Dissecting Private Educational Expenditures in Indian Households

I. Introduction:

It is interesting to know that household expenditure worldwide according to OCED data is typically around 60% of gross domestic product (GDP) and is an essential variable for economic demand analysis. Household expenditure is the final consumption expenditure made by resident households to meet their everyday needs, such as food, clothing, housing (rent), energy, transport, durable goods (notably cars), health costs, leisure, and also Education.

Expenditure on education is one of the important factors for sustainable development. In India, expenditure on education happens in two ways: institutional and individual.

1. Institutional expenditure is referred to as government or non-government expenditure on education.
2. Individual expenditure/ household expenditure refers to the expenditure made by the students or their parents.

Private Educational Expenditures in Indian Households

The proportion of household income that is spent on education is referred to as household expenditure on education or private expenditure on education. For example, NCAER (1994) found that families in Bihar spent 8 percent of their household income on education, but 20 percent in Kerala.

1. Monthly Expenditure on Education in Rural and Urban Households

According to data from the 55th round of NSS (1999-2000), rural households allocated 1.93 percent of their expenditure towards education, while urban households earmarked 4.33 percent — almost 2.5 percentage points difference. Look at the monthly expenditure on education in rural and urban households in the figure below:

Source: The Print

a. Huge Gaps in Educational Expenditure Between Cities

A recent survey titled ‘Understanding Indian School Education Spends Landscape’ conducted by Schoolnet India, analysed the spending of Indian parents on their children, has found huge gaps between the average educational expenditure of parents in tier-1 vs tier-2, tier-3, and tier-4 cities. Look at the figure below for details:

Source: Schoolnet India

b. Distribution of Household Expenditure on Elementary Education in Different Types of Schools, by Items

Look at the figure below that shows the Percentage Distribution of Household Expenditure on Elementary Education in Different Types of Schools, by Items studied by NCAER. Of the various components of expenditures on education, books and uniforms together account for a major portion, followed by school fees that include examination and other fees. Private coaching is also given importance.

Source: NCAER

c. Myths and Facts

Myth – Richer households pay more for the education of their wards in absolute terms.

Fact – it is the poor households that pay a larger proportion of their income on acquiring education.

Myth – For a long time in India, the dominant narrative maintained that household expenditure on education by Indian families is negligible since education is free and therefore the entire burden of educating its citizens lies in the hands of the Government of India.

Facts – National Accounts Statistics’ national estimates laid a foundation with its reports, making clear the high amounts is by private expenditure on education.

Rising Importance of Education

In India, spending on children’s education is on the rise, particularly in the private sector. There has been a significant shift in Indian households’ spending patterns, with education witnessing one of the fastest growths. This can be attributed to several factors:

• Increased awareness: Indians recognize the importance of education for social mobility and economic prosperity.
• Shifting priorities: As discretionary income rises, families are willing to spend more on their children’s education beyond basic needs.
• Growing household commitment to higher spending towards education or the rising education cost consuming into household expenditure or both.
• The third National Education Policy 2020 does not appear serious enough to address challenges but seems to add further impetus to the privatization of education.

Factors Driving Private Education Expenditure

The rise in private education expenditure can be attributed to a combination of factors on both the supply and demand sides:

1. Demand-side factors:

• Perceived shortcomings of government schools: Concerns about infrastructure, teacher quality, and curriculum in government schools lead parents to seek alternatives.
• Aspiration for better outcomes: Parents seek private schools that offer English-medium instruction, focus on extracurricular activities, and promise better college placements.

2. Supply-side factors:

• The proliferation of private schools: The private education sector has grown rapidly, catering to the growing demand for perceived better quality education.
• Increasing fees: Private schools have increased fees to cover operational costs, invest in infrastructure, and attract qualified teachers.
• The inadequacy of public expenditure on education has been necessitating growing private expenditure on education. According to estimates from Tilak’s study, in 1979-80, total private expenditure on education formed 6.6 percent of the GNP whereas the government expenditure stood at 3.9 percent. (Source).

