State Subsidies Of Education Are Regressive

Atanu Dey, writing in 2000, on Indian education:

“It was fashionable in the 1970s and 80s to refer to the migration of trained doctors, scientists and engineers to the advanced industrialized countries as a “brain drain.” Actually, it was a “resource drain” rather than a “brain drain.” India never really had a shortage of basic brains. There are hundreds of millions of basic brains in India. However it takes resources to train a basic brain and turn it into a useful brain. These scarce resources are lost to the economy when used to train brains that eventually migrate.

Just like capital flight from poor economies to the rich ones, the migration of trained manpower, human capital flight, is enormously expensive. It is an even more of a burden when the training is publicly funded. When a trained engineer migrates to the US, it is totally indistinguishable from a gift of US$ 100,000 from India to the US. Over the years, the total implicit subsidy from India to the US could be estimated to be of the order of hundred billion dollars.


When an educated person leaves India, there is a first-order loss to the economy if the education was publicly funded. There is no comparable first-order loss if private resources were involved in the training. But in either case, the economy loses the life-time stream of economic contributions that the migrant would have made. This is a second-order loss. There is what can be considered a third-order loss that is harder to estimate but whose impact may be the most damaging in the long run. This arises from publicly subsidizing higher education at the expense of primary education.

Primary education, somewhat like primary health care, has characteristics of what economists call a “public good.” The positive effects of primary education spill over into the larger economy more than that of higher education, which is more like a private good. Markets efficiently provide optimal quantities of private goods but are known to under-provide public goods.

[Lila: Many libertarians would question whether this is true. I don’t know the research well enough to judge if they are accurate or not]

The market understandably fails in the case of primary education. The solution is straightforward: the public subsidy of primary education.

[Lila: Fortunately, technology and business (the internet), as always, have solved this issue, while the theorists still wrangle about public goods. Thus, contra Dey, the market has already provided the solution.]

The essential point is that the subsidizing higher education is an inefficient use of resources which could have been used for primary education. And this distorted system has real-world consequences: the shameful neglect of primary education.

Dismal Statistics

The Indian constitution mandates universal primary education for all (see Article 8 of the Indian Constitution). Yet, 41% of children do not reach grade 5 in India. Compare that to some other countries:

Gambia 20%
Mali 18%
Senegal 15%
Tanzania 17%
Burkina Faso 25%

[Source: Human Development Report 1999. UNDP.]

Of the countries that rank lower than India in the human development index, only about four have higher percentage of children that do not reach the fifth grade. Mozambique does worse than India, for instance. But never mind small strange sub-Saharan African countries. Take Indonesia for example: only 11% of its children don’t go past the fifth grade. Or take Mexico with its 14% figure. Compare India with neighboring Sri Lanka with its 17%.

The failure of Indian primary education is hard to escape. Sixty years after India’s political independence, India is places 126th out of 175 countries ranked in the 2006 Human Development Report. India’s adult literacy rate is a dismal 61%, below Cameroon (68%), Angola, Congo, Uganda (67%), Rwanda (65%), and Malawi (64%). That 40% of today’s Indian adults cannot even “both read and write a short, simple statement related to their everyday life” implies that they did not get the equivalent of the most basic of primary education. Compare that to China’s 90% adult literacy. [Source: UNDP Human Development Report.]

Successful NRIs

The argument is often advanced that the Indian education system must be world-class. After all, doesn’t it produce world-class NRIs (non-resident Indians) like Vinod Khosla and Rajat Gupta? Yes, of course. And don’t they turn around and give millions of dollars to support the IITs? Yes, of course. Sure the NRIs send some money home. But what is the ratio of the amount India spends on their education to what these worthies send back home?

Even then, who could be so crass as to measure everything in terms of dollars? Surely there is something more important than money. Yes, there is. And it is the untapped human capital that India has in abundance and which it criminally neglects. It neglects them because the powers that be have it made under the current system and it serves their narrow purposes.

In practically every measure of education, India’s rank is so abysmal that it is depressing to even look at the figures. Even if the solution to India’s education problems were as little as a week’s worth of clean drinking water, India would still be in trouble. Around 60% of Indians don’t have access to clean drinking water.

For all our vaunted world-class scientists, doctors and engineers, India ranks miserably in the number of scientists and technicians it has: 0.3 such per 1,000 population. Compare that to: China 0.6, Islamic Rep of Iran 0.7, South Africa 1.7, Korea 2.9.

Hyperbole and Hubris

We in India lack many things. One thing appears not to be in short supply–the hyperbole and the capacity for self-delusion. We have pretenses of being an information superpower. Our IT sector is supposed to make us great. It stretches the imagination beyond belief that this idea can be entertained by anyone. We account for less than 1% of the global $600 billion IT business. Remember we represent 17% of the world’s population. Even if we were to increase our share 10 times (and this is unreasonable by any account) we’d still be below the world average.

Judging the Indian education system based on a Chandrashekhar or a Ramanujan is misguided and delusional. It is like weighing a pinch of mustard seeds against a herd of elephants and declaring that the mustard weighs more. How do we manage to delude ourselves so? I believe that those doing the judging live in very rarefied atmospheres. Their world is populated by jet-setting intellectuals and internet millionaires and H1-B visas and e-commerce and NRIs. Hard evidence to the contrary, it is more comforting to believe that we are not that badly off.

Is there any point in confronting the hard evidence, you may ask. Yes, there is. Unless we recognize the basic problem, examine it dispassionately, we are unlikely to even consider solving the problem. In a sort of defense through denial, we can go on with business as usual by declaring the problem does not exist. But the problem does exist. And the problem is not one that does not have wide ranging implications. The most devastating impact of our dismal educational system is that we are condemning ourselves to a future of exceedingly low economic development. If there is one thing that developmental economists have learned, it is this: education is the most important factor in economic growth. Education has more impact on economic growth than natural resources, foreign investment, exports, imports, whatever. Neglect education and you may as well hang yourself and save yourself the pain of a slow miserable death.

So who paid for my education? It is the poor rural children, thousands of them, who paid for my education by losing their opportunity to become semi-literate. The system is tilted against them and unless there is a radical change in the way that education is funded, they will continue to pay the price for subsidizing the US for decades to come.



A brief solution to the problem of full-cost pricing is easy to state. Price all higher education at full cost. If a year of engineering school costs Rs 3 lakhs, price it at that. Then give loans to every student that needs it to pay the price. The loan is repayable upon employment and in terms commensurate with the level of employment. If you earn big dollars in the US, pay in big dollars. If you work as a doctor in a small village in India, pay small amounts in rupees. Essentially, with the loan system in place, there is no need for public subsidies for higher education.”

[Lila: Better yet, return primary education to private religious groups, who have historically been most effective in that area]

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