Policy Update
Anshu Saroha
Background
The Prarambhik Shiksha Kosh (PSK) was introduced in 2005 as a response to the chronic underfunding of primary education in India. It is a non-lapsable fund, which is structured to preserve and direct the 2% education cess implemented under the Finance (No. 2) Act of 2004. This fund does not dissolve with the passing of a fiscal year, but it carries forward to the next.
The main aim was to serve the two key missions of the Indian government. First, Sarva Shiksha Abhiyan (SSA) pledged free and compulsory education to all children aged 6 to 14. Second, the Mid-Day Meal Scheme, whose mandate is to provide free meals for school-going children to remove hunger, and all this learning will come as an add-on.
It falls under the Ministry of Education with a particular monetary distinction. Any unused allocations, especially those earmarked for the Northeastern states and Sikkim under Major Head 2552, are not returned to the Centre’s general account. Instead, they are diverted to PSK for the sole purpose of its use in those states only. On paper, this mechanism holds the promise of uninterrupted cash flow to enhance school infrastructure, increase enrolment, and improve the overall quality of primary education. But the intent and execution do not always go hand in hand.
Functioning
In principle, PSK was supposed to supplement the annual budgeting instead it is funding the baseline functioning. The blueprint was precise, with funds from PSK to be drawn only after the regular budget allocations had been spent, therefore preserving the supplementary financing. Yet, over time, this order has been subtly changed. Instructions from the Department of Economic Affairs (DEA) have prioritized the use of PSK funds. This inversion carries substantive consequences.
Furthermore, such deviations over time weaken the public’s confidence in government policies. PSK, instead of functioning as a stable pillar of educational financing, begins to resemble a flexible cushion used to patch budgetary shortfalls. This not only erodes the legitimacy of the fund but also the credibility of government frameworks.
Performance
Although guidelines have long been laid out by both the Ministry of Education and the Comptroller and Auditor General, the actual flow of cess funds into the Prarambhik Shiksha Kosh (PSK) continues to suffer from persistent irregularities. On paper, the structure appears sound, and the protocols are defined. In practice, however, the figures don’t have consistency.
Between 2018–19 and 2022–23, the central government collected an estimated ₹2.31 lakh crore under the Health and Education Cess. Of this, ₹1.73 lakh crore was notionally meant for the education sector, with 60 percent marked for school education via PSK and 15 percent intended for higher education under MUSK. However, the Ministry of Education received ₹2.36 lakh crore during the same period, and this figure exceeds its calculated share.
Allocations shifted significantly from year to year. In 2018–19, the amount transferred stood at ₹25,227 crore, and by 2022–23, it had grown to ₹62,350 crore. But this apparent escalation obscures the year-on-year mismatches. In the earlier years, the Ministry received ₹5,655 crore less than what it was eligible for, while in subsequent years the allocations surpassed entitlement. These deviations are not accompanied by any public justification. No documentation explains why the shortfall occurred or how the surplus was rationalized.
Source: Digital Sansad
Impact
Over a decade, the PSK has played a crucial role in shaping India’s elementary education. India has edged closer to the goal of universal enrolment at the primary level. The Gross Enrolment Ratio (GER) had reached 99 percent by 2015. This accomplishment was an outcome of targeted investments like new classrooms, toilets, and fresh drinking water provisions.
This impact goes beyond infrastructure. The PSK-funded Mid-Day Meal contributed to reducing dropout rates. Between 2009 and 2015, the annual primary dropout rate declined from 6.8 percent to 4.1 percent. The promise of a nutritious meal remains a strong incentive to stay in school for numerous underprivileged students. Teacher availability and capacity problems were also targeted with PSK funding. More teachers were hired under the SSA, and the pupil-teacher ratio improved from 32:1 to 25:1 by 2015.
Nevertheless, the benefits are not shared equally. Some states have struggled to use their allotted funds, with utilization rates falling below 37% of SSA allocations, while others have topped 80%. These differences make it more difficult to identify the areas and causes of progress.
