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Education Cess and Petrol Cess – where’s the money going?

May 13, 2008

All of us need to be alert to the fact that the cess being collected from us might not be being properly utilized. We pay two kinds of cess to the government…the petrol cess (Rs 2/- levied on very litre of petrol or high speed diesel (HSD) diesel from 1998-99) for the development and maintenance of roads/highways and the education cess (Rs 3/- levied on all central government taxes, such as corporate tax, income-tax, service tax, custom duty and excise from 2004-05) to help the education sector grow.

That’s our money…but do we know where it is going? Lets take the petrol cess first.

Petrol Cess – Lack of transparency
For some strange reason the government has refused to divulge how much money was collected and how it is being used and. The Daily Pioneer was forced to conduct an investigation to find it out. They did their job admirably by multiplying the sales of petrol and HSD oil (since 1998-99) with cess values of successive years and got the figure of Rs 84,251.7738 crore. These details were published in the 5th May issue of The Pioneer (link not available). But the lack of transparency on the government’s part is not the only problem…what’s worse is that the money is not being used efficiently.

road makingThe government is supposed to allocate the money (collected in a Central Road Fund) to various states and union territories for highway development and maintenance…but a quarter of the fund has not even been allocated and this unused money amounts to about Rs 63,790.76 crore. One has to wonder if the money is still there or has been diverted? The government isn’t talking. A quote from the Pioneer:

…Clearly, the Government is determined to stonewall all queries about how much money it has extorted from the public, leave alone telling us how that money has been spent. The Finance Ministry won’t even tell Parliament about it!

Wait, there’s worse news. Just because the central government has allocated the funds it doesn’t mean that the states are using them! Allocated funds lie unused too. An Indian express article got hold of statistics which showed that from 2004-05 to 2006-07, the amount that each state left unused ranged from 28 per cent to 3 per cent, with the southern states utilizing the funds in a better way. Even the Union territories did badly here, using only 38 percent of the grant of Rs 150 lakh from the Central Road fund.

So what’s up with the states? Apparently, development work is not moving fast enough, the states are not being able to get projects going and not able to get them completed on time. Government officials have admitted that states “are not taking a pro-active stand on the issue.” So now you know why that flyover near your house is taking so long to build…

Education Cess – apathy galore
This cess is as high as 3 percent today. Initially it was just 2 percent but an an additional 1 percent was levied in 2007, ostensibly to help secondary education.

Right from the start there was a stink surrounding the education cess. A 2004 TOI article says:

Six months after the Centre introduced the cess to fund the primary education sector, there is utter confusion on how it is spent…

And can you believe it, even though Rs 2,273 crore was collected in first six months, the state educationcountry school departments had no access to the funds and “no specific direction” was given to them about the funds!! Shocking isn’t it when state schools sorely lack everything from toilets to blackboards?

So has the situation improved now, 3-4 years down the line? It’s the same story of lack of transparency like in the case of petrol cess. Although we know that Rs 10,300 crore was collected in the last year, no one is quite sure of the total amout collected since the cess was introduced. This Economic Times article says:

…the total amount of cess collected seems to vary depending on where one gets the information from.

Ministers give out one figure, the Controller General of Accounts another and the human resource development ministry say something else. If you go by what the HRD Ministery says then the figures are:

2004-05 – Rs 4,318.51 crore
2005-06 – Rs 7,637.75 crore
2006-07 (the HRD ministry only had figures till February!!) – Rs 6,833 crore.

There is another aspect to this issue. The government is using the education cess to fund education projects instead of using its own money. The truth is that the government is not supposed to collect any education cess at all since setting up of educational institutions is a constitutional obligation – the government should finance it from taxes collected. But okay, let’s give the government the benefit of the doubt and imagine for a moment that it is poor and needs more money to beef up our weak educational infrastructure, weakened due to years of neglect. Shouldn’t we take this to assume that the education cess is an extra, over and above the existing expenditure of the government on education?

