Atanu Dey On India's Development

A Modest Proposal — Part 5

For the past few weeks, I have been exploring what I call a modest proposal for making India 100% literate (parts 1, 2, 3, and 4). Here I will explore some aspects of my proposal.

I had proposed that for every person who is certified to have attained a certain level of literacy and numeracy (essentially, a primary education), the government should give them around $100. Here is the reasoning why this payment is necessary and why India will not attain 100 percent literacy without a payment of some sort.


Primary education has significant positive externalities. That is, the benefits of primary education are not limited to the person who is educated but extends to society as a whole. In other words, there are not just private benefits, but there are social benefits as well. In activities that have both private and social benefits, free markets may not be able to provide the socially optimal result. In the case of primary education, less than the socially optimal amount will be provided.

Here is a contrived numerical example. Suppose the private benefits of a primary education is $200 and the social benefits are an additional $200 computed over a relevant period. Furthermore, suppose the cost of providing primary education to a person is $250. Clearly, the total benefits of the education ($400) exceeds the cost ($250). Let’s call this difference of $150 social surplus. Therefore it is socially beneficial to have a person educated. But will a person have an incentive to get primary education if he is asked to pay the full price (which is equal to the $250 cost)? No, because the cost exceeds the private benefit of $200. Thus society loses $150 for every person who is unwilling or unable to get primary education because the benefits $400 never arise and the avoided cost is only $250. What should society do? It should pay a person part of that social surplus so that the total private benefit exceeds the private cost of education.

Time for a bit of a digression.

I have been pondering a question lately: what is a good compact concise definition of a “rich person”? I think I have it. A rich person is one who is not credit constrained. Pretty good, isn’t it? See I am not credit constrained. Most things that I wish to have, I can either pay cash for or have the means to get a loan. Similarly, Bill Gates is not credit constrained. This definition makes the important point that it is not the money that one has that makes one rich, but rather the ability of a person to have access to money on credit that makes the person rich. Donald Trump may have been broke at one time during his career but he was not poor because he could borrow billions of dollars.

Time for a digression within a digression. Sort of like a subroutine calling another subroutine. Nested loops, if youprefer. Or a story within a story within a story, like the Panchatantra.

Our present age is called the information age. What exactly is information? A good compact definition was what I was looking for. Hal Varian, dean of the School of Information Management and Systems of UC Berkeley, has one. Information is anything that is potentially digitizable. The operative word of course is potentially.

End of nested digression. Back to the original digression about how I define a rich person. Contrarywise, a poor person is one who is not a rich person. End of digression.

The Constitution of India set the goal of guaranteeing primary education to all children and to do so within 10 years. That was in 1950. A lot of water has passed underneath the bridge since that deadline passed and yet India has the highest number of illiterates in the world. No one appears to be bothered by the failure of the state to deliver what it had promised half a century ago. Aside from mouthing tired shibboleths and high campaign rhetoric, nothing gets done. The political will appears to be non-existent. Public funds are squandered in absolutely mindless endeavors. The fact is that unless resources are committed to solving the problem of illiteracy, India will continue to be an illiterate country no matter how pretty a speech one makes about India becoming a major economic powerhouse.

End of rant.

Now back to the specifics of my proposal. Why do I propose that people be paid for getting their children educated? Because poor people (as defined above, people who are credit constrained) don’t have the luxury of investing in the future. Their more immediate concerns occupy them fully. If you ask a poor person to send his children to school — even free school — the person is going to do a bit of rational calculation. If his children can earn half a dollar a day working at some menial job, the opportunity cost of going to school is going to be half a dollar a day. That is not a trivial sum to a person who is at or below subsistence level. Irrespective of how great it is for a person to be educated, there is no incentive for a person to send their children to school if that means their immediate income gets substantially reduced.

The hundreds of millions of illiterate people in India come from very very poor families. These families have to be helped to make the choice of sending their children to school. I have proposed a mere $100 per person. If that amounts to $30 billion, then that is what it amounts to. You cannot argue with arithmetic. If the country is unwilling to spend that money, there is no way the goal of having a literate population can be achieved. That is a fact of life and cannot be changed even if the President of the country makes very impassioned speeches about how India will be a super power in 2020.

{To be continued. Thanks for the comments and I promise to address the concerns raised in future posts.}

  • Ramesh

    I just read your whole idea from the beginning, and have a few comments/concerns to make, to add to Alok/Vipul/Yum’s comments.

    Firstly, agree totally about the need to make education the focus, and to make it NOW. Agree about all the hidden costs that we as a country are having to bear due to illiteracy and about literate productivity being higher than illiterate productivity, but involving multiplier effects of increasing money supply etc. only dilute the argument I feel. Anyways, now to what I wanted to say.

    Implementation – how do you stop an already literate person from joining the program, giving the test and claiming 100$? If you cant, the cost immediately goes up by 600 mln x 100$ = another 60b$.

    Then again, how do we stop a person who has already passed the test from giving it once again by ‘faking’ illiteracy?? Its not as if India has a uniquely identifiable characteristic for each of its citizens to use as a control mechanism(social security number?). We talked earlier about NDS colluding with ERAI, but what about the people themselves? In such a case, where there is no cost to the test giver, how do you ensure one person-once test?

    Infrastructure – once everyone is educated, there is no market for the NDSs. So where does all the capital investment go? If the NDSs invest in schools / furniture / halls / ICT equipment etc., there is going to be no use/return after as you say optimistically, 3 years. So why invest in the first place? To keep costs down, in all likelihood, the NDSs wont invest – dont you think the quality of the education would suffer in that case?

    I got a bit interested in the numbers you were throwing around, so did a bit of Googling and number crunching – 1951: 361 mln population with 18.3% literacy; 2001: 1027 mln with 65.4% literacy. Meaning an addition of about 605 mln literate people in 50 yrs by our govt, at 150b$ cost if your estimate is right. And you are proposing 60b$ for 300 mln people – that isnt too far off cost wise.

    About your ‘contrived’ numerical example(in part 5), it is just that – contrived. I think anyone with a decent education will profess to the private benefits of education themselves being far higher than the cost of education, keep aside social benefits. What is required is not society bearing part of the costs, but getting this message across to to everyone. Then the rational analysis bit will take over.

    Also, I’d like to know how you came up with the 3 year time frame? 3 ppl made literate every second? Hmmm….

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