Determinants of Private Demand - Ability to Pay

In a developing country like India, of all the factors determining investments in education, the most important factor is the ‘ability to pay’. The ability to pay for higher education is in turn determined by a number of other factors such as level of family income, size of the family, number of children in schools and colleges, and gender composition of children. Indian society is heterogeneous in terms of the ability of families to pay for higher education.

There have been very few studies which have focused on this phenomenon. A study by Meerman (1974) which looked into this feature for the Malaysian population reveals that as a proportion of total consumption expenditure, 18 per cent was spent on education by households from the lowest income groups. For the same services (education), the highest income groups spent 6 per cent of their incomes. Another significant finding was that while lowest income groups had 2.75 children per family studying in primary and secondary stages, the highest income groups had 1.25 children per family studying in these stages.

This suggests that the sacrifices made by a low income household to contribute one educated person to society is far higher than that by a high income household. Studies focusing on the relative abilities of people to pay for education in India are practically ‘nil’. Still the implications of the findings from Malaysia to the policy makers in charge of subsidising public education in India should be quite clear as the capacity of people to buy education in India is highly skewed in favour of upper classes of society.