All You Need to Know- Education Finance


History of National Education Policies

The first National Policy of Education was formulated in 1968, 18 years after development planning in the newly independent India was launched. It is exactly after 18 years; the second National Policy on Education was formulated in 1986 and was marginally revised in 1992.

New Education Policy and Education Financing

During the last few years, the need for a new National Policy on Education has been increasingly felt, given the significantly changing landscape in all spheres of development in general and in education sector in particular. During the last couple of decades, in the absence of any new policy, changes in education sector were introduced with executive orders and uncoordinated initiatives. The new government immediately after coming to power has indicated that it would come up with a new National Policy on Education. In this overall context, a few policy issues relating to financing of education need to be carefully examined. After all, it is widely acknowledged that finances not only play an important role, but also are clearly indicative of government’s priority in favour of a given sector.

Education & Development

Education is widely acknowledged as an important public good, and as a social responsibility. The benefits it produces to the society are diverse, widespread over several spheres of development, and flowing for a long period, including generations after generations. Education has a direct relationship with development, and more importantly, the externalities it produces makes state funding of education the most dominant method of financing education in most developing and advanced societies of the world.

Why Public Funding for Education is Required?

Historical evidence as well as contemporary experience supports a view for public funding of education. UNESCO argues for treating education as a ‘common’ good, going beyond the framework of public good. Public funding of education protects and nurtures public good character of education, ensures equitable expansion of education, and has a huge potential to serve the national development needs, promoting common interest of all the citizens, as a common good.

It is necessary that the state makes a firm commitment to generous funding of education. It has been repeatedly reiterated that we spend at least six per cent of GDP on education, as resolved in the 1968 National Policy of Education. While there is need to revisit the goal, this may be viewed as a minimum target for the immediate future. The resources need to flow out of general and specific tax (e.g., education cess) and non-tax revenues of the government (at central and state levels). Presently, less than or about four per cent of GDP is allocated to education. Both states and the union government should seriously feel the responsibility of reaching the target of six per cent of GDP to education.

Goals to be Kept in Mind While Funding Education Sector

Education sector needs to be adequately funded, keeping in view the goals relating to expansion (quantitative targets like universal elementary and secondary education, and 30 per cent gross enrolment ratio in higher education), development of technical, vocational and other skills among youth, improvement in access of the weaker sections to education, improvement in levels of learning to acceptable levels in school education and in promoting high standards and excellence in higher education. Before expanding further, the secondary and higher education system with new schools, universities and colleges, it is necessary to ensure that the existing institutions are reasonably well developed and are put on sound resource base in terms of not only financial resources, but also in terms of physical and human resources.

Basis of Education system in Advanced Regions

Strong universal and high quality education systems are developed in advanced regions of the world with the funding exclusively by the state in case of school education, and in case of higher education, with heavy public funding, supplemented by liberal funding by the society at large. Specifically through philanthropic donations and endowments from the corporate sector and individuals, including alumni. Student contributions in terms of fees even in higher education in these societies constitute relatively a minor source of funds.

Lessons for India

It is necessary to develop a framework in India that promotes the missing source of funds the non-state and non-student sector, namely philanthropic sector. Besides, linking some of the provisions of the Corporate Social Responsibility Act specifically to education sector, innovative measures to promote individual and corporate donations and endowments to education need to be searched for. It is also necessary to see that non-philanthropic and profit-seeking private sector is not promoted in education by the state, as education in such institutions, even if good in terms of narrowly defined parameters of quality, might not help in building nations with values. Similarly, one has to be very cautious with respect to application of public-private partnership models in education. Such models might work well in case of infrastructure and other sectors, but may not necessarily work satisfactorily in case of education, given the specific nature, characteristic features and functions of education.


To sum up, given the historical and contemporary experience of many advanced countries, it has to be noted that the state has to play an increasingly dominant role in financing education at all levels, and there is some scope to raise resources from other sources such as alumni, internal sources such as alumni, internal sources, philanthropy, etc., but there are limits for raising and relying on resources from non-state sources and that they can and will only be supplementary, need to be recognized.

Lastly, at least a 10-20 year national plan of funding of education that corresponds to a long term perspective plant of education development in the country needs to be developed, based on sound principles of financing of education, such as adequacy, equity and efficiency. Such a plan should assure the education system at all levels a steady flow of funds for a 10-20 year period, with sufficient provisions for rewards and punitive action.