Effects of Private Education Expenditure

The MHRD defined education as free when no tuition fees were paid, but tuition fees alone do not sum up the needs of a student. Material incentives such as mid-day meals, uniforms, transportation and stationery also play a major role in the expenditure of households.

The rising education cost in India affects many households and students. According to a report by ET Online research, the cost of educating a child at a private school in India from the age of 3 to 17 costs an astounding Rs 30 lakh. The cost of education has increased by about 10-12% p.a. between 2012 and 2022. On average, the tuition fees of private schools are around Rs 2,500 to Rs 8,000 pm. Parents have to pay other charges, including maintenance fees, lab and technology fees, fees for books and stationery, transportation fees etc. Hence, the amount almost doubles.

1. Overall Impact of Private Educational Expenditures

The rising cost of private education has a significant impact on Indian households:

a. Financial strain:

For many families, especially in lower-income brackets, private education expenses can create a significant financial burden. This can lead to difficult choices between education and other essential needs.

b. Widening educational inequality:

The high cost of private education can exacerbate educational inequality. Wealthier families have greater access to quality private education, while underprivileged children may be limited to under-resourced government schools.

2. Overall Trends in Private Educational Expenditure:

To understand the patterns of Indian household expenditure on education, it is vital to deconstruct links between the economic, caste, gender, and demographic location of households and the proportion of income they spend on education.

Across the length and breadth of the nation, there is variation when it comes to how much families spend on education. Rurality and urbanity, gender, caste, class location, education levels of the family, demography and structure of the family are some of the many factors that impact the proportion of household income spent on the education of children.

3. National Sample Survey

An analysis of the existing data on household expenditures on education in India, provided by the 64th and 71st rounds of the National Sample Survey published in 2007-08 and 2014 respectively, demonstrates several remarkable features, some of which are highlighted here:

a. Primary Education is Most Expensive in Both Rural and Urban Areas

According to the National Sample Survey, household expenditure on various levels of education during the period 1995-96 to 2012-13 has seen tremendous growth. Surprisingly, the annual household expenditure at the primary level is much higher in rural areas compared to secondary, higher secondary and higher education levels. In urban areas, acquiring primary and higher secondary education is even more costly. Look at the graph below:

Source: Research India Publications

b. A Steep Increase in Annual Average Expenditure on Education

There has been a steep increase in the household expenditure on education between 1995-96 and 2014 and shows a steady upward trend in expenditure at every level of education. It has also been observed that household expenditure increases with the increasing level of education for both periods. Look at the figure below which shows the average annual household expenditure per student by gender differences. The household expenditure at each level of education experienced a steep increase in expenditure between 2007-08 and 2014 whether it is for male children or female children.

Source: IJNRD

c. Gender-Inequality Exists with the Differences between Rural-Urban Areas

Look at the figure below that shows the pattern of household expenditure on education in rural areas and urban areas with gender differences at each level of education for the period 2007-08 and 2014. We can see that there are striking differences in household expenditure on education between male child and female child within the rural areas and urban areas. The differences are against female children at all levels of education whether the female child is a resident of urban areas or rural areas.

Source: IJNRD

By this, it looks clear that the most disadvantaged section is female children in rural areas because the household expenditure on education for this section is the least at each level of education. The household expenditure on male children in rural areas is lesser than the expenditure that a household has to incur for female children in urban areas. Therefore, male child in urban areas is the most advantageous section because the household spends the most on them.

d. Household Expenditure on Education by Types of Schools/Institutions varies Significantly

From the graph below we can see that the expenditure incurred by households increases in private aided schools and it further increases in private unaided schools for every level of education and the corresponding figures there are the highest.

Source: IJNRD

e. Household Expenditure on Education by Different Social Groups

In comparison to expenditure incurred by the households belonging to ST, SC and OBC, the households belonging to other categories spend more for elementary education and secondary level of education. Gradually, the differences among ST, SC and OBC from other categories in terms of household expenditure decline by increasing the level of education if compared with the expenditure incurred by households belonging to ‘others’ category in the case of higher education. Look at the figure below.

