Educational Quest: An Int. J. of Education and Applied Social Sciences: Vol. 12, No. 3, pp.

01-11, December 2021

DOI:
Peer Reviewed Journal

Government Expenditure on Education: A study of Centre and

States in India
Babita Balodi1 and Aarti Srivastava2
1
Research Scholar at National Institute of Educational Planning and Administration (NIEPA), New Delhi, India
2
Professor, Department of Higher & Professional Education at National Institute of Educational Planning and Administration
(NIEPA), New Delhi, India
*Corresponding author: aartijnu@[Link]

Received: 17-09-2021 Revised: 21-11-2021 Accepted: 04-12-2021

Abstract
Since the Global Recession which originated in US and, had its impact on the countries across globe
including India, there is a growing tendency of the governments to cut back public expenditure. This
phenomenon referred to as “shrinking state”. The present paper discusses the trends in the public
expenditure on education at various educational levels. It tries to determine the link between expenditure
on education by the States and Centre and their respective GDP. The findings of the paper suggests that
there is a negative correlation between the expenditure on education by the State and the respective
state gross domestic product (SGDP) at nominal price whereas in case of gross domestic product (GDP)
and total expenditure on education in India there is no such relationship. Moreover, the total budgetary
provision on expenditure on education is declining although the total budgetary outlay of the Union
Government is increasing in absolute terms.
Keywords: Government Expenditure, Education, Shrinking State, GDP, SGDP

Government is the important source of finance expenditure on the recurring expenses in education
in the Indian education system. The spending such as salaries, maintenance of infrastructure etc.
of both the Centre and State constitutes the Capital expenditure on the other hand, is also
major part of the total expenditure in India other called as development expenditure as it is done for
than the funding from corporate sector in the developmental purposes such as establishing new
form of corporate social responsibility, foreign schools, colleges in the country. Moreover, each
aid. However, after independence the States expenditure i.e. capital and revenue is divided into
were given prime responsibility of expansion of plan and non-plan expenditure. Plan expenditure
education, as education as a subject was placed is the pre-determined expenditure on various
under state list and thus states had exclusive educational programmes and provisions. Whereas
responsibility and authority. Later on, due to the the non- plan expenditure is of routine nature, done
constitutional amendment of 1976, education subject for maintenance and operating purposes. However,
was transferred to the Concurrent List making the the lately the government has altogether removed
intervention by State and Centre obligatory in this the distinction between the plan and non-plan
sector. expenditure.
The public expenditure on education in India is How to cite this article: Balodi, B. and Srivastava, A. (2021).
Government Expenditure on Education: A study of Centre and States
broadly divided into revenue and capital expenditure in India. Educational Quest: An Int. J. Edu. Appl. Soc. Sci., 12(2): 01-11.
which is further fragmented into the plan and Source of Support: None; Conflict of Interest: None
non-plan expenditure. Revenue expenditure is the
 Balodi and Srivastava

