Central Government’s Role in Funding Education in India

Education in India is constitutionally a concurrent subject – both the Centre and states share responsibility for it. But over the decades, the central government’s role in financing education has grown well beyond what the original framers may have envisioned. From supporting educationally backward states to launching massive national programmes, the Union government now functions as a critical funding engine for the country’s school education system. Understanding how this works – and why it matters – is essential for anyone studying educational management in India.

Why the central government stepped up its spending on education 🔗

India’s federal structure places education primarily under state governments. Yet two hard realities pushed the Centre to take a much larger financial role over the decades.

The first is regional inequality. States differ enormously in their fiscal capacity. Economically weaker states like Bihar and Jharkhand simply cannot generate enough revenue to fund their education systems at the level richer states can. Spending as a share of gross state domestic product in 2017-18 ranged from 4.3% in Bihar to as low as 1.8% in Maharashtra and Tamil Nadu – a gap that reveals just how uneven state-level investment in education is. Without central support, children in poorer states would face dramatically worse educational opportunities than those in richer ones.

The second driver is the constitutional mandate for compulsory education. The 86th Constitutional Amendment of 2002 made free and compulsory education a fundamental right for all children between the ages of 6 and 14 under Article 21A. This created a legal obligation that no state could fulfil alone – and the Centre had to back it with money. These two pressures together explain why central spending on education has consistently expanded since the 1990s, through a combination of major national schemes, dedicated tax instruments, and planned budgetary allocations.

Major centrally sponsored schemes in school education 🔗

The central government channels most of its education funding through Centrally Sponsored Schemes (CSS) – programmes where the Centre provides funding and policy direction, while states handle implementation. The cost is typically shared in a 60:40 ratio between the Centre and states. Three schemes stand out as the most significant.

Sarva Shiksha Abhiyan (SSA) and Universalisation of Elementary Education 🔗

Sarva Shiksha Abhiyan (SSA), literally meaning “Education for All Campaign,” is the Government of India’s flagship programme for achieving Universalisation of Elementary Education (UEE). Operational since 2000-2001, it was built around the constitutional mandate of providing free and compulsory education to children aged 6-14. The four pillars of UEE it targets are: universal access, universal enrolment, universal retention, and quality elementary education for all.

SSA’s interventions are wide-ranging. The programme works to open new schools in unserved habitations, strengthen existing school infrastructure through additional classrooms, toilets and drinking water facilities, provide additional teachers where there are shortages, and support extensive teacher training. Free textbooks, uniforms, and support for children with special needs are also part of the package.

By 2013, there were primary schools in over 90 percent of India’s habitations, and over 96 percent of children between 6 and 14 years were enrolled in schools – a dramatic improvement from the 26 million out-of-school children recorded in 2000. In 2018, SSA was merged with the Rashtriya Madhyamik Shiksha Abhiyan to form the broader Samagra Shiksha Abhiyan, which covers education from pre-primary to Class XII under one integrated framework.

It is worth noting that SSA operated as a centrally sponsored scheme, meaning schemes such as Samagra Shiksha are mostly funded in the ratio of 60:40 by the Centre and the state. For educationally and economically backward states in the Northeast and special category regions, the Centre’s share is even higher.

The Mid-Day Meal Scheme (now PM POSHAN) 🔗

One of the most visible and impactful central interventions in school education is the Mid-Day Meal Scheme, now rebranded as Pradhan Mantri Poshan Shakti Nirman (PM POSHAN). The National Programme of Nutritional Support to Primary Education (NP-NSPE) was launched as a centrally sponsored scheme on 15 August 1995, initially covering 2,408 blocks across the country with a simple objective: improve school enrolment, attendance, and retention by providing free meals to children.

The scheme has grown substantially since then. It now serves 120 million children in over 1.27 million schools and Education Guarantee Scheme centres, making it the largest school meal programme in the world. In 2007, it was extended to upper primary classes (VI to VIII) in educationally backward blocks, and from April 2008, it was rolled out across the entire country. In September 2021, it was renamed PM POSHAN and its coverage was further expanded to include pre-primary students in Bal Vatikas.

The financing model reflects the Centre’s dominant role: the central government provides free food grains to states and bears a greater share of cooking costs, infrastructure development, transportation, and honorarium for cooks and helpers, with the remaining cost shared with state governments. Specifically, the Centre provides 60 percent of the scheme’s cost, with states contributing the remaining 40 percent.

The PM POSHAN scheme has been approved for the five-year period 2021-22 to 2025-26, with a total financial outlay of Rs 54,061.73 crore from the Central Government and Rs 31,733.17 crore from state governments and Union Territory administrations. In the interim budget for FY2024-25 alone, the government assigned Rs 12,467.39 crore (~US$1.5 billion) to the scheme.

Beyond nutrition, the scheme is widely credited with reducing absenteeism, improving girls’ enrolment, and supporting children from disadvantaged socioeconomic backgrounds to stay in school – directly contributing to UEE goals.

The broader UEE framework 🔗

SSA and the Mid-Day Meal Scheme are the two anchor programmes of India’s UEE strategy, but the central government has supported UEE through several other targeted interventions as well. These include the National Programme for Education of Girls at Elementary Level (NPEGEL), launched in 2003 as a sub-component of SSA to provide additional support to girls in educationally backward blocks; the Kasturba Gandhi Balika Vidyalaya (KGBV) scheme for residential schools for girls from SC, ST, OBC and minority communities; and the Inclusive Education of the Disabled at Secondary Stage (IEDSS) for children with special needs. Together, these schemes represent a comprehensive – if still incomplete – central effort to reach every child.

