rich and poor areas,
the great er are the gains from migration. So, what some anal ysts
condemn as growing inequality between states translates to rising ret urns
to migration, creating more opportunities for poor migrants.
For most people the biggest su rprise in the table could be Kerala . It has a
welfarist, socialist pattern of society, but has the second highest rural
consumption inequality (0.29). by th is measure, it is far worse off
than Bihar or Uttar Pradesh!
Kerala is substantially a remittance economy (a quarter of s tate GDP
comes from remittan ces), and clearly those getting remittances gain over
those without. Kerala has the best social indi cators in India, which should
mean the most equality of opportunit y. But that does not transl ate in to
equality of outcome. Appar ently unequal Kerala is a much better place to
live in than apparently egalitarian Bihar and UP, because Kerala provides
more opportunity for developing skills that fetch returns in the market
place, and that is what really matters.
It is easy to say that, other things equal, more income equality is
better than less. But other things not being equal, it is clear that rising
equality of opportunity, leads to rising inequality of outcome. In this
context, it may be said that Gini coefficient as a me asure of fairness
proves to be a wrong tool as GDP is a very incomplete measure of well-
being.
Unit End Exercise:
1. Explain Lo renz curve.
2. Define the Gini coefficient.
3. How is the Gini coeffic ient calculated? Give example. munotes.in

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148 4. What are the advantag es of Gini coefficient?
5. What are the disadvantages of Gini coefficient?
6. What are the general problems in the calculation of Gini coefficient?
7. Why is Gini coefficient a better tool to measure the inequality of
distribution of income etc.?
8. How is Gini proved to be a wrong measurement in the Indian context?
References:
 Balsara, Maitreya, 1996, New Education Policy and
Develop ment Challenge, Kanishka Publ ishers, Di stributors, New
Delhi.
 Behind the Black Board, Conte mporary Perspecti ves on Indian
Education Vol. 1&2; Edited by K umar A. & Lhiri S. SFI Publications,
N. Delhi.(2002).
 Dash, B. N., (2009 -10), Theories of Education and Education in the
 Emerging Indian Society, Dominant Publishers and
Distributors, New Delhi.
 Jayara m, N; 1990, Sociology of Education in India, Rawat
Publishers, Jaipur
 Knight, J. B. and Sabot, R. H., Education, Productivity and
Inequality, The East African Experime nt, Oxford University Press,
Washington D. C.,1990.
 Mehta Nalin, It is all about the Gini Stupid; For all our growth
rates, India today is a much m ore unequ al society than even 10
years ago; Mumbai Mirror; 14th February, 2011;
(www .mumbaimirror.c om).
 Mingat, Alain and Tan Jee-Peng, Analytical Tools For Sector Work
in Education, The John Hopkins Universi ty Press, London, 1988.
 Ritzen, J. M. M., 1977, Education, Economic Growth and
Distribution, North Holland Publishing Company, Amsterda m.
 Swaminathan Ankale saria Aiyar, Don’t Worry About Inequality, The
Economics Time s, Mumbai, 11 May , 2011.
 Thakur A. S. & Berwal S., Education in Emerging Indian
Society, (2007) Mayur Paper backs. Noida.
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