The Headline Verdict: What FM Delivered
Let us begin with what the Hon'ble Finance Minister got right — and it is a longer list than the headlines suggest. Budget 2026-27 responded to several of the asks this series has tracked across its previous three parts. The Ministry of Education allocation rose from ₹1,28,650 crore to ₹1,39,289 crore, with higher education receiving an 11.28% boost to ₹55,727 crore. The PM SETU initiative — upgrading 1,000 government ITIs through an industry-led hub-and-spoke model — is the most structurally ambitious skilling intervention in a decade. The High-Powered 'Education to Employment and Enterprise' Standing Committee signals institutional recognition that the skills-employment pipeline needs strengthening. And the 62% jump in the Ministry of Skill Development budget to ₹9,886 crore reflects genuine commitment.
Navigating under pressure: It is worth pausing to acknowledge the constraints within which FM Sitharaman operates. With interest payments at ₹14.04 lakh crore consuming 26.3% of total expenditure, a fiscal deficit target of 4.3% of GDP, and a rupee that has depreciated over 3% against the dollar in recent months, the room for expansionary spending is genuinely limited. That the government still managed an 8.27% increase for education and a 62% increase for skilling while maintaining fiscal consolidation reflects a deliberate and defensible prioritisation. The question this article raises is not about intent — it is about the machinery of execution.
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Three new AIIMS, five university townships near industrial corridors, 15,000 AI labs in schools, and a Centre of Excellence in AI for Education (₹500 crore) round out the announcements. On paper, this budget reads well. But in our Part I scorecard, we framed 10 expectations against which any education budget must be measured. Against those expectations, the picture gets more complicated.
The Execution Gap: Where Ambition Outpaced Absorption
Every Indian budget carries two numbers: the Budget Estimate (BE), which is the promise made on February 1, and the Revised Estimate (RE), which reflects the actual deployment a year later. The gap between the two — the execution deficit — is not necessarily a sign of bad governance. It can reflect genuine implementation challenges: land acquisition delays, state-level coordination failures, or the learning curve of new schemes. But when the gap persists year after year in the same schemes, it signals a structural capacity constraint that needs to be addressed head-on.
In education alone, PM-USHA — the flagship scheme for NEP 2020's higher education transformation — received ₹1,815 crore in Budget 2025-26 but was revised down to just ₹800 crore, a 55.9% cut. Actuals for FY25 were a mere ₹301 crore. This is the government's own signature education reform. PM SHRI Schools, meant to create NEP-compliant model schools, saw 40% of its budget evaporate mid-year. Eklavya Model Residential Schools for tribal students lost 30.9%. Even Samagra Shiksha, the bedrock of school education, surrendered ₹3,250 crore. While its execution gap narrowed to 7.9% from the historical average of approximately 15% documented in Part II, even this improved rate still represents ₹3,250 crore in lost classrooms, teacher training, and foundational learning programmes.
A recurring pattern worth addressing: Ambitious Budget Estimates on February 1, reduced Revised Estimates by December, followed by fresh ambitious Budget Estimates the next February. The same schemes that could not fully absorb their FY26 allocations have received identical or higher allocations for FY27. PM SHRI: ₹7,500 crore again. PM-USHA: ₹1,850 crore. Recommendation: A mid-year implementation review mechanism — perhaps a quarterly absorption scorecard published by NITI Aayog — could identify bottlenecks early enough for course-correction rather than waiting for Revised Estimates to reveal the gap after the money has already lapsed.
Beyond Education: The ₹1.25 Lakh Crore Absorption Challenge
The execution gap is not unique to education — and that is actually an important insight. When the same pattern appears across ministries and sectors, it points to a systemic institutional challenge rather than any single ministry's failing. Across the government's flagship programmes, the gap between Budget 2025-26 allocations and Revised Estimates reveals a capacity constraint that cuts across the entire government machinery.
The Jal Jeevan Mission illustrates the challenge: ₹67,000 crore budgeted, ₹17,000 crore in Revised Estimates — a 74.6% absorption gap — yet ₹67,670 crore budgeted again for FY27. The government's willingness to re-allocate at the same level signals confidence that implementation bottlenecks (land, state coordination, contractor capacity) can be resolved. The Employment Generation Scheme (housing PM Internship and Employment Linked Incentive schemes) is the most dramatic case: ₹20,000 crore budgeted, ₹848 crore deployed — a 95.8% gap attributable to the learning curve of entirely new schemes. The government has responded by restructuring the scheme as 'PM Viksit Bharat Rozgar Yojana' with a fresh ₹20,083 crore allocation. Recommendation: Publishing state-wise absorption dashboards and appointing dedicated implementation officers for schemes above ₹5,000 crore could help bridge this intent-execution gap.
