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 true now. Take the case of education cess. Some of you may recollect that the education cess was introduced a decade back 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, then Finance minister had said that the Rs.4000-5000 Crs collected yearly will be earmarked for Education including providing a nutritious cooked mid-day meal. So has this made an impact after a decade of imposing this tax?
Let’s probably begin by looking at the facts first.
Firstly, 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 child population and the lowest number of them attending school, a cess collected to incentivize children by way of a nutritiously cooked midday meal and encouraging schools to be opened was a very commendable thought.
Secondly, 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 – Sarva Shiksha Abhiyan (SSA) and Mid-day meal (MDM) as the two flagship programs.
Thirdly, another critical change was made mid-way to the cess. In addition to the 2% cess, another 1% 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% for reservation for socially and educationally backward classes.
It is been more than a decade now, that this cess was introduced to all direct & indirect taxes and it is imperative to do a review of the impact it has made so far.
So much how cess has been collected so far?
The total cess collected since the time of inception has been a staggering Rs. 216320 Crs. Just in the last 5 years, a total of Rs 129,596 Crs was collected as an education cess and an additional amount of Rs 23,062 Crs collected under the secondary and higher education cess.
However, there seems to be some confusion on the actual amount collected. The respective ministries of finance and HRD have quoted different figures. To further complicate, the CAG audit figures are much different as well.
Another interesting perspective is that amount of spending done 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 FY is a staggering Rs. 32,018.23 Crs or about 25% of amount available from this fund. The cumulative unspent amount since inception is much more. This is in spite of a rapid decline in budgetary support towards funding primary and secondary education over the last few years. In fact, it now appears to be funding almost the entire need in totality.
So a natural question is If so much amount was not required, then why wasn’t the cess removed or reduced over the years?
How much of impact has this spent really made?
Data suggests that there has been no significant progress on gross enrolment ratios. In fact for classes 1 to 10, the GER has remained steady. The dropout rates across all categories of children have also risen close to 70%. Expectedly, the dropout rates in girls across class standards are more than the boys. 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 Midday meal where forget nutritious meals for children, there are many known cases of contaminated food being served. There is very little known on how the 1% cess on higher and secondary cess has actually been used.
In total, while there must have been some impact of the cess being used effectively, but most of the original objectives for why this cess was introduced, have been missed. Post introduction of the education cess, neither has the number of students in schools increased, nor has drop outs reduced nor have we been able to develop this large population of children as skilled resources for sustainable growth.
What can be done to correct this anomaly?
One of the challenges to spending this money, is that under the SSA scheme, states have to contribute at least Rs 25 for every Rs 75 they get. States, like Bihar, UP, Jharkhand, 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. And can it be made simpler so that instead of the huge amount of money unutilized – it is put to productive use?
One of the strong needs is using the unspent amount for teacher development. Lacks of trained teachers have 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 and also develop quality teachers who can make each class interesting and ensure students develop interest in learning.
In addition, the money unspent can be used to set up skill centres at multiple levels. Introducing skills at school level is the need of the hour and introducing them at an early age, will at least ensure that children who go thru the primary education system learn one trade which can lead to employment or entrepreneurship opportunities. Currently there are little or no formal skill courses at school level and using this funding available to set up skill centres can encourage children to take up vocational skill courses and make a visible impact on ground.
The cess collected can also be used to set up a skill fund and help students who complete primary education but cannot continue to study further, due to external factors and are potential drop outs, to seek scholarships from this fund to enhance one key skill. This can boost and incentivize them to develop a career which is built on basic primary education but topped up with a specific skill which can either lead to wage employment or a sustainable livelihood opportunity. 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 program and be a talent supply chain to the numerous MSME’s in the country.
The current finance minister has indicated that with introduction of the GST, this cess will be subsumed. However it will do lot of good, if before introduction, a detailed plan is outlined on further utilization of the unused amounts and implementation of the same, where the impact assessment is transparent and measurable.
Education in India becomes a fundamental right formally through the 86th amendment of the constitution. This amendment was made based on realizing the importance of the need of early childhood care and elementary education. The saddest part is that in spite of such a large focused collection of a specific tax for a single 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 even Bangladesh! This is also a lesson on why just imposing additional taxes to citizens just does not help unless backed by a robust mechanism to implement at the ground level.