Nope. Its disheartening to know that the government’s contribution to education expenditure (minus the cess which is our money) has decreased. This means that government is diverting the money it was earlier spending on education to something else! Sure, there is nothing illegal in that but it goes against the very spirit of the cess.

We all want India to grow and develop and are ready to pitch in. But it’s terrible that the government is not acting responsibly. Unless it is more transparent in its functioning and clears the doubt of the citizens we will always suspect that we are being taken for a ride.

Related Reading: India Budget 2008 Highlights
Poor education is leading to mushrooming of coaching classes
India’s top universities – the government has done something good!
Lack of educational infrastructure leads to skill shortages
Corporate India will hire people from outside India if need be
The rote learning in Indian schools is harmful

(Both photos are by me and are copyrighted)

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18 Comments leave one →
  1. May 13, 2008 10:07 am

    Governments, by their very nature, will always act irresponsibly. It is our job (and you do a wonderful job) to keep their excesses, abuses, and illegality in check. The collusion of men (and women) in positions of power where authority can be exercised to subjugate the economic rights of the individual is a powerful aphrodisiac. The competing factions that cry for a bit here, and a bit there, eventually cause the violation of the basis democratic/republican/representative obligation to the people. The only good government is a small localized from of political power that can be strangled and replaced when the need arises.

  2. May 13, 2008 10:29 am

    well shouldn’t someone be questioning all this? maybe file a case in the court? just because they wear white and white doesn’t mean they are all clean…

  3. May 13, 2008 1:02 pm

    Nita, I have searching on this issue until I put it on hold. When I was checking for funds for education of disabled and primary education, I was checking where did education cess go?

    As you said, reducing government’s contribution is not illegal, it is certainly against the principle and spirit. How can you demand more from citizens if you are shifting your own financial focus? I guess we need an RTI on this one.

  4. May 13, 2008 3:15 pm

    The very purpose of collecting these cess is lost. Money gets diverted to fund wasteful expenditures of the government. Only the voters have to wake up now and take appropriate action during elections.

  5. May 13, 2008 3:21 pm


    This is a well-researched article that gives the amount of money that has been diverted from what it was meant for. I did not know that the Rs.2 cess on every litre of petrol or diesel that we buy is not used for fixing potholes but diverted for something else. I too feel that there should be more transparency in all government departments. The RTI Act must be strengthened.

    I completely agree with Johnny about localised governance. Anything that is imposed on anyone is doomed to fail! Each and every concept in this world should follow a bottom-up model and not a top-down one! Trickle down ideas that are thrust upon people are complete bullshit in my opinion.

    Here is how the Swiss people run their own governments at the commune, cantonal and federal levels in what is a true example of participatory democracy:

    Swiss citizens are subject to three legal jurisdictions: the commune, canton and federal levels. The 1848 federal constitution defines a system of direct democracy (sometimes called half-direct democracy since it is added by the more commonplace institutions of a parliamentary democracy). The instruments of Swiss direct democracy at the federal level, known as civil rights (Volksrechte, droits civiques), include the right to submit a constitutional initiative and a referendum, both of which may overturn parliamentary decisions.

    By calling a federal referendum a group of citizens may challenge a law that has been passed by Parliament, if they can gather 50,000 signatures against the law within 100 days. If so, a national vote is scheduled where voters decide by a simple majority whether to accept or reject the law. Eight cantons together can also call a referendum on a federal law.

    Similarly, the federal constitutional initiative allows citizens to put a constitutional amendment to a national vote, if they can get 100,000 voters to sign the proposed amendment within 18 months. Parliament can supplement the proposed amendment with a counter-proposal, with voters having to indicate a preference on the ballot in case both proposals are accepted. Constitutional amendments, whether introduced by initiative or in Parliament, must be accepted by a double majority of both the national popular vote and a majority of the cantonal popular votes.