Since the Great Recession there is a growing higher fee and at the same time, large number
tendency of the governments to cut back public of students in a class may hamper the quality of
expenditure. The government across countries is education, thus making it rivalrous. However,
narrowing down public sector with its strategic in most of the developing as well as developed
disinvestment and reduced public spending. The countries, there is substantial role of the state in
erosion of the state as an institution can be seen in providing access and availability of education for
cuts to social programmes and public sector jobs, free at least at elementary level which exhibit the
underfunded infrastructure, the sale of public assets characteristics of nonrivalry and nonexcludable. The
and other forms of privatization, along with the state intervention in education has been justified
more general weakening of regulatory authority due to issues of human rights and social justice.
and diversion of resources to the private sector. This collective consensus around the nature of
(Linda Lobao, 2018). This removal of finances, education as a public good, calls for states active
services and staff as well as the failure to increase role in order to address the inefficiencies which
these resources to match growing need is referred may arise due to the inherent feature of economic
to as retrenchment or state retreat and causing inefficiency or market failure of a public good.
shrinking of state’s role drastically. In India the Market failure necessitates intervention by state as
phenomenon of shrinking state is quite evident the market fails to guarantee the optimal provision
with government cuts across various sector and its and price of public good efficiently. Moreover, in a
continuous efforts to keep its fiscal deficit within developing country with low percapita income and
the pre-determined limits mentioned in the budget. high inequalities in income and wealth, the state’s
This poses important question if India which is at role in education becomes all more important.
the crucial stage of demographic dividend will be
able to afford the reduced government support in Research Methodology
the forms of aids, jobs, high fees in education?
The objective of the present study is to analyze
the expenditure on education by Centre and States
Rationale behind government expenditure
and to further investigate the link between the
on education
expenditure on education and the respective GDP
The discourse whether education is a public or a at Union and States level. The study is based on
private good has been going on since long time the secondary data from Ministry of Education
with many international organizations such as and finance which is analyzed through appropriate
United Nation referring education as a public statistical and econometrics tools.
good. Education at least at elementary level has
been regarded as a public good. On the other hand, Hypothesis of the study
higher education has been characterized as a merit ˆˆ H0: there is no correlation between the
good. Public good has two important characteristics. Expenditure on Education and Gross Domestic
First, it is non-rivalrous in consumption i.e. Product (GDP) in India.
consumption of a good by an individual doesn’t
diminish the consumption of the same good by ˆˆ H0: there is no correlation between the
others. Second, it is non- excludable in nature. Non- Expenditure on Education and State Gross
excludability of a good refers to the impossibility Domestic Product (SGDP) in India.
or difficulty in restricting the consumption of a
Analysis of Data
good to particular individuals. Goods having these
properties are enjoyed by all and are not subject to
market competition. The important question which It is evident from the Fig. 1 that the expenditure on
arises is what makes education a public good. education (centre and states) as a percentage of GDP
If the theory of public good is applied narrowly (nominal) is between 3 to 4 over the period of last
on education, it could be considered as a private fifteen years. It has fallen continuously for the five
good since it classroom access to individuals can years period starting from 2000 at 4.14% to 3.26 % in
be made exclusive to few individuals by setting 2005. Since then it took a steady start with meager

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 Government Expenditure on Education: A study of Centre and States in India

Expenditure as % of GDP

4.05
4.5 3.68 3.95 3.82 3.84 4.07 y = 0.014x + 3.602
4 3.4 3.34 3.4
4.14 4.05 4.01
3.5
3.66 3.56 3.7
3 3.48
3.26
2.5
2
1.5 % of GDP
1
0.5
0 Linear (% of
GDP)

Source: Analysis of Budgeted Expenditure on Education 2013-14 to 2015-16.

Fig. 1: Total Expenditure on education as a percentage of GDP in India

Source: Analysis of Budgeted Expenditure on Education 2013-14 to 2015-16.

Fig. 2: Total Expenditure on Education by States as a percentage of GDP

ups and down reaching its peak in 2015-16 where among Indian states and UTs. Gujrat which is the
it is estimated at 4.07. second largest state in terms of SGDP spent only
The Fig. 2 shows that there is lot of variation when 1.74% on education, whereas Nagaland spent the
it comes to percentage of GDP spent on education highest around 7.4% much higher than the national

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 Balodi and Srivastava

estimate expenditure of 4.7 % of the GDP. Moreover, Despite of shredding away highest share, the
almost every north eastern state of India is spending expenditure on elementary education has drastically
around 4% and above on education whereas rest of fallen from 2006-07 to 2015-16. It has fallen
the Indian states are spending less that the national continuously from 2006-07 till 2010-11, its lowest
estimated spending except Bihar and Himanchal point. However, since 2010-11 it rose till 2014-15
Pradesh. and finally decreasing.
In Fig. 3 shows the revenue expenditure of The share of secondary education in the total
various states in the year 2015-16. Uttarakhand expenditure has been rotating around 28 to 30
has the higher revenue expenditure followed by percentage. In 2006-07, it was 28.76 percent and
Maharashtra and Rajasthan. Smaller states such as then rose to 31 percent till the year 2010-11 and
Goa, Manipur, Mizoram, Nagaland etc. have the then started falling.
lowest revenue expenditure despite having high Higher education received the second lowest share
share of expenditure as a percentage of SGDP on in the total expenditure on higher education. In
education. 2006-07, it was just 10.88 percent but it increased
The Fig. 4 shows the share of elementary education since then reaching to 12.84 percent in the year
in the total expenditure on education is highest 2015-16 despite taking a deep plunge in the year
which is followed by secondary education, higher 2014-15 and stood just 4.72 percent.
education and university and technical education. Technical education, although receiving smallest

Source: Analysis of B.E. 2013-15.

