11 Dec 2015 18:52 IST

Does the education cess help the Indian school child?

Levying an education cess is not enough if there is a failure in implementation of schemes

Albert Einstein once said that the hardest thing to understand in the world is income-tax. This may not have been true earlier, but is certainly the case now. Take the case of education cess.

Some of you may recollect that education cess was introduced a decade ago, in 2004, as a tax imposed on the total payable tax and not on the total income. It was hence a tax on tax. In the budget speech that year, the then Finance Minister had said that the ₹4,000-5,000 crore collected yearly will be earmarked for education including providing a nutritious, cooked midday meal. So, a decade later, has the imposition of this tax made an impact?

Let’s begin by looking at the facts.

First, the idea to add an education cess at that time probably deserved some merit. After all, India had, and still has, the largest number of children and the lowest number of them attending school.

A cess collected to provide a nutritious mid-day meal to children as an incentive by encouraging schools to be opened was a very commendable thought.

Second, the government created a non-lapsable fund called Prarambhik Shiksha Kosh and agreed to transfer all the cess proceeds to this fund. The government also announced two schemes called the Sarva Shiksha Abhiyan (SSA) and the Mid-day meal (MDM) as two flagship programmes.

Third, another critical change was made mid-way, after the cess was levied. In addition to the 2 per cent cess, another 1 per cent cess was added from 2007-08 under the head of secondary and higher education, as a surcharge. This was to support expansion of capacity by 54 per cent for reservation for socially and educationally backward classes.

It has been more than a decade since this cess was introduced to all direct and indirect taxes and it is imperative to review the impact it has made.


The total collection since the time of inception has been a staggering ₹2,16,320 crore. Just in the last five years, the amount collected as education cess was ₹1,29,596 crore, with an additional amount of ₹23,062 crore coming in from the secondary and higher education cess.

However, there seems to be some confusion on the actual amount collected. The Ministries of Finance and HRD have quoted different figures. To further complicate matters, the CAG audit figures differ from the Ministries’ quotes.

Another interesting point is the amount spent from this fund. Given the dire need for primary education, you would want to believe that the cess collected has been put to good use. The fact, however, is that the cumulative unspent amount for just the years 2011-2014 is a startling ₹32,018.23 crore, or about 25 per cent of the amount available in this fund.

The cumulative unspent amount since inception is much more. This is in spite of a rapid decline in budgetary support to fund primary and secondary education over the last few years. In fact, the cess now appears to be funding almost the entire need in totality.

An obvious question, therefore, is: if such a large amount was not required, why wasn’t the cess removed or reduced over the years? How much of an impact has the amount spent really made?

Data suggests that there has been no significant progress on gross enrolment ratios (GER). In fact, for Standards 1 to 10, the GER has remained steady. The dropout rates across all categories have also risen almost 70 per cent. Expectedly, the dropout rates are more for girls than boys across all standards. On top of it, number of students repeating each class has also gone up, indicating poor teacher capabilities.

The other area of spending was the mid-day meal scheme. Forget the promised nutritious meals for children, there have been many known cases of contaminated food being served. There is very little known on how the 1 per cent cess on higher and secondary cess has actually been used.

While the cess must have been used effectively to achieve some impact, most of the original objectives for the introduction of the cess have been missed. Since introduction of the education cess, neither has the number of students in schools increased, nor has the number of dropouts reduced, nor have we been able to groom this large population of children as skilled adults for sustainable growth.

What can be done to correct this anomaly?

One of the challenges has been that under the SSA scheme States have to contribute at least ₹25 for every ₹75 they get. States such Bihar, Uttar Pradesh, Jharkhand and West Bengal have struggled to pay their share and have been requesting for a lesser amount to be disbursed. Ironically, it is these very States where the need for offering quality primary education is the highest.

Part of the problem is also is the ambiguous definition of how this fund can be used. The introduction can be simplified so that the unutilised money can be put to productive use.

One area which needs attention is teacher development. Lack of trained teachers has been a major concern and, in spite of many attempts, this has not been addressed. Setting up of good teacher training centres at District and Block levels can help build capacity. The fund can be used toward training quality teachers who can make classes engaging and who can ensure that students develop an interest in learning.

In addition, the unspent money can be used to set up skill centres at multiple levels. Introducing skill training at the school level is the need of the hour. Such training at an early stage will at least ensure that children who go through at least the primary education system learn one skill that can lead to employment or entrepreneurship opportunities.

Currently there are few or no formal skill courses at the school level and setting up skill centres can encourage children to take up vocational skill courses and make a visible impact on the ground.

The cess collected can also be used to set up a skill fund. Students who complete primary education but cannot continue to study further due to external factors and are potential dropouts, can seek scholarships from this fund to enhance one key skill. This can work as an incentive to develop a sustainable career built on basic primary education but topped up with a specific skill.

Given that the majority of the ITI quality levels are suspect and not aligned to industry needs, a skill acquired from a private institute but supported by a partial or full scholarship can lead to developing a large pool of skilled manpower. This, in turn, can support the Make in India programme and be a talent supply-chain to the numerous MSMEs in the country.

The current Finance Minister has indicated that, with introduction of the GST, this cess will be subsumed. However, it will do a lot of good if, before introduction of GST, a detailed plan is outlined on further utilisation of the unspent amount and implementation of the same, where the impact assessment is transparent and measurable.

Education in India is a fundamental right through the 86th amendment of the Constitution. This amendment was made to emphasise the need for early childhood care and elementary education. The saddest part is that in spite of such a large focused collection of a specific tax for the purpose of education, India, according to the 2013 UNDP data records a meagre 4.4 mean years of schooling, much less than Sri Lanka, China, Pakistan and Bangladesh!

This is also a lesson on why just imposing additional taxes on citizens just does not help unless backed by a robust mechanism to implement programmes at the ground level.

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