Not long after Finance Minister Nirmala Sitharaman presented the Union Budget 2020 on February 1, voices of resentment emerged. The loudest voice was from the Delhi University Teachers Association, which expressed apprehension about the allocation for higher education in the budget. The association’s concern was centred around the reduction in grants for central universities, which would affect the way these institutions run.
Every year, the Central government presents its budget for the upcoming financial year and allocates amounts for each sector, like health, education, defence etc. It also specifies how the funds for each sector will be sourced as well as how they’ll be spent, on a macro level. For example, the central government usually funds its educational schemes and projects through various sources, such as the common revenue collected by the government through taxes, cesses and surcharges, loans etc. While tax revenue can be spent for anything, loans, cesses and surcharges are often earmarked for a specific purpose.
Now, experts have questioned the government’s move to fund central universities, which are established under a special act of the Parliament, primarily through a temporary source like a cess instead of sourcing the fund from the general pool of money. Questions also arise from the fact that the Centre has full control over this money, despite education being an area over which the Centre and state have equal control.
What the 2020 Budget states
A cursory look at the Notes on Demands for Grants that accompanies the budget shows that the Union government has increased the funding for certain items through the Madhyamik and Ucchatar Shiksha Kosh (MUSK), the amount collected by the Government of India ,as cess.
For example, grants to central universities through ‘Gross Budgetary Support’ are almost 20% lower this year when compared to the previous year’s allocation. In 2019-20, the government had allocated Rs 2,865.62 crore under ‘Gross Budgetary Support’, while in Budget 2020-2021, this amount has come down to Rs 2,298.78 crore. Meanwhile, the support for central universities from MUSK this year has been substantially increased from Rs 1,000 crore in 2019-20 to Rs 4,532.48 crore in 2020-21, an increase of over 350%. Similar allocations -- with increased dependence on MUSK and reduction in Gross Budgetary Support -- have been made for a few other expense items as well.
Explained: MUSK and its significance
Every citizen who pays income tax in the country pays a small share as cess — Education Cess (EC) and Secondary and Higher Education Cess (SHEC), which is called Madhyamik and Ucchatar Shiksha Kosh (MUSK). These cesses are earmarked specifically to fund the Central government’s initiatives in the education sector. The amount collected through cess cannot be used for any other purpose other than what it has been originally earmarked for. Both EC and SHEC were introduced in 2004 to fund the universal midday meals in schools across the country.
However, over the course of time, the purpose of the cesses collected along with the income tax has evolved to accommodate many other facets of education, including grants to higher educational institutions.
Speaking to TNM about cesses, Baladevan Rangaraju, an education policy expert with the India Institute, a New Delhi-based think tank, explains that cesses are not a permanent source of income for the government.
“A cess is viewed as a temporary finance augmenter for specific purposes and, therefore, is used wholly by the Centre (not shared with the states),” he says. The point of the Centre not sharing cess becomes pertinent in this case since education is a subject on the Concurrent List, which means both the Centre and states can make laws on it.
The government’s allocation in the Union budget does not usually mention any amount to the states. The Union budget is all about the funds with the Centre and what it plans to do with it. For example, while the Union Budget makes separate allocation for education, the state governments also allocate funds separately in their budget towards education. For example, the government of Tamil Nadu allocated nearly Rs 29,000 crore towards school education and around Rs 4,600 crore towards higher education in Tamil Nadu’s budget for the year 2019-2020. In the 2020-2021 state budget, the state government increased allocation for school education to Rs 34,181 crore - an 18% increase from the previous year. It further increased allocation towards higher education, giving the department over Rs 5052 crore.
Can financing for education be dependent on cesses?
This brings up a crucial question. Should education in the country be largely funded by cesses and surcharge, a temporary source of funds?
It doesn’t matter where the funds come from, says Manish Gupta, assistant professor at the National Institute of Public Finance and Policy, an autonomous research institute under the Union Finance Ministry.
“Gross Budgetary Support is the revenue of the government apart from the cess. Cesses are earmarked specifically for pre-decided purposes. It is, in a way, not a bad thing either,” he says. Manish, however, points out that over-dependence on cesses to fund the government’s expenditure is a problem.
Baladevan concurs and adds that such funding can have two other implications as well.
“One, it undermines the role of the states in the Concurrent List subject since the Centre decides how cesses can be used. This becomes crucial to subjects in the Concurrent List since it creates a possible gap in funding from the Centre especially in important sectors like health and education,” he says. Baladevan explains that these are crucial sectors where both the Centre and the state must work towards the same goal. “Secondly, it raises concerns about the lack of a long-term vision of the government for education,” he notes.
Problem with cess funding
The Comptroller and Auditor General of India (CAG) had pointed out in its audit report for the year 2018-19 that Rs 94000 crore collected as Secondary and Higher Secondary Education Cess since 2007-08 remained unspent in the Consolidated Fund of India. The CAG had flagged the aberration as being contrary to the established procedure despite the government setting up a dedicated fund to utilise the amount collected as cesses. The audit authority had also pointed out that not just education-related cesses, but Swacch Bharat cess, road cess and clean energy cess have also been retained in the Consolidated Fund regularly instead of being used for their earmarked purpose.
Pointing to the CAG’s observation, Baladevan says that if a portion of the unspent cesses had been distributed to the states, it would have been put to better use. He also says that this act of routing funds through cess and not through gross allocation contradicts the Centre’s claims in the new National Education Policy (NEP).
“On the one hand, its draft education policy envisages doubling of education budget but on the other hand, the government is holding on to a temporary vehicle to fund the sector, suggesting a piecemeal approach,” Baladevan points out.
The government’s decision to use cesses to fund education than allocate a separate fund from its gross budget would also mean that the government is not willing to share funds with the state governments.
“Cesses and surcharges are not shareable. If the government levies too many cesses and surcharges, it is a way to try and protect their revenue from not sharing it with states. That is not cooperative federalism and not correct either,” says Manish.
What’s the impact of this decision?
A major portion of the higher education budget of the Centre already goes to premier institutes such as the Indian Institute of Technology (IITs), Indian Institute of Management (IIMs) and other institutes of national importance. Central universities already run on meagre funds as compared to these institutes. “In other central universities such as Jawaharlal Nehru University (JNU), too, the government is intent on increasing revenue from students. If this budget cut is not compensated for through the cess collection (from the public), then the personal investment by students will have to go up since revenue expenditure in public universities has minimum scope for cuts,” says Baladevan.
He also adds that this could also mean that no new institutions are seriously being contemplated for this year.
What's the ideal way out?
Manish says that one of the solutions that the government could implement to address the issue is to focus on revenue collection.
“The expectations were high and there is a shortfall in GST collections. Revenues have also declined due to the slowdown in the economy. The government must focus on improving tax revenue meaning it should have funds to spend on central and Concurrent subjects,” he says.
Baladevan says that since a temporary funding source might lead to an inability to plan a long-term vision for educational institutions, the current mechanism is not sustainable. “Also since the sector is diverse and there are complexities arising from geography (urban/rural), type of institution (research-oriented, special subjects or professional, etc), ownership (central/state) etc, the general direction of the funding policy should be towards adding predictability, transparency, autonomy and accountability.
The experts also point out that the most important solution would be to take action to revive the economy, which will also have a cascading effect on the budgetary allocations towards various sectors.