Education cess: funding education through a dedicated tax 🔗

One of the most significant institutional innovations in central education financing is the Education Cess. Unlike regular tax revenues that flow into the general pool, a cess is a purpose-specific surcharge – money that can only be spent on what it was collected for.

Education Cess was introduced in the Union Budget of 2004-05 at a rate of 2%, aimed at generating funds specifically for improving the country’s educational infrastructure. It applied to all income taxpayers and corporate taxpayers alike, and its proceeds were earmarked exclusively for education programmes. In 2007, an additional 1% Secondary and Higher Education Cess was introduced, bringing the total to 3%. Then, in 2018, both were consolidated into a single 4% Health and Education Cess to also cover healthcare initiatives for below-poverty-line and rural families.

The money collected through the Education Cess was credited into a dedicated non-lapsable fund called the Prarambhik Shiksha Kosh (PSK). According to government documents, the proceeds of Education Cess credited into this fund are utilised exclusively for Sarva Shiksha Abhiyan and the Mid-Day Meal Scheme, with expenditure drawn from PSK only after the Gross Budgetary Support funds are fully utilised.

The scale of revenue generated is significant. The government collects over Rs 50,000 crore annually through health and education cess, which is directly allocated for health and schooling projects. Research published in peer-reviewed journals further highlights just how central the cess has become to school education financing: education funding is increasingly dependent on cess, which now funds almost 74 percent of the school education budget.

The national education budget and the Centre’s share 🔗

Despite the scale of schemes and the cess mechanism, India’s overall public investment in education remains below the benchmark set by the Kothari Commission, which recommended spending 6% of GDP on education as far back as the 1960s. The commission arrived at this figure after comparing India’s investment to that of countries like the US, Japan, and the USSR. India has never come close to that target.

The combined education budget of both central and state governments amounted to just 2.7% of GDP in 2023-24, according to data from the Economic Survey of India 2024. Within this, the central government’s contribution is relatively modest in proportion: the Centre bears only about 1% of GDP in education spending, while states together bear the remaining 3%.

How the Centre splits its own education budget is also revealing. School education has historically made up a larger share of the central government’s education budget – roughly 60 percent – compared to 40 percent for higher education. This reflects the priority placed on elementary education, which is directly tied to the constitutional mandate and the UEE mission.

Another important dimension is the relationship between central grants and state allocations. The central government contributes to education in two ways: through centrally sponsored schemes – where funding is shared with states – and through central sector schemes that are fully funded by the Centre. States, in turn, are expected to maintain and increase their own education budgets, though a parliamentary committee found that states have not always proportionately adjusted their education spending even when their overall fiscal resources increased through higher devolution.

Challenges and the road ahead 🔗

The central government’s funding architecture for education has undeniably expanded access. Enrolment at the elementary level is now near-universal, and the Mid-Day Meal Scheme feeds over 120 million children every school day. But the funding system faces persistent challenges.

First, learning outcomes remain weak despite high enrolment. Multiple parliamentary committee reports and independent studies have found that children enrolled under SSA are still not achieving grade-level learning in reading and arithmetic. Access without quality defeats the purpose of universalisation.

Second, the cess mechanism itself has faced scrutiny over transparency. Earlier analyses have raised questions about whether the money collected through education cess was fully and accurately routed to education programmes, with discrepancies noted between figures reported by different government bodies.

Third, the gap between the 6% GDP target and actual spending remains wide. The National Education Policy 2020 has reiterated the goal of reaching 6% of GDP in public education spending, but achieving it would require a sustained and coordinated increase from both the Centre and the states – something that has proved difficult in practice.

Central financing of education in India is not just a fiscal exercise. It is an expression of what the Indian state believes education is for – a fundamental right, a tool of social justice, and a foundation for national development. The question of who pays for it, and how much, is ultimately a question about the kind of future the country intends to build.

What do you think? Given that states bear three-fourths of India’s public education expenditure but often lack the fiscal capacity to meet educational needs, should the Centre’s share in education funding be significantly increased – and if so, how should accountability for outcomes be built in? And with cess now funding nearly three-quarters of the school education budget, does India need a more transparent, ring-fenced mechanism to ensure those funds reach classrooms effectively?

References

1. https://www.indiaspend.com/budget/budget-explainer-how-india-funds-public-school-education-718488
2. https://en.wikipedia.org/wiki/Sarva_Shiksha_Abhiyan
3. https://www.aicte-india.org/reports/overview/Sarva-Shiksha-Abhiyan
4. https://riseprogramme.org/blog/more-money-same-approaches-won-t-work-lessons-sarva-shiksha-abhiyan-india.html
5. https://www.education.gov.in/en/mid-day-meal
6. https://en.wikipedia.org/wiki/Midday_Meal_Scheme
7. https://prsindia.org/theprsblog/the-importance-of-parliamentary-committees?page=23&per-page=1
8. https://www.ibef.org/government-schemes/mid-day-meal-scheme
9. https://www.piramalfinance.com/vidya/education-cess
10. https://aserf.org.in/analysis/Education%20Cess.pdf
11. https://www.fincover.com/tax/education-cess/
12. https://opportunities-insight.britishcouncil.org/analysis/indias-national-education-budget-202425
13. https://news.careers360.com/economic-survey-india-highlights-percentage-gdp-education-budget-central-state-government
14. https://journals.sagepub.com/doi/10.1177/24551333231163949
15. https://opportunities-insight.britishcouncil.org/analysis/indias-national-education-budget-2023-24