Education Spending: A Tale of Two States

Author: Parth J Shah
Publication: The Economic Times , 25 April 1998

Kerala has the highest literacy rate in the nation, above ninety percent.  The way Kerala spends its education money is also strikingly different from the other states.  For illustration, I compare it with the state of West Bengal.  Ideologically the governments of both states are equally committed to basic education and literacy.  Both states have for long had popularly elected Marxist governments.  The conclusions of the comparative analysis are however generally valid.

Table 1 highlights some of the crucial differences in the educational structure and the nature of government spending on education in the two states.  Table 2 shows the effect of those differences on the performance of the education system in terms of literacy rate and the proportion of children never enrolled in school.  (All data are from the NSSO 1991, 1993 and NCAER 1994; see also Tilak 1996.  The data are for the year 1986-87 or 1991-92.)  Kerala is one of the few states in the country were elementary education is not made compulsory by law.  Both governments spend almost equal fraction of the total budget on education (about 25 percent).  In West Bengal, 84 percent of rural children do not pay any fee for primary education but that number is only 48 percent in Kerala.  Sixty percent of rural primary school children get free textbooks and supplies in West Bengal, only two percent in Kerala do.  Households with less than Rs. 3000 in annual per capita income spend 25 percent of the income on elementary education in West Bengal but in Kerala it is 36 percent.  The poor in Kerala spend the highest fraction of their income on their children’s basic education compared to the poor in any other state in the country.

Table 1: State Commitment to Education

Characteristics West Bengal Kerala
Elementary Education Compulsory Yes No
Fee-Free Primary Education 84% 48%
Free Textbooks and Stationary 60% 2%
Proportion of Income Spent on Primary Education by Households in the Lowest Income Quintile 2.5% 3.6%
Share of Education in the State Budget 26% 25%

Given these facts—more children get free education and supplies in West Bengal and the poor are asked to spend more of their own money in Kerala—one would expect that West Bengal would have a much higher literacy rate than Kerala.  The facts speak otherwise (Table 2).  Kerala has 91 percent literacy rate while West Bengal has only 57 percent.  Moreover, in West Bengal 46 percent of children in the age group of 6 to 14 have never enrolled in school, only two percent in Kerala suffer from that fate.  What explains this vast difference in performance?

Table 2: State Performance in Education

Characteristics West Bengal Kerala
Literacy Rate 57% 91%
Children (age 6-14) Never Enrolled 46% 2%

Kerala and West Bengal: Unfair Comparison - Kerala undoubtedly has had a head-start: There have been strong education movements in the state since the pre-independence days and the government has consistently spent a much larger proportion of its budget on education since independence.  It then seems unfair to compare the two states in terms of their educational performance.  The cross-section comparisons at a single point in time do not control for variations over time.  Kerala’s current spending on education is almost the same as West Bengal, but since Kerala had a head-start, current literacy rates and the reach of education are likely to be different.  Nonetheless it is instructive to examine the distribution of their education spending.  Kerala and West Bengal have chosen to spend their education money rather differently.  The difference in the nature of their spending is the real purpose of this comparison.

Table 3: Distribution of State Education Spending

Characteristics West Bengal Kerala
Free Primary Education in Government Schools 84% 48%
Free Primary Education in Private Schools 15% 48%
Grant of Scholarship 0.5% 10%
Transport Subsidy 2.3% 5.4%
Proportion of Private (aided) Primary Schools 11% 60%

It is surprising that in a thoroughly Marxist state like Kerala, 60 percent of the rural primary schools are private, as compared to only 11 percent in West Bengal.  The proportion of private primary schools in Kerala is the highest in the country; the second highest is Maghalaya at 21 percent, and the national average is only five percent.  The government of Kerala also pays expenses of almost half of the students enrolled in private primary schools.  The number for West Bengal is 15 percent which is the third highest in the country (Tamil Nadu is at 20 percent); the national average is again about five percent. 

Kerala has the highest proportion of private primary schools and it also subsidises the highest proportion of students in private schools.  Both of these facts give the citizens of Kerala wider effective choice in selecting primary schools for their children.  Many of the private schools are run by various religious groups in the state.  They are generally more likely to be successful in exerting pressure on parents to send their children to school.  The choices available to parents must increase attendance as well as retention rates in the state.

Kerala uses its public funds to encourage competition among schools.  To avoid transportation costs, most parents generally send their children to the nearest school.  The resulting “geographical clustering” of schools and their customers lessens competition among schools.  Each school has a captured customer base.  By subsidising transportation costs, Kerala helps parents send their children to the school they consider best, irrespective of the distance.  This increases competition among schools.  The provision of direct scholarship to students in Kerala also leads to the same result.  With the scholarship money, students can go to any school of their choice.  Among all the states in the country, the highest proportion of children in Kerala receives transportation subsidies and direct scholarships (Table 3). 

The focus on how the two governments spend their education rupees indicates that Kerala by offering more choices to parents and increasing competition among schools actually practices market principles.  Kerala’s citizens have received far better educational service than those of almost any other state in the union.  The Kerala model of education—of choice and competition—is unique in the country, and so is Kerala’s educational performance.  It is not just how much a state spends on education but how it spends that determines efficiency and effectiveness of the education system.

 The status of higher education in these two states is also worth comparing.  State universities in West Bengal receive 91 percent of their budget from the government.  In Kerala it is only 54 percent, the remaining amount is generated by fees, donations, endowments, and other sources.  Again Kerala requires its universities to raise almost half of their budget from the customers and communities they serve.  This fosters accountability and more attention to the needs of those who help finance state universities.  This is one of the important reasons that Kerala performs better also in higher education than many other states in the union.

Source of Funding and the Nature of Spending

  Central Universities State Universities
Percent of Budget from the Government 90% 50%
Percent of University Budget Spent on Administration 41% 18%
Percent of University Budget Spent on Academic Programs 33% 55%

It may be pertinent to note that in general the higher the funding from the government, the lower the spending on academic programmes at universities.  Central universities receive more than 90 percent of their funds from the central government and spend about 33 percent on academic programs and support and 41 percent on administration.  The state universities on average get a little more than 50 percent of their money from state governments and spend 55 percent on academics and only 18 percent on administration.  The state universities that are more dependent on non-government funds pay more attention to their students and less to their bureaucracy.

In Kerala, the government has been spending more on education but so do the people of Kerala.  The poor in the state spend about 3.6 percent of their annual per capita income on elementary education—the highest proportion in the country (Table 1).  Contrary to the conventional wisdom, government spending is not a substitute for private spending.  Both seem to grow together; they are complementary.  Parents’ financial commitment to their children’s education is a crucial component of quality education.  Moreover, as the empirical evidence suggests, schools and universities that depend on non-government funds manage their finances more responsibly and are more attentive and responsive to the needs of their customers.