Sources of Educational Finance

Although the education sector in general receives finances from both the governmental and the non-governmental sectors, it is important to underscore the dominant role of the government in respect of its financing. The intervention of the state in matters of its financing is necessary not only because of the motivations of the private sector (which places greater emphasis on immediate returns from investment) but also due to the very nature and characteristics of education. Recognised as a ‘public merit good’, its other characteristics impinging on investment considerations by the government include:

(i) Consumer ignorance,

(ii) Technical economies of scale,

(iii) Externalities in production and consumption,

(iv) Inherent imperfections in the market like absence of credit market institutions for financing education, etc.

Central to the objectives of the present unit, it is important to note that the challenges posed in mobilising the resources for educational finance are distinctly different for developing economies. To illustrate, let us take the case of India where majority of its population resides in rural areas. The country also has a very high proportion of children and ‘youth’ population. The demands for EF are distinct and dual in this situation. While the children from poor/rural families require promotion of free and easily accessible facilities for elementary education, its significant youth population require facilities for specialised training for skill development. There is a fair consensus that a minimum of eight years of schooling is required for one to be able to grasp the requirements of specialised training.

The establishment of educational/ training facilities requires massive funds. There is a growing debate on whether the entire education sector (comprising different stages viz. elementary, secondary, technical/higher education) should be kept under the ambit of public funding. The need to encourage the participation/investment of the private sector is being increasingly felt owing to factors like fiscal pressures leading to resource constraint,perceived higher private benefits for the individuals particularly in case of higher education, ability/willingness to pay for higher education by sections of people better off economically, etc.

As the economic status of a country changes (i.e. from the developing to the developed), the underlying considerations in the matter of establishing and financing the educational facilities will also change. This comes about partly by increased awareness of the people about the importance of education and partly by the higher ability of the persons to afford the cost of education. In the meantime, however, the considerations for achieving the needed balance between the public and the private sector investment in the education sector along with the issue of subsidy need to be guided by factors like the socio-economic layers of the society, demographic features, demand for elementary versus higher educational facilities, etc.