EducationPost-budget sectoral point of view

Union Budget 2015Inspiring confidence,

empowering change in India

Table of contents

1. Context

2. Key policies/fiscal and tax proposals

3. Unfinished agenda

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Where are we India has a large young population with over 54 per cent of Indians under the age of twenty five. This calls for a robust education sector to harness the potential of the human capital of a young and aspirational India.

While universal access to school education has been achieved with 96 per cent enrollment in the six to fourteen years age bracket, the drop out rates are very high, with nearly half the students dropping out of the schools by class X. Quality of school education measured by key learning outcomes remains poor as per the latest ASER (Annual Status of Education Report). There is an acute shortage of teachers in K12 with an estimated vacancy of around five lakh positions.

In higher education, the Gross Enrollment Ratio (GER) is at 18 per cent and way below the targetted 30 per cent by 2020. Quality of Higher Education also needs to improve significantly, – evidenced by very few globally ranked institutions in India.

The current government has declared it's serious intent on skill development and seeks to integrate it with the ‘Make in India’ programme. The government has also taken up the challenge of making India, the skills capital of the world.

Key issues/challenges• Teaching quality is poor at all levels due to issues such as obsolete curriculum for teacher training,

lack of IT enablement and poor salaries for secondary and senior secondary teachers

• Low levels of employability of the graduates in Indian Higher Education

• Poor assessment of learning outcomes in the K12 segment resulting in inability to channelise efforts on improving quality in schools

• Academic research needs to be fostered at India’s higher education institutions

• Ineffective accreditation systems for both schools, colleges and universities leading to inadequate information on the quality of the existing institutes.

What was expected• Sufficient funding for teacher training coupled with incentives to improve private participation in

teacher training

• Framework for inviting private capital for investment in Indian Education

• Framework for creating globally ranked Indian universities as centres of excellence in higher education

• Easy availability of education loans through a structured network of financial institutions

• Allowing tax benefits for foreign faculty who will teach in India for greater than six months/foreign universities to set up a campus in India

• Policy framework for distance learning, blended learning and Massive Open Online Course (MOOC) and integrating them with the mainstream university

• Exemption form excise duty on educational products like exercise books, pens, note books, pencils, etc.

• Exemption to services provided to educational institutions amongst others include:-

– Renting of premises for setting up institutes/offering accommodation to outstation students

– Development of course content

– Outsourced services such as Information and Communication Technology ('ICT'), outsourced manpower, etc.

Context

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Key policies/fiscal and tax proposals

Key announcementsPolicy• To ensure that there is a senior secondary school within five kilometre reach of each child, there is

a need to upgrade over 80,000 secondary schools and add or upgrade 75,000 junior/middle, to the senior secondary level

• National Skills Mission will consolidate skill initiatives spread across several Ministries and allow us to standardise procedures and outcomes across our 31 Sector Skill Councils

• INR1,500 crore has been set apart for Deen Dayal Upadhyay Gramin Kaushal Yojana to improve employability of rural youth

• Student Financial Aid Authority to administer and monitor scholarship as well Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram

• Enhance allocations to Integrated Child Development Scheme (ICDS) by INR1,500 crore and Integrated Child Protection Scheme (ICPS) by INR500 crore

• Atal Innovation Mission - Innovation Promotion Platform involving academics, entrepreneurs, and researchers and draw upon national and international experiences to foster a culture of innovation, R&D and scientific research in India

• New Higher Education Institutes announced:

– AIMS in J&K, Punjab, Tamil Nadu, Himachal Pradesh, Assam and Bihar

– IIT in Karnataka, upgrade Indian School of Mines, Dhanbad into a full-fledged IIT

– Post Graduate Institute of Horticulture Research and Education in Amritsar

– IIMs will be setup in J&K and Andhra Pradesh

– Upgrade the existing National Institute of Speech and Hearing to a University of Disability Studies and Rehabilitation

– Three new National Institutes of Pharmaceutical Education and Research: in Maharashtra, Rajasthan, and Chattisgarh

– Institutes of Science and Education Research in Nagaland and Odisha

– Centre for Film Production, Animation and Gaming in Arunachal Pradesh

– Apprenticeship Training Institute for Women in Haryana and Uttrakhand

• Overall funds allocated to education at INR68,968 crore including mid-day meal scheme costs.

