Q. Investment in education is essential for building human capital and achieving inclusive growth. In this context, examine the implications of...
Question
Q. Investment in education is essential for building human capital and achieving inclusive growth. In this context, examine the implications of declining public expenditure on education in India. (15 marks 250 Words)
Model Answer
Q. Investment in education is essential for building human capital and achieving inclusive growth. In this context, examine the implications of declining public expenditure on education in India. (15 marks 250 Words)
Paper
GS II
Subject
Social Justice
Syllabus as Per Notification
Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.
Topic
Declining Public Expenditure on Education
Approach:
Introduction
Introduce with recommendations of Kothari Commission and National Education Policy (NEP), 2020 to increase public expenditure on education to 6% of GDP
Body
Briefly explain on why Investment in education is essential
Primary Engine of Economic Growth and Productivity, Foundation for Inclusive Growth and Social Mobility, Strategic Investment for the Demographic Dividend
Explain the recent trends of Declining Public Expenditure on Education with relevant data
Implications for Human Capital Development
Weakening Human Capital Formation and Educational Quality, Lower Productivity and Slower Inclusive Growth, Jeopardising Demographic Dividend, Constraining Research, Innovation and Global Competitiveness
Implications for Inclusive Growth
Undermining Inclusive Growth and Social Mobility, Adverse Impact on Gender and Social Inclusion, Widening Regional Disparities, Hindering Implementation of NEP 2020
Way Forward
Time-bound roadmap to achieve the NEP target of 6% of GDP, Improve Efficiency and Equity of Existing Spending, Adopting Outcome-Based Educational Financing
Conclusion
Conclude by emphasising that public expenditure on education should regarded not as consumption expenditure but as a strategic investment in human capital and nation-building.
Context
Education sector percentage share of the total Union Budget has sharply halved over the last 12 years, falling from 4.6% to just 2.5%.
Introduction
Education is the most critical investment in human capital formation, driving productivity, innovation and inclusive growth. Recognising this, the Kothari Commission (1966) and the National Education Policy (NEP) 2020 recommend raising public expenditure on education to 6% of GDP. However, persistent underinvestment continues to constrain India's ability to harness its demographic dividend and achieve inclusive development.
Body
Why Investment in education is essential
Primary Engine of Economic Growth and Productivity
Public investment in education has significant and positive impact on real GDP per capita.
Research from the World Inequality Lab indicates that increasing expenditure on education and health yields an average annual productivity return of around 10%.
Foundation for Inclusive Growth and Social Mobility
World Bank notes that investment in education has contributed to 70% of income gains among the poorest and delivered 40% of all progress in reducing extreme poverty.
Strategic Investment for the Demographic Dividend
With nearly 65% of India's population below 35 years, sustained investment in education and skill development is essential to transform the youthful population into a productive workforce.
Recent trends of Declining Public Expenditure on Education
Declining Relative Priority to Education: Although the absolute allocation to education has increased over the years, its share in the total Union Budget declined from 4.6% (2013–14) to 2.5% (2025–26).
Higher Education: The Department of Higher Education witnessed a sharper decline from 3.0% (2013–14) to 1.4% (2025–26), indicating relatively lower priority for universities, research and higher education institutions.
School Education: Spending on School Education & Literacy has remained around 2% of the Union Budget, suggesting limited expansion despite the goals of the National Education Policy (NEP) 2020.
Implications for Human Capital Development
Weakening Human Capital Formation and Educational Quality
Declining public expenditure reduces per-student investment, adversely affecting infrastructure, teacher quality and learning outcomes as highlighted by ASER reports
Parliamentary Standing Committee on Education, Women, Children, Youth and Sports reported 73.9% reduction in capital expenditure for Department of Higher Education (2026–27).
Lower Productivity and Slower Inclusive Growth
Inadequate investment creates low-skilled workforce, reducing Total Factor Productivity (TFP) and increasing the risk of a middle-income trap, thereby slowing inclusive economic growth.
CAG Audit in 2025 found that only 41% of PMKVY (2015–22) certified candidates were placed.
Jeopardising Demographic Dividend
Underinvestment may lead to Skill deficits, educated unemployment and low productivity. Consequently, the demographic dividend may turn into a demographic liability.
State of Working India 2026 report reveals that 40% of graduates aged 15-25 years and 20% of those aged 25-29 are unemployed.
Constraining Research, Innovation and Global Competitiveness
India's Gross Expenditure on R&D (GERD) is only 0.64% of GDP, well below the recommended 1.5%, while public expenditure on education also remains lower than other BRICS countries, such as Brazil (5.62% of GDP) and South Africa (6.16% of GDP).
This underinvestment weakens research, innovation and global competitiveness, reflected in the limited presence of Indian universities among the world's top institutions.
Implications for Inclusive Growth
Undermining Inclusive Growth and Social Mobility
Around 11.7 lakh children remain out of school, while more than 22,000 unrecognised schools reportedly violate RTE norms.
Reduced public investment limits affordable access to quality education for poorer households, perpetuating inter-generational poverty.
Adverse Impact on Gender and Social Inclusion
Inadequate investment in hostels, sanitation and other educational infrastructure disproportionately affects girls, SCs, STs, minorities and rural communities.
ASER 2024 highlights persistent inequalities, with secondary-level dropout rates of 12% among SC girls and 15% among ST girls.
Widening Regional Disparities
Inadequate funding disproportionately affects Aspirational Districts, tribal regions and Left-Wing Extremism (LWE)-affected areas, limiting access to quality education.
Persistent underfunding and the concentration of resources in model schools like Kendriya Vidyalayas (KVs) and PM SHRI schools aggravate regional and social inequalities
Hindering Implementation of NEP 2020
Declining public expenditure on education may delay major educational reforms envisaged under NEP 2020, such as
Universalisation of Early Childhood Care and Education (ECCE)
Achievement of Foundational Literacy and Numeracy (FLN)
Increasing Gross Enrolment Ratio in higher education to 50% by 2035
Limited financial support has slowed the establishment of Multidisciplinary Education and Research Universities (MERUs) envisioned under NEP 2020.
Way Forward
Time-bound roadmap to achieve the NEP target of 6% of GDP
Education 2030 Incheon Declaration, adopted by 160 countries, recommends that governments allocate between 4% and 6% of GDP to education.
Improve Efficiency and Equity of Existing Spending
IIEP-UNESCO emphasises strengthening countries capacity to effectively raise, allocate and use financial resources efficiently and equitably, including tools like National Education Accounts (NEA) to map financing flows.
Adopting Outcome-Based Educational Financing
Shifting from input-based allocations to outcome-based budgeting, linking public expenditure with improvements in Foundational Literacy and Numeracy (FLN), employability and research in line with initiatives such as NIPUN Bharat Mission and the Skill Impact Bond.
Conclusion
As emphasised by NEP 2020, education is the "single greatest tool for achieving social justice and economic progress." Therefore, Public expenditure on education should regarded not as consumption expenditure but as a strategic investment in human capital and nation-building. Sustained and efficient investments in education are necessary for harnessing India's demographic dividend, reducing inequalities and realising the vision of inclusive growth and Viksit Bharat@2047.