Spotlight on Execution: Education's Schemes That Need Institutional Strengthening
Within education and skilling, three schemes deserve particular attention — not as failures, but as case studies in the institutional challenges that new programmes face when they attempt to scale rapidly within India's complex federal structure.
PM Internship Scheme: Launched with an ambitious target of 1 crore internships across India's top 500 companies, the Employment Generation Scheme (which houses PM Internship along with the Employment Linked Incentive schemes) received ₹20,000 crore in Budget 2025-26. Actual expenditure in FY25: ₹0.16 crore — that is ₹16 lakh. The Revised Estimate was ₹848 crore, meaning even the year-end adjustment achieved less than 5% absorption. As a first-of-its-kind programme requiring coordination between government, corporates, and training institutions, the teething challenges are understandable. The government has acknowledged this by restructuring it as 'PM Viksit Bharat Rozgar Yojana.' The key will be whether the new architecture includes direct disbursement rails, employer onboarding targets, and state-level implementation nodes that the original design lacked.
IndiaAI Mission: Positioned as India's strategic response to the global AI race, this mission had a ₹2,000 crore allocation. Actual spend in FY25: ₹19 crore — a 0.95% execution rate. The FY27 budget allocates ₹1,000 crore — a pragmatic right-sizing that acknowledges the absorption reality. Recommendation: Designating 3-5 institutional anchors (IITs, TiH centres, private AI labs) with pre-approved disbursement channels could dramatically improve execution velocity, similar to how DRDO channels defence R&D through designated labs.
PM-USHA: The single scheme designed to implement NEP 2020 in higher education — multidisciplinary transformation, credit flexibility, the Academic Bank of Credits — received ₹1,815 crore in BE and was revised to ₹800 crore in RE. Actuals in FY25 were ₹301 crore, a 16.6% execution rate. Six years after NEP 2020's announcement, its dedicated funding mechanism has not yet crossed a quarter of its budget allocation. Budget 2026-27 allocates ₹1,850 crore. Recommendation: Converting PM-USHA into a direct benefit transfer to state universities — with 60% upfront and 40% linked to reform milestones (credit mobility, multidisciplinary course launches, industry tie-ups) — could bypass the bureaucratic bottlenecks that have constrained absorption to date.
The R&D Question: Can India's Most Ambitious Scheme Find Its Execution Architecture?
In Part II of this series, we identified the Research & Innovation revolution as the decade's biggest success story — the ₹20,000 crore RDI (Research, Development and Innovation) scheme announced in Budget 2025-26 represented a paradigm shift, we wrote, signalling that India was finally treating R&D as strategic infrastructure. The early results are sobering but not surprising for a scheme of this scale. The RDI scheme's Revised Estimate for FY26 is ₹3,000 crore — a 15% absorption rate. Actual expenditure in FY25 was zero — understandable given that the scheme was announced in July 2024 and the disbursement architecture (Anusandhan National Research Foundation) was still being constituted. At ₹17,000 crore unspent, the RDI scheme alone represents a larger absorption gap than all five education schemes in Exhibit 1 combined. Budget 2026-27 has re-allocated ₹20,000 crore for RDI, signalling confidence that the ANRF will now be operational. Recommendation: Publishing ANRF's operational timeline, approved research verticals, and quarterly disbursement targets would build credibility and attract private sector co-investment, which India's GERD ratio (0.64% vs the 1.8% global average) desperately needs.
The R&D challenge in perspective: India's own Economic Survey diagnoses a structural R&D deficit (GERD at 0.64% of GDP versus the global average of 1.8%). The government responded with a visionary ₹20,000 crore fund. The fund absorbed nothing in Year 1 (while the ANRF was being set up) and 15% in Year 2 (first operational year). The government has re-allocated ₹20,000 crore for Year 3. This is not a funding problem — it is an institutional ramp-up challenge that other countries (South Korea's R&D doubling in the 1990s, Israel's OCS) also faced and solved through dedicated implementation bodies with fast-track disbursement authority.
What the Economic Survey Diagnosed — And What the Budget Can Still Address
The Economic Survey 2025-26, released on January 31 — literally one day before the budget — reads like a diagnostic blueprint for education reform. Chapter 11 contains findings that point to the next frontier of policy action. Some were addressed by the budget; others remain open opportunities for supplementary action through executive orders and state-level coordination.
