Human Development

Building an outcome-focused approach to elementary education financing in India

  • Blog Post Date 23 November, 2015
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Yamini Aiyar

Centre for Policy Research

Government expenditure on elementary education in India is designed to promote a system that is accountable for schooling rather than learning. In this article, Yamini Aiyar, Director of the Accountability Initiative at the Centre for Policy Research, proposes a novel approach to governing public financing of elementary education that would give more flexibility to states over planning and budgeting, and incentivise them to work towards learning goals.

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It is a well-recognised truth that the current institutional framework for delivering elementary education in India is designed, incentivised and thus accountable for the provision of schooling inputs rather than improving learning outcomes (see, for instance, Prichett 2014, Aiyar 2013, Muralidharan 2013, Walton and Mukherji 2013). Yet, even as discussions around the New Education Policy consider the different approaches needed to improve learning outcomes in India’s elementary schools, the issue of institutional reforms has received scant attention.

The approach to financing elementary education programmes is of particular relevance here. Financing gains significance not so much from the perspective of adequacy (although public debate has largely been preoccupied with the issue of how little India spends on elementary education), but rather due to the role that financing mechanisms play in shaping the incentive structure that governs administrative behaviour. As Accountability Initiative’s PAISA (Planning, Allocations and Expenditures, Institutions: Studies in Accountability) surveys1 highlight the current financing architecture of elementary education clearly favours a rigid, one-size-fit-all system that is aligned to achieving the goal of school inputs provision rather than being responsive to learning needs.

Understanding the current financing architecture of elementary education

Let us first understand the problem. Elementary education programmes in India are financed both by the Centre and state governments. The bulk of the share of state government expenditure on elementary education is on payment of teacher wages. For example, in states like Rajasthan, teacher wages account for over 90% of the state budget (Aiyar et al. 2015).

Consequently, the central government - through its flagship programme for achieving universalisation of elementary education, the Sarva Shiksha Abhiyan (SSA) - finances the bulk of non-wage related expenditure. In recent years, central government financing has increased by over nine-fold, making it an important player in shaping state-specific education policy. In poorer states like Rajasthan, Madhya Pradesh and Bihar, SSA accounts for between 40-50% of the total state budget (Aiyar et al. 2015).

In principle, SSA is supposed to be a bottom-up scheme, responsive to school needs. States are expected to plan, based on a process that begins at the school level through the creation of school development plans. These plans are then aggregated at the district level, which in turn provide the foundation for state plans. Annual budgets are approved through a process of negotiation between the state and central government. The financing structure however, promotes just the opposite. School committees charged with planning have expenditure discretion over less than 1% of the elementary education budget. This is one important reason why school development plans are almost never made.

The same pattern is repeated at the state level. State governments are rarely given a budget envelope and the final approved budget bears little resemblance to what states had initially demanded in their annual plans submitted to the Ministry of Human Resource Development (MHRD). In some years the gap between proposed and approved budgets can be as large as 50%. Further, in the process of negotiating budget cuts, central government priorities inevitably take precedence. This is evident in a close reading of the Annual Planning and Budget Meeting minutes, which document many instances where state-specific proposals are often rejected if they do not fit within the central government’s prescribed framework. This pattern is repeated at the district level. As a consequence, states, districts and schools have no incentive to measure, assess and articulate their learning needs and to link budget requirements to these needs. Planning is thus a mechanical exercise and budget allocations often have little relevance to school needs. It should be no surprise then that precious resources allocated to elementary education are often spent whitewashing school walls rather than on improving teaching-learning processes!

Any effort to incentivise learning is further compromised by the fact that all plans and budgets are made using DISE (District Information System for Education) data. While data-based planning is critical to ensuring that plans are linked to needs, DISE does not have a single indicator on learning. This coupled with the fact that states and districts have few, if any, incentives to make need-focused plans, ensure that annual plans and associated budgets are no more than a mechanical calculation of costs linked to school infrastructure needs as recorded in the DISE database. As many district officers interviewed during the PAISA surveys have often described, the annual plan process is no more than an exercise in creating an excel sheet, photocopying pages and finally, spiral-binding them!

