In response to the many known and unknown questions of this VUCA (volatile, uncertain, complex, ambiguous) world, Finance Minister (FM) presented the most awaited budget of decades on first of February of this year. She betted on six pillars- Health and wellbeing; Infrastructure; Inclusive development; Development of Human Capital; Research and development and Minimum Government and Maximum Governance; to address all the uncertain, complex and highly ambiguous questions of this VUCA world. Historically, investment for nurturing human capital and capabilities, through building and strengthening research and development or the overall education sector; has been the most powerful weapon to combat over the uncertainties of any kinds irrespective of varying magnitude and intensity. Over the time Government of India (GoI) is also moving on the same lines, but the steps taken so far is not enough. Parallelly, we need to develop an ecosystem where an investor can make an equity investment in an individual’s future earnings.

 

In today’s technological driven VUCA world, instant and impactful skilling/upskilling and reskilling of the labour force has become the necessity and the only weapon to prevent creating a global useless society. Thus, scaling up investment in research and development, nurturing human capital & capabilities in the overall education sector to the maximum possible level is a very pertinent subject matter of the third decade of the 21^st century.     

     

But at our end, the dual-threat of intense socio-economic skewness in the Gross Enrolment Ratio (GER) in higher education and humongous mismatch between demand & supply of requisite skilful labour force are posing serious challenges before the policymakers of habitants of world’s largest young population. Making policies and taking needful actions to resolve the dual problems of inclusion and excellence is  a thought-provoking exercise for GoI. 

 

As per the latest available data, the GER in higher education in India is 26.3 percent which is slightly lower than the world average of 27 percent and around 55 percent less than the US (85%) and 20 percent less than China. Around 74 percent of India’s young population between the age of 18-23 years old have not yet enrolled in higher education. In the latest Human Capital Index (HCI), we stand at 116 out of 174 countries in the human capital index; 131^st  out of 189 countries in human development index (HDI) and  48^th  in the list of top 50 innovating counties in The Global innovation index. HCI index score is even less than the average score of South Asia and the HDI index score is marginally higher than the average score of South Asia but far less than the world average. The performance on these indicators  need to be improved in times to come.

 

In order to combat the challenges coming out of VUCA world, GoI is taking corrective actions via making the balance between inclusion and excellence. Contrary to this year budget, fund allocation to education sector has been increased year on year basis in the absolute term. Skill development has been the subject of special attention over time. Allowing FDI and ECB (External commercial borrowings) in the higher education; constituting Higher Education Commission (HEC) for accreditation and regular funding of colleges and universities; allocating Rs.50,000 crore to National Research Foundation (NRF) to boost quality and quantity of research; implementing New Education Policy (NEP); collaborating with foreign countries and many more are such initiatives taken in this direction in the recent years.

     

But that’s is not enough. Since the year 2000, India’s expenditure on research and development to GDP has virtually remained stagnant in the range of 0.73%-0.87% which is lower than all countries in the BRICS group and less than one-third of the US (2.74%) and Europe (1.85%).  Even the spending on education has remained stagnant over the last many years. The economic survey 2020-21 reported that spending on education remained 2.8% of GDP during 2014-19 and increased to 3-3.5% in the 2019-21 period. Ideally, this ratio must be 6% of GDP. Total government expenditure on the education sector from 1950 to till date has increased from 0.64 percent of GDP to 4.6 percent and at the same time size of the economy has increased from around $35 billion to $2087 billion. Growth in the expenditure on education has not been the same as in the case of growth in the size of the economy. On the economic front, we have witnessed an impressive growth rate in terms of size but with respect to it, spending on education has been less than expected.

 GoI has its own limitations as far as allocation of funds are considered. Government has to maintain the balance between the fiscal arithmetic and necessary distribution and allocation of funds ranging across various schemes.  But this cannot be the rational logic when we are competing with the rest of the world to combat over volatilities, uncertainties, complexities and ambiguities via imparting skilling, upskilling and reskilling among the workforce. Hence, we need to look beyond the budget allocation and government expenditure if we want to win the race.

 GoI should focus on some parallel self-interlocking mechanism where an investor can invest in an individual’s future earnings, unlike education loan. Thus, the current situation reminds me of the Nobel prize-winning economics professor, Milton Friedman’s 1955 essay ‘The role of government in education’ where he argued for equity investment in an individual’s future earning prospect- Income Sharing Agreement (ISA).

 

He wrote “investors could buy a share in an individual earning prospects; to advance him the funds needed to finance his training on the condition that he agrees to pay the lender specified fraction of his earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which compensate for the failure to recoup his original investment from unsuccessful”.

 

So, there are three parties involved in it; students, educational institutions and financing institutions. If a student wants to enrol in valuable skill imparting course in an institution and find himself/herself unable to pay the required sum of money/fee (usually students do not have collateral) then the institution steps in and act as a bridge between the student and the lender and arrange funds for the same. An institution does so only on the condition that the student can repay the loan after getting a job and that too if the student earns a pre-specified salary. Then student can share a portion of monthly income to the institution to pay back the loan.

 

 It’s important to note here that the ISA is operationalized if and only if the student earns a prespecified amount or more after completion of the course. If a student earns less than a prespecified amount then he/she does not pay anything back. Same as the case with not finding a job.

 

  So, in one way the new innovative ways of financing reduce the burden of students which used to be there in case of the education loan and at the same time it will also resolve the problem of social-economic skewness in higher education. Apart from that, it is also an outcome-based teaching-learning process.  In the end, the institution has to impart the necessary skill and up to the need of the market to ensure students placements otherwise, they lose their money without a single rupee return.

 

Some of the Startups like AttainU, InterviewBit, Pesto Tech, AltCampus are offering the ISA model in India. Lambda School successfully implemented in the US and now planning to set its second-largest set up in India. GoI should incentivise such start-ups and designing policies for an inductive ecosystem where such business entity can make profits at the benefits of skilling, upskilling and reskilling of the world’s largest young minds.

 

 

We have been witnessing the dissatisfactory outcomes of efforts made by GoI in the past few years. Since long we have been exclusively depending on government’s expenditure for the betterment of the education sector. I think it’s high time to look beyond this and there is an urgent need to shift policies. GoI should design such polices where private entity can explore the possibilities of rational investment in this sector as well. Seeing the present condition, ISA seems to be a considerable source of equity investment in the education system of our country.    

 

Image Credits: Pixabay

Tags :

• $5 T Economy: Which Way65
• Why Education So Complex? 65
• India and the World65

• Share on Social Media

• Follow us on Social Media