Economic Survey 2025-26, Chapter 11 — Key Findings:
→ 75% of higher education institutions lack industry-readiness. Only 16.7% of HEIs achieve 76-100% placements within six months of graduation.
→ Only 25% of HEIs use live industry projects; just 26% have internship integration.
→ Higher education GER stands at 29.5% — against the NEP target of 50% by 2035. At current trajectories, India will miss this target by a decade.
→ 89.1% of rural youth (14-16) have smartphone access, but 75% use smartphones primarily for social media, not education. Digital access ≠ digital learning.
→ The transition from primary to secondary education sees sharp enrolment drops: GER falls from 90.9% (primary) to 58.4% (higher secondary).
The Survey's diagnosis is clear: India has substantially achieved Phase 1 (access, infrastructure, enrolment) and must now accelerate Phase 2 (outcomes, skills, employability). Budget 2026-27 took meaningful steps with PM SETU and the Education-to-Employment Committee — both structurally significant. The remaining opportunity lies in the spending architecture: the ₹1,850 crore for PM-USHA (the NEP implementation vehicle) is comparable to the FY26 allocation that saw 56% underutilisation. The ₹42,100 crore for Samagra Shiksha does not yet include any new outcome-linked component. Recommendation: Even without a fresh budget allocation, the government could issue executive guidelines tying 10-15% of Samagra Shiksha's ₹42,100 crore to measurable improvements in NAS scores and ASER reading levels — the Vidya Samiksha Kendras the Survey specifically recommends would be the monitoring backbone.
In essence, the Economic Survey diagnosed a 'software' challenge, and the budget's strongest responses (PM SETU, E2E Committee) are building the right connectors. The next step is embedding outcome metrics into the existing spending architecture — which requires administrative will more than additional money.
The Broader Fiscal Context: Understanding the Constraints
It would be unfair to evaluate education spending without acknowledging the macroeconomic reality within which Budget 2026-27 was crafted. The FM is steering fiscal policy through genuinely difficult terrain, and three structural trends explain why every budgetary choice involves painful trade-offs.
First, interest payments now exceed capital expenditure. At ₹14,03,972 crore in FY27, interest payments surpass the ₹12,21,821 crore capital expenditure budget by ₹1.82 lakh crore. Interest consumes 26.3% of total expenditure and 39.7% of revenue receipts. The compounding mathematics are unforgiving: debt service is growing at 25.8% year-on-year versus capex at 9%. This gap will widen every year unless revenue growth dramatically accelerates.
Second, the fiscal deficit glide path reflects responsible governance — but creates a spending ceiling. The fiscal deficit target of 4.3% of GDP for FY27 (down from 4.8% in FY25) demonstrates the FM's commitment to macroeconomic stability — a prerequisite for the lower interest rates that will eventually expand fiscal space. However, it means the government is compressing discretionary spending precisely when education and skilling need expansion. India's combined government education spending of approximately 4.1-4.6% of GDP remains below the NEP 2020 target of 6%. A realistic pathway to that target requires either significant revenue reform (buoyancy from GST rationalisation, direct tax expansion) or a fundamental reprioritisation of expenditure — both politically difficult but not impossible, especially as the fiscal consolidation itself lowers borrowing costs over time.
Third, subsidies consistently overshoot budgets, crowding out developmental spending. Food subsidies in FY26 exceeded the budget by 12.2% (RE ₹2,28,154 crore versus BE ₹2,03,420 crore). Nutrient-based fertiliser subsidies overshot by 22.4%. These are politically untouchable expenditures that absorb whatever fiscal space tax buoyancy creates.
The Unfinished Agenda: Five Reforms That Can Still Be Addressed
Having tracked the education sector's expectations across three articles and now assessed the budget response, we identify five structural opportunities that remain open — not as criticism, but as a constructive roadmap for executive action, state coordination, and supplementary announcements that could significantly amplify the budget's impact without requiring fresh allocations.
1. Introduce Outcome-Linked Funding Mechanisms
Currently, no education scheme in Budget 2026-27 ties disbursement to measurable learning outcomes. Samagra Shiksha receives ₹42,100 crore regardless of whether ASER reading levels improve, NAS scores rise, or teacher vacancy rates decline. The Economic Survey explicitly recommends expanding Vidya Samiksha Kendras (AI-powered data analytics for early identification of learning gaps). Solution: Ring-fencing 10-15% of Samagra Shiksha's allocation as a state-level performance incentive — disbursed only upon demonstrated improvement in NAS scores or ASER benchmarks — could transform the programme from input-driven to outcome-driven without additional expenditure. India's own Aspirational Districts Programme has proven this model works.
