Introduction and overview

Human capital investments through education are widely recognized as being important for economic growth. This phenomenon has led governments in many developing countries to make significant investments in the education sector. Despite this, public expenditure in education remains low in countries such as India, the country which accounts for the largest number of children aged below 15 years. Estimates from the World Bank show that over the last two decades, total public expenditure on education has stagnated in India, and remains below 4 per cent of gross domestic product (GDP). This figure has only increased marginally from 2.8 per cent in 1997 to 3 per cent in 2010, and has declined as percentage of total government expenditure from 12.5 per cent in 1998 to 10.5 per cent in 2010 (World Bank, 2012).

The Indian economy has experienced high levels of economic growth over this period, with the average rate of annual GDP growth in the decade to 2010 slightly above 7 per cent, compared to an annual rate of 4.5 per cent in the previous four decades 1960–2000 (Cagliarini and Baker, 2010). Evidence from Alkire and Santos’ (2010) recently developed Multidimensional Poverty Index (MPI) shows that India performs poorly for the education indicators in comparison to other countries where data are available. For example, India is ranked 68th out of 104 countries with data for the indicator ‘years of schooling’ (which measures if no household member has completed five years of schooling) and is ranked 57th out of 85 countries with data for school enrolment (measured as a schoolaged child being out of school in years 1–8). Indeed on July 2013, the Supreme Court of India provided a damning indictment of the education system in India by stating that although literacy rates had increased over the years, the education system in the country has failed to achieve its objective and that it has to be reformed immediately (NDTV, 2013).