The perceived returns from education will increase when its costs are brought down. This will improve enrolment.
The Right to Education Act (RTE) seems yet another exercise in ‘lofty goals and faulty planning’. It is difficult to critique its noble objectives. We need higher levels of literacy so that social and economic interventions prove more effective.
But RTE has failed to understand why many children don’t enrol themselves (or rather, why their parents don’t enrol them), or having done so, drop out.
Poor perceived returns
The social or socio-economic rate of ‘discounting’ for most poor families (rural or urban) in India is very high. People could well borrow at 80-100 per cent per annum and in cases of social functions and emergencies such as marriages, religious rituals and last rites, commit themselves at even higher rates for longer periods — implied rates of 200-300 per cent per annum are not uncommon.
Where the reach of formal financial systems is non-existent, people borrow for their daily working capital at Rs 10.50 at end of day for Rs 10 in the morning (which translates into an 1,800 per cent per annum implied rate, even at a simple interest rate, and if the daily borrowing cycle is compounded daily it is an astronomical 7-8 digit number).
For the parents, putting their wards in schools involves two kinds of costs — paid out costs (fee, cost of books, transport, etc.) and foregone earnings of not having them work the fields or other petty errands.
Unless they feel (based on what they see and observe) their costs and foregone incomes (investments) will earn returns higher than their high discounting rate at the end of their education of 12 years (up to secondary education), it will be irrational for them to send their children to school.
Currently, the demonstrated returns from being a successful secondary student, if discounted for 12 years at their high discounting rate, would be infinitesimally tiny.
The poor may not be mathematical geniuses working out NPVs (net present values) and IRRs (internal rates of return).
But faced with ordinal choices between two alternatives, they sure are rational enough to know what serves their interest better — and the preference is for immediate benefit.
We see this in voting patterns as well. The fruits of development and good administration are distant dreams, compared with a few wads of notes or other short-term gratifications.
It is foolish to expect children to see that far ahead and feel captivated to attend school.
Why drop outs
The rate of discounting is different for different families depending on income level, assets owned and savings. They lie along a spectrum. In the case of some families, there may be members to take care of work.
The foregone earnings of children are low to begin with, due to physical maturity levels. For parents of such children it may make relatively better sense to send their wards to school.
However as they age, their productivity and hence foregone income increases and the incremental returns from incremental knowledge tapers off.
Surrounding literacy levels may also limit mental abilities. Peer pressure is also very poor in such groups. In pockets where illiteracy exists, the proportion of illiteracy is far greater than the national average of 30-40 per cent. It is no social stigma to be illiterate, when generations have remained illiterate. Peer pressure exists more at a younger age; it is less at the secondary and least at the graduate levels, explaining drop-outs at later stages.
Given the social expectation of women’s roles, which is rather limited in such groups, there is no incremental revenue to be gained from an incremental knowledge base, and hence the drop-out occurs sooner for girls.
Making RTE work
First, it is impossible for the Government to reduce the socio-economic rate of discounting fast, unless it brings about financial inclusion — opening up the rural credit markets to more players, increasing supply of money and reducing interest rates. Till such time, it has to work on reducing the ‘investment’ required in education.
To reduce the cost of foregone incomes, the schools will have to adjust their timings, so as not to clash with harvest, transplanting or sowing seasons or dates. Second, midday meals will reduce the burden on parents and provide an immediate return on their ‘investment’. If children get better food they may be tempted. Out-of-pocket costs may be covered by the Government.
Third, after children attain basic physical maturity, when the families are tempted with alternative employment, the focus should shift to skill development, where incremental skills promise returns commensurate with ‘investments’ of time.
It is not clear if any studies have been done by RTE protagonists regarding the economic returns to education for the target beneficiaries at various stages. Such studies would have led to better design.
(The author works as CFO of a paper company.)