Jul 26, 2024 09:19 PM IST
Easing education loans will increase access to higher education for the needy while reducing pressure on the taxpayer to fund this. Skilling through the apprenticeship programme will prove a bigger premium for the youth than stipends
It is very rare these days to get an epoch-making budget speech. The last one perhaps was the 1991 one, which announced the demolition of the industrial licence raj. The 1997 one, when tax rates were brought down sharply and dividend income was made tax-free, was a strong contender, too. Economic policymaking is a continuous process, and the Union Budget is no longer a watershed or disruptive moment. Besides, more than half of all expenditures are committed and non-discretionary.
The full Budget for FY25 was the curtain raiser for Narendra Modi 3.0 regime, and finance minister (FM) Nirmala Sitharaman’s record seventh outing. The sops to coalition partners from Andhra Pradesh and Bihar were expected. But the most significant message from the budget is the conscious pivot toward building human capital. A Chinese proverb goes, “If you need food for the next year, you plant some rice. If you want to provide for the next ten years, you need to plant a tree. But for securing your next hundred years, you educate a child.” This has echoed across generations throughout countries’ histories. Six months before he became the Prime Minister of the United Kingdom in a landslide Labour victory in 1997, Tony Blair gave his famous “The agenda for a generation” lecture at Oxford. His party went on to unseat the Conservatives after an era that started with the Margaret Thatcher premiership. Blair had said that the three priorities of his government would be “education, education and education”. Much longer ago, Swami Vivekananda had said that India needs education for all-round development. If there is a single most important determinant of long-term prosperity of a nation, it is the extent and quality of its education-imparting institutions. The growth trajectories of China and India, after the 1980s, have often been considered comparable (with India being spoken of as 13 years behind China, due to the commencement of economic reforms only in 1991 versus China’s 1978 reforms). But, what is missed is the significant lead that China has had in the area of education, whether primary, secondary or higher, much earlier on. This momentum has been critical. In the early 2000s, hardly any Chinese university figured in the top 50 in the world. But today, there are four or five. India needs to spend 6% of the Gross Domestic Product on education, twice what it is today. This spending has to be done both by the State and the private sector. The existence of an oasis of a few world-class institutions in an otherwise desolate landscape only tells us how much still needs to be done.
Education was on the states’ list under the Constitution till 1976, when it was moved to the concurrent list. The influence of the central government has grown since then in the form of national missions for literacy or higher education. But so long as the states’ autonomy is protected, this is for the good. The public funding of primary education is justified due to the huge spillover benefits that society derives. Indeed, one of the signs of a developed country is when parents’ first choice for their kids’ school is the nearest neighbourhood government school. Beyond high school, the funding for college education, technical training, or skilling cannot be a burden on taxpayers. This is because the benefit of higher education and skills accrues largely to the individual and only secondarily to society at large. The small spillover benefits of skilling and college degrees and diplomas are in terms of entrepreneurship, innovation, and job creation, but these are still not a strong justification to provide it all free. The key challenge in higher education in India is that the vast majority, possibly 80% of the youth who are hungry to get trained, cannot afford the true cost of quality education. How the needy will pay for higher education is a separate problem, but has a neat solution. It is in the form of liberal, inexpensive, collateral-free student loans. This is precisely the idea proposed and championed by this year’s budget. In the coming years, hopefully, the student loan market will expand, get deeper, and be without excessive defaults.
The other important aspect of skilling is that most of it happens as on-the-job learning. Hence, the best way is to incorporate it into a national apprenticeship programme, which has portable accreditation. Even the internships for 10 million youth in top-tier companies announced in the budget will be a step toward learning by doing. The accreditation is more valuable than any stipend that is to be paid. Private companies would be happy to take on interns as temporary trainee workers and not have to take them on their permanent rolls. The apprenticeship model can be applied to MSMEs, too. It is important to note that the training is for jobs of the future, of which most do not even exist today. Even the 100 plug-and-play private industrial parks announced by the FM can be given incentives to take interns and apprentices in big numbers.
One is tempted to ask whether this pivot means that we move from production linked to employment linked incentives? The production linked incentive (PLI) scheme has worked wonders, especially in mobile phones, of which we now export around ₹40,000 crore worth. But is PLI the magic policy bullet that will drive employment-intensive growth? No, because it has several drawbacks. It rewards topline, not value addition, and it does not reward job creation.
The Economic Survey also highlighted the need to join global value chains, even those crossing through China, so long as employment is created in India. The incentives to be given will depend not on aggregate production or profit but on the number of jobs created. Unlike its East Asian peers including China, India did not follow a labour-intensive, export-oriented growth strategy. India’s labour is an asset, but its major earnings are via inward remittance (at the low end) and software earnings (at the high end). It is time to focus on a labour-intensive strategy. This will provide sustainable as well as inclusive growth in the medium term.
Ajit Ranade is vice-chancellor, Gokhale Institute of Politics and Economics, Pune.The views expressed are personal
Story Saved
