What education sector expects from Budget 2017
The year 2017 will be a year to watch. Not because I expect some watershed event to happen, but because of what happened in 2016. The last year was eventful to say the least both within India and outside.
- Jan 20, 2017,
- Updated Jan 20, 2017 9:13 PM IST
For example, look at the distortion ESIC deductions cause. These deductions are made for salaried individuals who earn below a certain threshold. This deduction funds treatment of these individuals and their dependents through ESIC clinics.
While the deductions in absolute terms might be low, but at the lower end of income levels it is not an insignificant share of an individual's income. For the employers this increases administrative cost. The strange thing is that there is no such deduction for higher income group, though everyone has access to government run hospitals and clinics, including very good ones like AIIMS. One bold move would be to create a national insurance market in India.
The Prime Minister had earlier announced a National Health Assurance Mission, which could be expanded. Given large and young population in India, the cost of insurance is expected to be low. Given health shocks are big and often wipe out significant proportion of wealth for people hit by that shock, this will also help smoothen consumption. Additionally, doing away with ESIC deductions and such will induce more investment and employment in the formal sector.
To sustain high growth rates over a long period of time, if there is one sector the government needs to focus on, it is education. In the economics academic literature, while there is a lot of debate about short run business cycles and policies related to that, there is a near unanimity about how vital education is to the growth process. It is even more critical for India because of the demographic structure. We are at the right end of the distribution of demographic structure when compared across other countries in the globe. Our dependence ratio is low - we have many more young people than old. In fact, if you think about it, this is what India's comparative advantage is.
However, that we will gain from this is far from guaranteed. In fact, if we do not act fast, this might as well become a liability, with low development indicators and conflicts. To prevent that, and to ensure we emerge as a more developed country than we are now, education has to play a pivotal role. In recent times school enrollment has gone up significantly, yet the good news stops there.
Report after report has pointed out lack of quality in school education. Many households spend significant proportion of their income on education of their children, often putting them in private schools of dubious nature, chasing the mirage of quality education for their children. Government intervention in this area is a dire requirement.
The role of the central government is limited in this regard, yet there are many things it can do. To begin with it can use its chain of schools, Kendriya Vidyalyas and Sarvodya Vidyalayas to set standards, as well as access. These should become aspirational schools. One important aspect of school education is teacher quality. Here also the central government can set pace by employing and training high quality teachers.
The logical question at this point is how is it all going to be funded. Should the government give up on fiscal prudence and increase borrowing? Should it let the fiscal deficit widen? Research in this area does not point to any acceptable limit for fiscal deficit that is good for long-term growth. However, there are certain costs of increasing fiscal deficit. Higher fiscal deficit will mean banks holding more government bonds, reducing available funds for credits in the economy.
As it is, banks have not increased credit flows to businesses and individuals.This can further squeeze commercial borrowing, which is not desirable, particularly given that private investment has been slow to pick up pace. That leaves the government with more difficult options - increase tax base, reduce inefficiencies, hive off inefficient and loss making government enterprises like Air India. But, does the government haveenough political capital left to do these? The budget, in a few days, will shed more light on this.(The author is Head of the Department, Economics at Shiv Nadar University)
For example, look at the distortion ESIC deductions cause. These deductions are made for salaried individuals who earn below a certain threshold. This deduction funds treatment of these individuals and their dependents through ESIC clinics.
While the deductions in absolute terms might be low, but at the lower end of income levels it is not an insignificant share of an individual's income. For the employers this increases administrative cost. The strange thing is that there is no such deduction for higher income group, though everyone has access to government run hospitals and clinics, including very good ones like AIIMS. One bold move would be to create a national insurance market in India.
The Prime Minister had earlier announced a National Health Assurance Mission, which could be expanded. Given large and young population in India, the cost of insurance is expected to be low. Given health shocks are big and often wipe out significant proportion of wealth for people hit by that shock, this will also help smoothen consumption. Additionally, doing away with ESIC deductions and such will induce more investment and employment in the formal sector.
To sustain high growth rates over a long period of time, if there is one sector the government needs to focus on, it is education. In the economics academic literature, while there is a lot of debate about short run business cycles and policies related to that, there is a near unanimity about how vital education is to the growth process. It is even more critical for India because of the demographic structure. We are at the right end of the distribution of demographic structure when compared across other countries in the globe. Our dependence ratio is low - we have many more young people than old. In fact, if you think about it, this is what India's comparative advantage is.
However, that we will gain from this is far from guaranteed. In fact, if we do not act fast, this might as well become a liability, with low development indicators and conflicts. To prevent that, and to ensure we emerge as a more developed country than we are now, education has to play a pivotal role. In recent times school enrollment has gone up significantly, yet the good news stops there.
Report after report has pointed out lack of quality in school education. Many households spend significant proportion of their income on education of their children, often putting them in private schools of dubious nature, chasing the mirage of quality education for their children. Government intervention in this area is a dire requirement.
The role of the central government is limited in this regard, yet there are many things it can do. To begin with it can use its chain of schools, Kendriya Vidyalyas and Sarvodya Vidyalayas to set standards, as well as access. These should become aspirational schools. One important aspect of school education is teacher quality. Here also the central government can set pace by employing and training high quality teachers.
The logical question at this point is how is it all going to be funded. Should the government give up on fiscal prudence and increase borrowing? Should it let the fiscal deficit widen? Research in this area does not point to any acceptable limit for fiscal deficit that is good for long-term growth. However, there are certain costs of increasing fiscal deficit. Higher fiscal deficit will mean banks holding more government bonds, reducing available funds for credits in the economy.
As it is, banks have not increased credit flows to businesses and individuals.This can further squeeze commercial borrowing, which is not desirable, particularly given that private investment has been slow to pick up pace. That leaves the government with more difficult options - increase tax base, reduce inefficiencies, hive off inefficient and loss making government enterprises like Air India. But, does the government haveenough political capital left to do these? The budget, in a few days, will shed more light on this.(The author is Head of the Department, Economics at Shiv Nadar University)