Source: IJNRD

4. NCAER

a. Household Expenditure on Elementary Education Per Student in Different Types of Schools, by Occupational Categories is Not High

Households belonging to any occupational group spend agricultural labour considerable amounts on education. Differences by occupational groups in household expenditures on education in government and government-aided private schools are not high, but they are high in private schools. Households belonging to the qualified professional occupational groups spend the highest.

Source: NCAER

5. NEPEA August 2002

a. Household Education Expenditure is Highest in the Age Group 20 – 24

This is the study by NEPEA on household expenditure on education by different economic categories across age groups. As levels of education increase, the cost of education too raises. However, the rate at which it increases across the income/expenditure category over rounds indicates that the highest increase is in the age group 20-24. The cost of higher education is one of the highest and here as well the bottom expenditure groups tend to spend more compared to the middle and top expenditure categories.

The following graph talks about the Growth of Household Expenditure on Education under Private Unaided Management Type by Expenditure Categories across NSSO Rounds 52, 64, and 71.

Source: NIEPA

6. Policy Recommendations

To address the challenges associated with rising private educational expenditures, several policy recommendations can be considered:

a. Improving Government Schools:

Investments in infrastructure, teacher training, and curriculum development in government schools can make them more competitive with private institutions.

b. Regulation of Fees:

Implementing regulations to control fee hikes in private schools can help ensure affordability for a wider range of families.

c. Scholarship Programs:

Targeted scholarship programs can help underprivileged students access quality private education.

d. Planning the Child’s Future:

The picture below depicts the expenses that parents can expect to incur at various stages of their children’s lives. Accordingly, parents should start planning as early as possible for a child’s education.

Source: The Economic Times

The best approach to plan for a child’s future is to consider important phases of a child’s life like education, higher education and even marriage and start investing as early as possible. We need to consider short-term and long-term goals and invest in the right vehicles considering the goals,” says Tarun Birani, founder & CEO of TBNG Capit.

(The data have been taken from two sources National Sample Survey published in 2007-08 and 2014 and NEPEA)

Conclusion

The rise of private educational expenditures in India reflects the growing importance placed on education. However, it is crucial to address the financial strain it puts on families and ensure equitable access to quality education for all. The household expenditure incurred on education for each level of education- primary, secondary and higher education increases based on the data from two recent rounds of NSS. Also, the extent of household expenditure on education varies based on gender differences, regional differences, social group differences, and differences by types of schools/institutions. By implementing the suggested policies, India can create a more balanced and inclusive education system.

FAQs

1. What is the expenditure of private education in India?

In India, private expenditure on education was equivalent to 2.7% of the GDP in 2018-19. This reflects a growing trend, with private spending on education increasing faster than public expenditure over the past three decades.

2. What percentage of the budget is spent on education in India?

In terms of expenditure on education as a percentage of GDP, in 2018-19 India’s public expenditure is 3.9%, while that of private expenditure is 2.7%. Together, an amount equivalent to nearly 6.6 percent of GDP is spent on education in the country in 2018-19. In the 2023-24 budget, India allocated approximately 2.9% of its GDP to education. This includes funding for school education, higher education, and technical and vocational education.

3. Why are private schools so expensive in India?

Private schools in India are expensive due to factors such as higher teacher salaries, better infrastructure, and additional facilities. The demand for quality education drives up costs, as private institutions invest more in resources to meet parent expectations. Additionally, market dynamics and regulatory costs contribute to the expense.

4. How much of the GDP is the government expenditure on education?

Government expenditure on education in India is about 3.1% of the GDP. This falls short of the 6% target set by the New Education Policy. Despite incremental increases in absolute terms, the proportion of GDP allocated to education remains relatively low compared to global standards.

5. What is the highest household expenditure?

Overall, housing accounted for the largest share of household expenditure(33.3 percent), followed by transportation (16.8 percent), food (12.8 percent), personal insurance and pensions (12.0 percent), and healthcare (8.0 percent). Each of the remaining categories contributed less than 5.0 percent of total household expenditures.