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G. Ramachandran

India's edge in education will be sharp if the private sector's pivotal role is encouraged and institutionalised through policy. Especially, as the Central and State Governments have other fiscal priorities and compulsions which may make it difficult for India to boost public spending on education, says G. Ramachandran.

EMPIRICAL analyses of demographics, spending on education, investments by the private sector in education and the spread of knowledge show that India has become a younger and a `better educated' country in the last decade than in the past.

Private spending on education has increased at a compound annual growth rate of 10.38 per cent since 1994 at constant prices. By contrast, private final consumption expenditure (PFCE) on all consumable goods and services has grown annually at 5.11 per cent since 1994 at constant prices. Private spending on education has grown at twice the rate of spending on total consumption.

Education is among the fastest growing service sectors of the economy. The medical and health care sector alone has grown faster than education. Spending on medical care and health has grown at over 15 per cent annually at constant prices.

The growth of the other components of the services economy — hotels, restaurants, transportation, telecommunications, recreation and entertainment, and utilities — has trailed the growth in spending on education.

What is interesting and instructive is that growth in private spending on education and health has contributed to PFCE growth. PFCE growth would have been 5 per cent without the growth in spending on education. PFCE growth would have been 5.02 per cent without the growth in spending on medical care and health. PFCE growth would have been 4.92 per cent and not 5.11 per cent without the growth in spending on education, medical care and health.

Goal congruence

Education and health are intensely important personal attributes. They are also very important public attributes of social and human development. Analysis by SpearHead Asset Research shows that spending on education pertinent to the medical and health sciences is an important and rapidly growing component of total spending on education.

It is remarkable that spending on education and health have grown jointly to serve personal and public objectives. It is unlikely that any other component of the economy or policy initiative could have lead to such a strong `internalisation' of objectives at the level of households and ``congruence with external objectives''.

Education has become India's ``super infrastructure''. It provides the strongest link between income aspirations and the realisation of income goals. It can be controlled from within a household and without unreasonable dependence on the external environment and infrastructure.

India's youth, parents, employers and the self-employed have acquired a keener appreciation of the association between training and skills, skills and income-generating economic opportunities, and formal professional education and careers than in the past.

The congruence between internal economic goals of households and external economic goals of the nation is a prerequisite for building viable and vital constituencies that promote growth.

Education has accomplished a strong congruence between the internal aspirations of households and the external objectives of the aggregate economy. It has emerged as the `seed crystal' around which India's viable and vital constituencies can be built for the long-term. Education will play a pivotal and constructive role in spurring future economic growth.

Knowledge society

The solidly well-focussed decision by India's households in the context of spending on education should be evaluated against the backdrop of the knowledge society without borders. The developed world correctly claims that we live in a knowledge society without borders.

Acclaimed futurologists and management gurus such as Professor Peter Drucker think that knowledge will be the world's key resource, and knowledge workers will be the dominant group in its workforce. Prof. Drucker has argued that knowledge travels more effortlessly than money.

Capital controls may restrict the flow of capital, but knowledge respects no borders and no controls. It encourages and supports upward mobility because it makes knowledge available to everyone through easily acquired informal and formal education.

Moreover, the means of production and dissemination of knowledge can be made as simple, egalitarian and effective as required. The simplicity and effectiveness are the results of knowledge's divisibility into useful and nearly infinite modules.

Quite clearly, the knowledge economy relies heavily on knowledge workers. It includes doctors, accountants, engineers, lawyers, teachers, and researchers into animal and plant biotechnology. It also includes computer technicians, software designers and analysts in clinical laboratories.

The capability of knowledge to flow unrestrictedly, the powerful properties pertinent to upward mobility and the easy divisibility into useful and nearly infinite modules make knowledge a very important source of India's competitiveness. But India's ability to tap and nurture the competitiveness would depend on how well education is institutionalised.

Diffusion and institutionalisation

India's competitiveness in the knowledge economy rests on its ability to fuel the diffuse growth of a well-trained, well-educated workforce. The emphasis on diffuse growth in the knowledge society is the result of two factors.

First, knowledge is amenable to diffusion. It does not require centralisation to meet any minimum standards related to critical mass and economies of scale related to fixed costs.

Second, the aggregate probability of failure is very low when efforts aimed at the production and dissemination of knowledge are spread across the economy. It would be pertinent to recall that many elements of physical infrastructure failed in the past because they required centralisation and thereby made them less sensitive to local needs.

Education, as an economic activity, is the result of the institutionalisation of the production and dissemination of knowledge. Institutionalisation does not refer to the process of establishing institutes! It pertains to the set of decisions, policies, structures and activities that creates stakeholders that in turn work efficiently and consistently towards achieving desirable objectives. Institutionalisation reinforces the merits of diffusion.

Without institutionalisation, the merits of diffusion could be lost. Education would then become inefficient or inconsistent with national and global opportunities or both.

Keeping the edge sharp

Questionnaire surveys by SpearHead show that more than 90 per cent of the young in rural, semi-urban and urban areas expect skills, training and education to play a critical role in their employability and future incomes.

Their expectation is consistent with the developed world's view of the knowledge society. They also expect the private sector to play a pivotal role in developing, designing and delivering vocational training and formal professional education that promote skills and employability.

The pivotal role expected of the private sector could be interpreted as the result of the economics as well as the non-financial characteristics of the production and dissemination of knowledge.

The economics of education point to the growing privatisation of education because of the fiscal constraints faced by the Central and State Governments. Government spending on education in India was 3.3 per cent in 1999-2000.

China's public spending on education was 2 per cent in 1999-2000. But the average government spending on education of the top 100 countries in the world was 5.24 per cent, about 50 per cent more than India's.

India was ranked 81. India has a significant lead over China in investments and spending related to education. But China could use its financial resources in the future to fight for its share of the incomes that the knowledge society would generate.

However, what is more worrying is that the Central and State Governments have other fiscal priorities and compulsions. These may make it difficult for India to boost public spending on education.

Even if the Central and State Governments were to overcome the limitations imposed by the other fiscal priorities and compulsions, it is unlikely that their operations would support the diffuse growth of education.

Governments are more comfortable with centralisation than with diffusion. But the private sector is capable of making a virtue out of a necessity and viable businesses out of ordinary opportunities.

The private sector is also more likely to reinforce institutionalisation without curbing its own competitive instincts.

While it is possible for the Central Government to reinforce institutionalisation through the system of Kendriya Vidyalay (Central school) and India's institutes of higher learning (technology and management), the States are unlikely to participate in the reinforcement.

The private sector can, as a partner of the governments and on its own. India's edge in education will be sharp if the private sector's pivotal role is acknowledged, encouraged and institutionalised through policy.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)

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