Direct tax• Definition of ‘Charitable Purpose’ widened to include ‘Yoga’;

• Limit on activities in the nature of trade, commerce or business covered under ‘general public utility’ defined under ‘charitable purpose’ restricted at 20 per cent of total receipts as against a fixed amount of INR25 lakh earlier

• Appeal to Tribunal now permissible for universities and education institutions rejected registrations under section 10(23C)(vi)

• Mandatory filing of income-tax returns for wholly or substantially government funded universities and education institution covered under section 10(23C)(iiiab)

• Tax rate on royalty and FTS in case of non-residents to be reduced from 25 per cent to 10 per cent.

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Indirect tax• Effective increase in Service tax and Excise duty rate

– Service tax - from the existing rate of 12.36 per cent (inclusive of cesses) to 14 per cent, subsuming the cesses (effective from a date to be notified after the enactment of the Finance Bill 2015)

– Excise duty - from the existing rate of 12.36 per cent (inclusive of cesses) to 12.5 per cent, subsuming the cesses (effective 1 March 2015)

• Full exemption (of Basic Custom Duty, CVD and SAD) on parts, components and accessories used in the manufacture of tablet computers and sub parts for use in manufacture of parts, components and accessories of tablet computer subject to actual user condition

• Exemption with respect to services provided to the government, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a structure predominantly for use as an educational establishment, withdrawn.

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Impact• The overall spend has increased from INR68,728 crore (in 2014-15) to ) to INR68,968 crore – the

allocation has surprisingly remained flat for education, though the stated objective of the government was having at least six per cent of GDP allocation for Education similar to other developing nations (it is still much below four per cent)

• National Skills Mission will seek to integrate the various skill initiatives which are currently spread across several ministries. However, a higher fund allocation for skilling was expected to implement the vision of Skills India

• Access to secondary education has been a predominant focus area in this budget with upgrading over 80,000 secondary schools and adding/upgrading 75,000 junior/middle to senior secondary level. This initiative could be to take forward the near universal enrollment achieved by India in Primary Education. However without additional funding it would be challenging to improve the quality and the learning outcomes in the secondary schools

• Pradhan Mantri Vidyalakshmi Karyakram will boost the availability of scholarships and educational loans, and will go a long way in improving the GER in Higher Education (India has a target of 30 per cent by 2020)

• Setting up new higher education institutes of national importance (IITs, IIMs, etc.) are welcome and provide the much needed capacity expansion in higher education. However, the location of some institutes are far away from the Industry clusters and this might result in difficulties in establishing a close connect with the industry

• Institutes in areas like Odisha, Nagaland, Chhattisgarh, Arunachal Pradesh, Assam and Uttarakhand are representative of regional inclusivity and are welcome. Setting up five new AIIMS and one AIIMS like university in Bihar will provide the much needed boost to medical education in India. However, the funds allocated for these institutes have not been mentioned.

Summary• While there are feel good announcements such as access to secondary schools in a five kilometre

radius, new IITs, IIMs and AIIMS, etc. there is no plan or clarity on how these will be achieved as even the earlier IITs, IIMs are still to be opened

• Also no specific announcement has been made on initiatives regarding the improvement of quality of education in the existing set up

• While there is a mention of a future National Skills Mission, there could have been more impetus for the new ministry of skill development and entrepreneurship.

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Unfinished agenda

What remains • Accreditation Frameworks for Higher Education and Schools

• Incentives for private sector participation

• Shortage of Teachers and structured training to teachers at all levels

• Foreign Universities participation in India

• Incentives for boosting Digital Learning and Blended Learning

• Schemes for early introduction of vocational education in schools based on NSQF

• Recognition of prior learning of skills

• Policy framework for early childhood education

• Additional clarity on the meaning of the term ‘education’ under the definition of ‘charitable purpose’.

What is expected going forward• Details regarding the National Skills Mission and also the usage of MNREGA funds for skilling

• Details regarding the commencement timelines of the new institutes which have been announced so far. Increased fund allocation to states resulting in states having access to more funds to spend on social sector such as education and skill development

• Considering long term vision of the government of ‘education for all’, the industry expects some tax incentives for private sector education operators, which in turn, would help in cutting down the cost charged to the public by private players

• Allow 100 per cent tax deduction on donations made to all educational institutions from the current rate of 50 per cent.

The information contained herein is of a general nature and is not intended to address the circumstances

of any particular individual or entity. Although we endeavour to provide accurate and timely information,

there can be no guarantee that such information is accurate as of the date it is received or that it will

continue to be accurate in the future. No one should act on such information without appropriate

professional advice after a thorough examination of the particular situation.

© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All

rights reserved.

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