Fig. 3: Total Revenue Expenditure of States on Education in 2015-16

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 Government Expenditure on Education: A study of Centre and States in India

Source: Analysis of Budget Expenditure on Education, MHRD various issues.

Fig. 4: Sector-Wise Expenditure on Education as a percentage of Total Expenditure on Education

Source: Analysis of B.E., MHRD various issues.

Fig. 5: Total Expenditure on Elementary Education

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 Balodi and Srivastava

share of the total expenditure on education is The expenditure on secondary education is also
steadily increasing from 3.72 percent in 2006-07 to increasing in the absolute terms since 2006-07.
4.6 percentage in 2015-16. However, there is difference in terms of percentage
The total expenditure on education consisting increase in the expenditure from one year to another
of expenditure by Centre and States has been as evident from the fact that the percentage increase
rising in the absolute term since. However, this from 2006-07 to 2007-08 is 17.32 percent whereas
increase comes in different magnitude in terms of the percentage increase from 2014-15 to 2015-16 is
annual growth rate. The percentage increase in the 10.53 percent.
expenditure from 2006-07 to 2007-08 is 15.27 percent The expenditure on university and higher education
whereas the percentage increase in the expenditure was 12176.71 thousand crores in the year 2006-07,
from 2014-15 to 2015-16 is only 5.67 percent. it increased slowly over the decade and reached

Source: Analysis of B.E., MHRD various issues.

Fig. 6: Total Expenditure on Secondary Education

Source: Analysis of B.E., MHRD various issues.

Fig. 7: Total Expenditure on University and Higher Education

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 Government Expenditure on Education: A study of Centre and States in India

Source: Analysis of B.E., MHRD various issues.

Fig. 8: Total Expenditure on Technical Education

2500
2146.73
1978.06
2000 1794.89 1777.47

1500
TOTAL EXPENDITURE ON
EDUCATION (1000 cr)
1000 TOTAL UNION BUDGET (1000 cr)

500
110.35 96.64 92.66 79.68
0
2014-15 2015-16 2016-17 2017-18

Source: Economic Survey 2017-18, Union Budget 2018-19

Fig. 9: Total Expenditure on Education and Total Union Budget

55662.85 thousand crores in 2015-16 registering the total expenditure on education is falling
spectacular growth of 357.13 percent. continuously as quite evident from the negatively
The expenditure on technical education was 4166850 sloped trend line. On the one hand, the union
crores in 2006-07 and it’s been steadily increasing budget increased from 1794.89 thousand crores
since then and has reached 19926840 crores in the in the year 2014- 15 to 2146.73 thousand crores in
year 2015-16. 2017-18. On the other, the expenditure on education
fell from 110.35 thousand crores in 2014-15 to 79.68
The Fig. 9 shows that the total budget of the union
thousand crores in 2017-18 registering 27.79 %
government is continuously on rise with small
decrease.
decrease in 2015-16 from previous year whereas