A novel outcome-based approach to financing

The good news is that two, seemingly unrelated recent policy changes, afford the government a unique opportunity to address these failings. The first is the effort to undo the current, central government-led, one-size-fit-all model of financing by shifting the locus of social sector spending to state governments as proposed in the 14th Finance Commission. The second is the countrywide effort initiated by the MHRD to measure learning progress by financing state-level learning achievement surveys (SLA).

For the moment, the government’s attempts to implement these two policy changes lack imagination. The debate around the 14th Finance Commission recommendations remains limited to a few tweaks to centrally-sponsored schemes to induce some degree of flexibility and Centre-state negotiations over the quantum of financial contribution2. And the SLAs are being implemented poorly as state governments grapple with constraints of low capacity, limited technical knowhow and little understanding of how to use the data collected through the SLAs.

However, if the government choses to use these two policy shifts imaginatively, there is room to significantly alter the institutional architecture for elementary education. Accountability Initiative’s research proposes an alternative financing mechanism that leverages these two opportunities – replace the SSA financing model with a three-window financing model that incentivises states to build long-term, learning focused plans on the one hand and rewards performance on the other.

The first window would be an annual grant for states to meet their basic infrastructure needs. Much of this has been prescribed by the RTE and most states in the country are still struggling to meet these requirements. For the moment, financing for the RTE is based on annual plans made by state line departments and approved by MHRD. Rather than spending energy on the same exercise every year (the entire state education department spends at least 2-3 months a year making, at times faking, annual plans and budget estimates) state governments should come up with a three-year budget estimation which can be funded annually by the centre. This will introduce some level of predictability in the current planning system as states will have a ballpark amount of money that they can expect from the centre. Based on Accountability Initiative’s estimations of current expenditure, this window should account for no more than 50% of the current annual SSA budget. This funding window will address commonly expressed concerns of equity in financing among states and ensure that poorer states are compensated.

In keeping with the 14th Finance Commission’s principles of greater state flexibility over planning and budgeting, the second window should be an untied learning grant given to the states for a 3-5 year period, based on a long-term leaning strategy which should be linked to clearly defined learning targets. Since this is an untied grant, the Centre will no longer need to spend time playing headmaster determining line-item wise expenditure for state governments. Rather, it can focus on providing technical support and guidance to states by undertaking assessments and facilitating knowledge sharing across state governments.

Finally, the third window could link the MHRD’s effort to undertake learning assessments with state plans and budgets by offering a performance-based, financial reward to states against set targets. Not only will this give much needed teeth to the SLA process, it also has the potential of creating competition amongst states, and over time building greater transparency and public debate on learning levels in India’s schools.

Of course, there are limitations to such an approach. Decentralisation of funds to the state government is only one in a long marathon of steps that need to be taken to enable a learning-focused approach to delivering elementary education. Moreover, there is a risk of state governments gaming the system as they compete with each other to race to the top. But given the extent to which the input-focused accountability is entrenched in the everyday practices of the education system in India, inducing performance-based accountability through financing may well result in much needed long-term changes in the culture of accountability and institutional organisation. At any rate, it will serve to bring the issue of financing, incentives and institutional reforms to the centre of the debate on education. This is critical to building an appropriate education policy for India and must become part of the debate on the New Education Policy.


  1. PAISA is the country’s largest expenditure tracking survey for elementary education undertaken by Accountability Initiative. The PAISA surveys track plans, budgets and fund flows from the Government of India down to schools through a national survey implemented in partnership with ASER (Annual Status of Education Report) Centre as well as a series of in-depth district focus studies. Survey reports are available at
  2. The major change proposed by the 14th Finance Commission in SSA is a shift in the state-center fund share from 75:35 to 60:40.

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