India is Losing Its Demographic Dividend and Jaitley's Budget Didn't Do Anything About It - Vivek Kaul's Diary
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India is Losing Its Demographic Dividend and Jaitley's Budget Didn't Do Anything About It

Feb 2, 2018


Dear Reader, I guess by now you must have been bombarded by all kinds of analysis on the annual budget of the government of India. Given that, I thought let me just concentrate on one part of it i.e. education.

Take a look at Table 1, which plots the total amount of money that the government has allocated to the National Education Mission, over the years.

Table 1:
YearNational Education Mission
(in Rs crore)
Total government expenditure
(in Rs crore)
Education as a proportion of total budget
2017-2018 (Revised)29,555.6722,17,7501.33%
2018-2019 (Budgeted)32,612.5124,42,2131.34%
Source: Author calculations on data from

As is clear from Table 1, the allocation of money towards the National Education Mission, which is basically the total money spent by the union government on primary, elementary and higher education, along with teachers training and adult education, has been going down over the years, as a proportion of the total government expenditure during the year.

This isn't surprising when the government has had to infuse capital of more than Rs 1,50,000 crore into public sector banks since 2009, to keep them going. Along with this, the government continues to run many loss-making units. All this money has to come from somewhere. Education is one such area.

A similar conclusion can be drawn from Table 2 as well. The attention that a government gives to something, can be gauged from the total amount of money that it spends on it, among other things. Take a look at Table 2, which basically lists out the total amount of money spent by the central government and the state governments on education, over the years.

Table 2: Education
YearMoney spent on education by the state
as well as central governments (in Rs Lakh Crore)
Money spent on education by the state
as well as central governments (as a % of GDP)
Source: Economic Surveys of 2016-2017 and 2017-2018.

What does Table 2 tell us? It tells us that the money spent on education by the central government and the state governments has gone up from Rs 2.77 lakh crore to Rs 4.41 lakh crore between 2011-2012 and 2017-2018.

While, in absolute terms the money spent on education has gone up, it has gone down as a proportion of the GDP, which is the right metric to look at. In 2011-2012, the money spent by governments on education was 3.2 per cent of the GDP. Since then, it has fallen to 2.7 per cent.

While, the Indian education system does need government support, the trouble is that it has reached a stage where simply allocating more money to it is not going to help. Spending more money and doing the same things that we have been doing in the past, is not going to make any difference.

One million Indians are currently entering the workforce every month. This is India's demographic dividend. The demographic dividend of a country is essentially a period of two to three decades when the birth rates go down, and this leads to a situation wherein the workforce of the country is growing at a faster rate in comparison to its population.

As these individuals enter the workforce, find jobs/employment, earn money and spend it, the economic growth that results are expected to pull out millions of Indians out of poverty. At least, that is how things are expected to work in theory.

One of the things necessary for India's demographic dividend to be ready for future jobs and employment, is minimum basic education i.e. the ability to read, write and do basic maths.

As the Economic Survey of 2017-2018 points out: "On math and reading... roughly 40-50 percent of children in rural India in grades 3 to 8 cannot meet the fairly basic learning standard. Discouragingly, this poverty count score rises over time, substantially in the case of math."

Or as the Annual Status of Education Report (ASER) 2017 points out: "For the past twelve years, ASER findings have consistently pointed to the fact that many children in elementary school need urgent support for acquiring foundational skills like reading and basic arithmetic." Basically, most students going to Indian schools cannot read, write or do basic maths, correctly.

Madhav Chavan, of the Pratham Education Foundation, estimates that in the period of the ten years up to 2015, 10 crore children completed primary school without the ability to do some basic reading and mathematics.

What is the government doing about it? In the budget speech, the finance minister Arun Jaitley, said: "We have now defined learning outcomes and National Survey of more than 20 lakh children has been conducted to assess the status on the ground. This will help in devising a district-wise strategy for improving quality of education." Hence, there is realisation that the learning outcomes for children coming out of Indian schools is very weak. And that is a good thing.

Over and above this, the finance minister also talked about improving the quality of teachers to improve the quality of education. This is a cliche that has been heard for a while now.

Of course, the question is, if the governments had spent more money on education, would the learning outcomes of children going to schools, have improved? Would India's demographic dividend be better at reading, writing and doing basic Maths?

Currently, school education in India, is governed by the Right to Education. The Act is very input driven. It expects schools to have a certain infrastructure and teachers to teach a certain number of hours and complete the syllabus.

While the government spending more money may mean better infrastructure, it doesn't necessarily mean that the students are learning anything. The trouble with the Right to Education is that there were no learning outcomes that were specified.

The teachers were required to simply complete the syllabus. In this environment, the teachers concentrated on that and not on how much learning was taking place. In the process, they end up addressing the needs of a small portion of the class which followed what is being taught and leave out the rest.

What does not help is the fact that the RTE makes it very clear that no child should be held back or expelled until the completion of elementary education. Hence, there are no exams. This basically means that the entire class keeps getting promoted, but most of them don't learn the things that they should.

As Thomas Sowell writes in Basic Economics-A Common Sense Guide to the Economy: "Economic policies need to be analysed in terms of the incentives they create, rather than hopes that inspired them."

What is true about economic policies is also true about social ones. The hope that inspires right to education, was education for all. There is nothing wrong with that. But the incentive that it ended up creating for the teachers is completion of the syllabus, irrespective of whether the kids going to school are learning anything or not.