2. Build a Dedicated NEP 2020 Implementation Architecture
The phrase 'National Education Policy' did not appear in the FM's budget speech — a notable omission for a policy now in its sixth year. PM-USHA — the sole NEP implementation vehicle — has not yet exceeded 16.6% of its allocation. In our Part I scorecard, Expectation #2 called for deregulation, single-window clearances, and permission for for-profit institutions to enter education — scored at 0.5/1. The FM responded not with immediate policy changes, but with a High-Powered 'Education to Employment and Enterprise' Standing Committee — a meaningful first step toward structural reform. Solution: Establishing a NEP Implementation Mission with a dedicated PMU (Project Management Unit), state-level nodal officers, and quarterly milestone tracking — modelled on the PM Gati Shakti approach to infrastructure — could provide the implementation backbone that currently does not exist. The Academic Bank of Credits, the 5+3+3+4 restructuring, and the National Research Foundation all need this institutional spine.
3. Address Teacher Quality and Vacancies Head-On
India has approximately 10 lakh teacher vacancies in government schools. The Economic Survey identifies teacher quality as a binding constraint. Budget 2026-27 does not include a dedicated allocation for teacher recruitment incentives, expansion of teacher training institutions, or a performance-linked pay structure for educators. The 10,000 technology fellowships at IITs are a welcome investment in research talent but address a different segment. Solution: A Teacher Recruitment and Quality Mission — even a ₹5,000 crore pilot within Samagra Shiksha — could fund competitive hiring packages for 2 lakh teachers annually, with mandatory digital pedagogy certification and annual assessment tied to NAS performance in their districts. States like Kerala and Himachal Pradesh have demonstrated that sustained teacher investment produces measurable learning gains within 3-5 years.
4. Chart a Realistic Revenue Pathway to 6% of GDP for Education
Education spending at approximately 2.6% of Union Budget expenditure cannot reach 6% of GDP without states substantially scaling their investment or the Centre restructuring fiscal transfers. This is not an indictment — it is arithmetic. Solution: Three actionable steps could create a credible pathway. First, ring-fence the existing 4% Health and Education Cess (which yields approximately ₹75,000 crore) exclusively for education, with transparent utilisation reporting. Second, introduce a matching grant mechanism: for every additional rupee states invest above their baseline education spending, the Centre matches 50 paise. Third, publish a 10-year 'Education Investment Roadmap' with annual milestones toward the 6% target — this would give state governments and private investors the policy certainty to plan multi-year capacity expansion.
5. Bridge the Demand-Side Gap: Connect Training to Jobs
PM SETU will upgrade ITIs. The Education-to-Employment Committee will study the pipeline. These are necessary supply-side investments. The complementary opportunity is on the demand side: creating the jobs these graduates will fill. The employment generation scheme that was designed to incentivise private sector hiring saw a 95.8% absorption gap — largely because the scheme was new and its disbursement architecture was still being built. The restructured PM Viksit Bharat Rozgar Yojana must learn from this. Solution: A direct employer incentive model — where companies receive verified tax credits (not reimbursements through complex government channels) for each ITI graduate hired and retained for 12+ months — would align private sector incentives with public training investments. Singapore's SkillsFuture and Germany's dual-training system both demonstrate that demand-side subsidies work when they are simple, fast, and employer-friendly.
The Central Insight This Series Has Uncovered
Across this four-part series, we have tracked India's education budget from expectations to execution, from historical trends to structural opportunities, and now to the post-budget assessment. The evidence converges on a single, important insight:
India's education challenge has graduated from a funding problem to an execution-capacity challenge. The government's willingness to allocate is not in doubt — it has consistently budgeted ambitiously. The binding constraint is the institutional machinery's ability to absorb, deploy, and convert those allocations into outcomes on the ground. This is a solvable problem. It requires the same project management rigour India has brought to infrastructure — dedicated implementation missions, real-time dashboards, state-level accountability, and outcome-linked disbursement.
Budget 2026-27 scores well on ambition — particularly PM SETU, the skilling push, and higher education growth. It also inherits the considerable challenge of navigating 84% debt-to-GDP, a fiscal consolidation path, and interest payments that exceed capex. The FM has made defensible choices within tight constraints. The next frontier — and this is the agenda for FY28 and beyond — is building the execution architecture that converts these ambitions into measurable improvements in classrooms, skills labs, and employment offices across India.
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