Emerging Issues
The functioning of PSK continues to be shaped by persistent structural and administrative challenges. One recurring concern is the incomplete transfer of the education cess. Although collections are made as per mandate, the full amount does not consistently reach the fund. This mismatch raises doubts about the reliability of the mechanism and weakens its credibility as a channel for earmarked public finance.
In several instances, the order of spending has been altered. PSK, which was conceived as a supplementary source of funding, is being drawn upon before regular budgetary allocations are fully utilized. When this happens, the fund’s purpose becomes diluted, and its role shifts from being additional to being primary, which distorts fiscal priorities.
Transparency remains another major concern. There is no dedicated public dashboard to track the collection, allocation, or utilization of PSK funds. The absence of disaggregated data makes it difficult to monitor outcomes, assess efficiency, or hold implementing bodies accountable. It becomes hard to say where the money goes, or what it changes.
States with weaker institutional capacity often struggle to claim and use their full entitlements. Ironically, these are often the regions that require the most support. Yet, there is no structured system to help them catch up, no flexibility built in to compensate for these disadvantages. At the same time, the distinction between PSK and the Madhyamik and Uchchtar Shiksha Kosh (MUSK) remains vague. There is no formal, public explanation of how resources are divided between elementary and higher education. This lack of clarity makes it difficult to evaluate spending across educational levels or ensure funds are being used as originally intended.
Way Forward
To return the Prarambhik Shiksha Kosh (PSK) to its intended role, reforms must center on restoring fiscal discipline, ensuring clarity in fund flows, and re-aligning its structure with its original educational mandate. The timely and complete transfer of all education cess collections into PSK must be institutionalized. Without this, the fund cannot function as a stable or credible channel for public investment in elementary education. Transparency is equally important. A public platform should clearly show how much cess is collected, how much is transferred, and how it is spent. This data must be disaggregated by state, scheme, and year. Buried figures in reports or annexures cannot support accountability. Without such visibility, misuse cannot be prevented.
Finally, it must be reiterated that cess collections are intended to supplement, not replace, existing public education budgets. To treat them otherwise is to erode the very principle of additionality upon which PSK was founded. With these reforms, the fund can move closer to what it was always meant to be: a stable, transparent, and equitable mechanism for advancing elementary education in India’s government schools.
References
- Chaudhary, P. (2023). Digital Sansad. https://sansad.in/getFile/loksabhaquestions/annex/1711/AS109.pdf
- Creation of Non-lapsable fund for elementary education approved. PIB. (2005). https://www.pib.gov.in/newsite/erelcontent.aspx?relid=12567
- Institute, T. (Ed.). (2023, December 27). Prarambhik Shiksha Kosh (PSK): Strengthening elementary education in India • Teachers Institute. Teachers Institute. https://teachers.institute/institutional-management/prarambhik-shiksha-kosh-elementary-education-india/
- Kapur, A., Bordoloi, M., & Shukla, R. (2019). Budget briefs – Sarva Shiksha Abhiyan (SSA). CPR India. https://cprindia.org/wp-content/uploads/2021/12/Sarva-Shiksha-Abhiyan_0.pdf
- PIB. (n.d.). Achievements of Sarva Shiksha Abhiyan and Saakshar Bharat. https://pib.gov.in/newsite/PrintRelease.aspx?relid=177525
- Rana, T., Kapur, A., & Tamang, L. (2024). Budget insights. Hindu Centre. https://www.thehinducentre.com/the-arena/current-issues/69076176-MoE_Budget_Insights.pdf
- Sharma, P. (2019). Govt sits on education cess worth rs 1.16 lakh crore. NewsClick. https://www.newsclick.in/govt-sits-education-cess-worth-1.16-lakh-crore
About the Contributor: Anshu Saroha is a Bachelor of Arts student at the University of British Columbia and a research intern at the Impact and Policy Research Institute (IMPRI).
Acknowledgment: The author would like to express sincere gratitude to the IMPRI team for their guidance throughout the writing of this article.
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