This is something that needed to be addressed at a policy level. As the Economic Survey of 2017-2018 points out: "Towards improving the learning outcomes at elementary school level, Central Rules under the Right to Education Act have been amended in February, 2017 to include the defined class-wise, subject-wise learning outcomes."

Whether the setting of subject learning outcomes makes sense or not only time will tell. And I say this, simply because government teachers in India do not have an incentive to teach, simply because they are government teachers. (I discuss this in great detail in my book India's Big Government). Any solution to the problem of Indian education, cannot come by relying on unionised government teachers.

A better way to handle this is to let parents vote with their money. Instead of trying to set up a government school in every neighbourhood, the government can simply hand over education vouchers to the parents of students. The parents can then use these coupons and decide which school in the neighbourhood to send their children to. This system would give parents some sort of bargaining power in deciding which school to send their children to.

Also, schools which do well would get more vouchers, which, in turn, would mean more money from the government. It would also make teachers more accountable, given that schools which do not attract enough students would either have to be shut down or be merged with other schools. The point is that, unless the system manages to create some sense of competition between schools in order to attract students, the issue of teacher accountability and absenteeism will not get solved on its own. (On a different note, since Equitymaster readers keep asking for solutions, here is one).

It's not about the government spending more or less money. It's about creating the right incentives for the teachers and the schools. The annual budget of the union government is also looked as an opportunity to set the policy direction on social and economic issues that the country faces. This budget, like the budgets before it, is another opportunity missed on this front.

Further, the kids when they start going to school, need to be first taught how to read, write and do maths, properly. If that means that for first few years they do not know who the third vice president of India or the first chief minister of their state, was, it doesn't really matter. It needs to be understood that most kids come from reading deficient backgrounds. Their parents are barely literate.

The learning by rote system which gets practiced in Indian schools, needs to go. If we continue with it, we will end up losing our demographic dividend. We will continue to have individuals entering the workforce who cannot read or write properly or do some basic maths. Of course, there are no guarantees that even with these abilities, individuals will be able to find jobs or reasonably good employment opportunities. A recent estimate made by the Centre for Monitoring Indian Economy suggests that in 2017, two million jobs were created for 11.5 million Indians who joined the labour force during the year.

But if jobs and good employment opportunities are on offer, India's demographic dividend needs to be ready for it. Currently, it isn't. And this budget barely did anything about it.

Warm regards,
Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul's Diary

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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7 Responses to "India is Losing Its Demographic Dividend and Jaitley's Budget Didn't Do Anything About It"

madhavi zutshi

Feb 3, 2018

I think Vivek Kaul provides a very realistic portrayal of our (almost non-existent) education "business". Having run my own (twenty-five student) kindergarten, minus any government help/aid/donations/NGO, i can vouch for each statement he makes.
No, Mr.Kaul - education is not a priority for our governments! And i say this with a sense of great inner pain. The only ray of hope lies in individuals... individuals who will take it upon themselves to form small groups of very young, poor children around them and actually TEACH them. These children might grow up into self-reliant, SELF-EMPLOYED youth who will not need a government to provide them with their daily bread!!!



Feb 2, 2018

Finland's school education, completely managed by the Government, is an inspiration to all countries, including the developed ones. The author would gain a lot by looking it up.


chandrakant gandhi

Feb 2, 2018

there is big rhetoric in budget and it has been presented with eye on election next year. it is fact that govt has not been able to do much to improve economy and create more jobs.all election are won on p m mr mdoy rhetoric .same thing is done in this budget. now coming to your point on education less said better, we do not have proper infrastructure or even good have to give good salary to them so that proper education is is not that there are no good teacher, but they are hand to mouth so they are more interested to give tuition to those very student who can my home town teaching has become industry and students from other towns comes to attend private tuition,so what does it indicate that our human resource ministry is useless and do not know ground reality,i agree that till this area is not improved we will face problem .


Ramesh Kaul

Feb 2, 2018

What Vivek has analysed, and said, our friends in the government cannot dream of for many more years to come unless these idiots are really educated themselves. I call all these budgets 'annual display of political compulsions', made by the jokers who have no grasp of the basic ground realities. This exercise they do also involves a shameless display? of self praise with cheap gimmicks of desk thumping. A year later, it is back to the same problem. When will India rise!


Motwani A L

Feb 2, 2018


Humble Pranams

Thanks for eye opener

We do not admit that we have problem. Even we admit we will say it has not been created by us

We have no resources to provide Basics to ever increasing citizens. We have no such plan to match Resouces with Requirement


Ram Chandra

Feb 2, 2018

Over 75% of Private schools are trash. They are run by managements who are nothing short of parasites sucking up money from unsuspecting parents, but employ teachers whose abilities are poorer than govt. schools simply because neither the teacher's qualifications nor the school management are regulated by the standards set by the dept of education. Not only is the quality of education poorer, the teaching infrastructure is non-existent. However these so called private schools collect donations and building funds in cash in return for an admission ticket every year as "promotion procedure". No parent ever dare to ask for any receipt for the money paid for want of their ward getting terminated from the school on frivolous grounds. Even though govt. collaborates with NGOs to employ teachers in govt. schools, most of the children sent to such schools are from poor parents, who rely on their kids to earn a livelihood. So children do not find the motivation or time to study and live a student's life. Sending them to a private school is not going to change their lives dramatically, it is only going to leave their parents a lot poorer.

Like (1)

Ram Chandra

Feb 2, 2018

What would Mr.Vivek Kaul have done ? Let him put on the FM's hat and spell out his strategy and how he thinks he can make it work ?

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