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 Balodi and Srivastava

Conclusion and findings vice-versa. This variation from National to State

level shows that the rich States are restraining
The total budgetary outlay by the union government
from funding in education sector and have left the
is increasing since past few years, however,
education sector in the hands of private institutions.
government spending on education has taken a
On the other hand, poor States with low SGDP are
back seat as it is quite evident from declining share
spending higher proportion of their respective GDP
of education expenditure in the total expenditure.
on education.
This validates the assumption that government has
been exercising retreat and withdrawing from social
Way Forward
sector such as education which has been called the
phenomenon of “shrinking state”. The proponents of human capital theory endorse
the inevitable role played by education in the
Moreover, the share of elementary education in
economic growth of the country as it leads to
the total education has fallen from since 2006-07
accumulation of human capital. Human capital is
whereas the share of expenditure on secondary and
widely recognized as an important requirement for
technical education had increased over the decade.
achieving sustained economic growth and rising
The share of university and higher education has
incomes, particularly in developing country (world
more and less remained stagnant with a deep fall
bank). It has been defined as the individual’s stock
in the year 2014-15 where it reached its lowest at
of skills, traits and knowledge. The role of human
4.72 percent. This shows the shift in the government
capital in the development and growth of a nation
focus from elementary to secondary and technical
is unquestionable. First, country’s stock of skill
education. Moreover, the total expenditure on
is central to the potential for economic growth
education as a percentage of GDP has been between
in highly competitive international environment.
3 to 4 percent over the years.
Second, the distribution of that human capital is a
The foremost objective of the research paper was to key determinant of income inequality, even more
find the link between the Gross Domestic Product important with a high wag premium for skills.
(GDP) and expenditure on education in India. The Third, the link between a person’s human capital
findings from econometric analysis shows that the and their background is a fundamental determinant
correlation between the GDP and expenditure on of social mobility and perpetuation of disadvantage.
education is 0.42 but the results are not statistically (Burgess). Education is one of the important
significant (Appendix A.2.). Thus, we cannot reject determinants of productivity of human capital in the
the null hypothesis, that there is no correlation country. Like any other capital it can be increased
between expenditure on education and gross through substantial investment which is known as
domestic product (GDP) in India. education. Investment in education is an important
The second objective of the study was to find the lever of human capital in a country. Therefore,
association between the State Gross Domestic investment in education become important as it act
Product and the expenditure on education by various as medium through which human capital and skill
states. The findings suggest that the correlation i.e., issues in a country can be addressed. Moreover,
the degree of association between various states’ investment in education also leads to poverty
expenditure on education as a percentage of SGDP reduction and economic development in a county
and their respective GDP in 2015-16 is found out to which are crucial for the developing country like
be -0.513 and the results are statistically significant India.
(Appendix A.4). It leads to the rejection of null However, in India the continuous fall in the total
hypothesis that there is no correlation between the public spending on education highlights the
SGDP and expenditure on education by the states. likely withdrawal of the state. Additionally, it has
Therefore, it can be concluded that expenditure on important consequences for the whole country, as
education is negatively correlated with the SGDP decrease in public expenditure in education is very
and the strength of relationship is moderate. In likely to increase the privatisation in education
other words, if a State’s GDP is high it’s spending which would result into further massification in
on education as a percentage of SGDP is low and education. Nevertheless, the beneficial effects of this

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 Government Expenditure on Education: A study of Centre and States in India

massification would be contingent upon the quality Imana, D.K. 2007. The determinants of public education
education that it would entail, which in turn would expenditures: An empirical analysis of changing patterns
and growth of public expenditure on education in Kenya.
require more regulatory role of the government as
Journal of Public Administration and Governance.
the absence of governance cannot be substitute for
Khatei, P.K. 2018. An Analysis of Public Finance on Education
good governance. Sector in India. Journal of Indian Taxation.
Linda Lobao, M.G. 2018. The shrinking state? Understanding
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 Balodi and Srivastava

Appendix
A.1. Scatter Plot of GDP and Expenditure on Education (as a % of GDP)

Source: Author

A.2. Table: Correlations

% of GDP GDP ( cr)
Pearson Correlation 1 .424
% of GDP Sig. (2-tailed) .090
N 17 17
Pearson Correlation .424 1
GDP ( cr) Sig. (2-tailed) .090
N 17 17
Source: Author’s Calculation.

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 Government Expenditure on Education: A study of Centre and States in India

A.3. Scatter Plot of Expenditure on Education and SGDP

Source: Author

A.4. Correlations
% GDP SGDP (2015-16)
Pearson Correlation 1 -.513**
% GDP Sig. (2-tailed) .002
N 33 33
Pearson Correlation -.513** 1
SGDP (2015-16) Sig. (2-tailed) .002
N 33 33
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Author’s Calculation.

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