The case for investing in education in India

The case for investing in education in India

Innovative financing structures focussed on outcomes can go a long way in bridging the education gap in India.


  • For individuals and families, education can lead to higher wages, improved health, and the ability to make effective choices that promote long-term prosperity.

  • The need for directing impact investment towards education in India is urgent and important.

  • Innovative financing structures can go a long way in bridging the education gap in India.

South Asia is the second-lowest achieving region in the world, with less than 30 per cent of children achieving minimum proficiency level in math and reading. There are approximately 20 million children in India who are either not enrolled or do not attend school regularly. Without the opportunity to gain basic competencies, these children stand a small chance of meaningfully participating in the skilled labour market. Without skilled citizens, India will be unable to advance at the same pace as the rest of the world.

Unprecedented learning crisis

Most Indian children perform below grade level in both literacy and numeracy, which leads to reduced life chances and poor employment opportunities. As the crisis has become clear, the Government of India has started to focus increased attention on learning outcomes. Unfortunately, the pathway to achieving quality education is not as straightforward as just improving access. India remains well-below international levels of educational achievement in both literacy and numeracy. This has a considerable impact on the workforce - less than 10 per cent of the 495-million strong working population possesses an employable skillset, as per a 2018 report by MSDF.

Biggest Education Challenges

  1. Scale and diversity The system is valued at $91 billion. With 9.7 million teachers and 280 million students, and the scale of the challenge cannot be underestimated. The challenge is exaggerated by India's cultural, linguistic, environmental and resource diversity.

  2. Access to education The government's flagship programs, Sarva Shiksha Abhiyaan, the Right to Education Act and National Education Policy have resulted in a 99 per cent gross enrolment ratio at the lower primary level and 97 per cent of children in rural India aged 6-14 are enrolled in school. However foundational learning in India is low by the benchmark of other developing countries. Only 14 per cent of children in Grade 2 in India can perform simple two-digit subtraction, compared to 87 percent in Malawi.

  3. Learning levels flatline Due to poor foundational learning, when children progress into secondary grades (7-12), there is a low level of achievement, and teachers are not equipped to provide remedial academic instruction. This results in a widening learning deficit that significantly reduces the child's life chances as well as the government's return on investment in that child's education.

  4. A high fiscal cost The cost of 250 million children not learning has implication on current finances of the government, equivalent to $129 billion or 10 per cent of global spending on primary education. The learning crisis will undermine national development towards meeting India's Sustainable Development Goals. Education underpins the achievement of health, economic, gender and poverty goals. If learning levels continue as they are now, the number of lives lost each year due to the failure to provide education can be expected to equal those lost today to HIV/ AIDS and malaria combined.

The government is the largest provider of education in India despite a considerable migration to affordable private schools in recent years. India currently spends 2.7 per cent of its GDP on school education, considered both 'insufficient' and 'inefficient' by the World Bank. Of this, 34.5 per cent is spent on infrastructure through the Sarva Shiksha Abhiyaan, and anywhere from 50-80 per cent of the remaining budget is spent on teachers' salaries. This leaves little room to correct for quality in key areas of remedial education, non-academic development, curriculum development and teacher professional development.

Shortcomings in funding architecture

  • India's education budget is less than half of what is needed to successfully meet the SDG's

  • State government spending is earmarked for teacher salary and administrative costs, leaving little capacity or capability to invest in system remediation.

  • Non-state providers work at a small-scale relative to the size of the problem and, there are multiple small streams of non-state interventions that cannot fix the larger issue at scale.

  • There is inadequate attention to skilling the ecosystem around the school to address education challenges; all stakeholders around the school need to be accountable for educational outcomes.

  • Philanthropic giving focuses on delivery over design, and funds through a flat structure which makes it difficult to correct course once a program is underway.

With much at stake, there is also much to gain from quality education. In fact, a single dollar invested in an additional year of schooling in low-income environments generates $10 in benefits. For individuals and families, education can lead to higher wages, improved health, and the ability to make effective choices that promote long-term prosperity. For societies, education nourishes stronger institutions, greater social mobility, and economic growth. This value is only going to increase over time. The need for directing impact investment towards education in India is urgent and important and innovative financing structures, focussed on outcomes, can go a long way in bridging the gap. India Education Outcomes Fund, Social Finance India's flagship initiative, aims to create an ecosystem of sustainable funding by bringing together key stakeholders to work together towards a common set of learning outcomes. It also aims to channel $1 billion towards improving learning outcomes and deliver on India's Sustainable Development Goal of ensuring “inclusive and equitable quality education and promote lifelong learning opportunities for all” by 2030.

Ashutosh Tyagi is the Head of Social Finance India, a not-for-profit enterprise that helps bring private risk capital into the social sector.

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