    I don’t know why people around the world do not want to reform the way their governments function. It is not as if we have to invent a new way. The Swiss have shown the way to the world. The Confederation of Switzerland has not patented its form of democracy. There is absolutely nothing wrong in copying the noble ideas of others if we are not capable of thinking of something ourselves. I pray that the motto of our country becomes a reality as soon as possible! 🙂

  6. May 13, 2008 8:26 pm

    on top of this we are paying metro cess in bangalore 😦

  7. jacob permalink
    May 13, 2008 8:37 pm

    By going into such details you are taking a great risk, I am sure you don’t want the IT dept. knocking on your door.

  8. Lord Ram permalink
    May 13, 2008 9:52 pm

    something very relevant

    this govt expects citizens to do chq based accounting and itself does cash based accounting , keeps increasing taxes in new innovative methods killing markets and harassing small businesses – it treats taxpayers as potential tax evaders and gives enormous powers (more so under this fn and last budget )to the tax officers – which shows where the corruption lies , it harasses good taxpaying citizens while people not filing returns move around with 25 /30 cars if they have the right contacts and influence

    i think jacob is right it harasses good people outing its secrets
    it pressurizes private cos to keep prices of cement and steel under control while it does not do anything to curb the rising iron ore prices (guess why? read the article on the iron ore business in karnataka and the power politicians who do legal and illegal mining

    Coal companies owned by the govt give criminals rangdari tax so as to keep their officers out of harms way, in coal mines in the northern belt

    the oil cos like hp bp ongc etc which are listed public cos are forced to fork out money as subsidy which is nothing more than corruption in my mind as small shareholders have to bear the brunt of lopsided harebrained govt policy

    overall i think we are wasting time
    i just saw jane bhi do yaroon again and what was shown in that movie still happens now and more blatantly

  9. May 14, 2008 12:04 am


    … information collected seems to vary depending on where one gets the information from. And this affects ‘transparency’, doesn’t it?

  10. May 14, 2008 6:03 am

    The road improvement aspect of this caught my eye. When we took a day trip from Tiruvannamalai to Pondicherry, they were in the process of turning the two lane into a four lane highway in places. (This in December of 2007) I thought, what a wonderful opportunity for infrastructure improvements for the area. This would include the installation of water, sewer, power and internet, lines and cables beneath the new improved roadway.

    • Ranjit permalink
      July 16, 2012 4:42 pm

      You are trying to use common sense here. You are trying to kill 4 birds with a single shot. How on earth will the bureaucracy work and the money cycle roll in the coming years if you do everything efficiently in one go? How will they get to plunder more? Current governance in any part of the world ( that includes developed/~ing/&under~) goes against common sense.

  11. May 14, 2008 6:54 am

    johnnypeepers, thanks. Actually I am doing very little as compared to many others who do investigative work.

    Vishesh, I think some people have already filed an RTI application. Don’t know how long that will take! But no we can’t take the govt. to court on this.

    Poonam, I have a feeling the money is being used for election purposes! 🙂 Well, not directly ofcourse….but then where did the govt get the money to set aside farmers debts? That is an election gimmick isn’t it!

    Old Sailor, I too am waiting for the elections. This govt needs to go. Well, at least I will do my bit.

    Raj, thanks for that very detailed and informative comment.

    Rambler, metro cess! oh no, they are now starting the mumbai metro and I hope we don’t get that here too!

    Jacob, I am nobody really! 🙂

    Lord Ram, thanks for the links. I like Sucheta Dalal’s writings. However I feel that every bit we do counts. If every citizen did their bit, it would move a mountain. She talks about how she protests when people drive rashly on the expressway. Well, just think if everyone did it? We all need to do our little bit.

    Bombayana, yep. it means someone is lying!

    Paulswansen, construction is happening all over India but unfortunately it is happening very slowly. Road projects almsot never meet the deadlines and the cost goes up. But well, at least they are happening.

  12. May 14, 2008 7:51 pm

    good one to take an initiative..but I believe its in the way the money is used..if it was used in a proper could have given us better medical facilities etc..

  13. Tajbinder permalink
    May 15, 2008 12:45 am

    I fail to understand why all of us, especially the ones who actually understand where all taxes go, put up the question as to where they are being diverted to.If journalism is about the freedom of speech then this question should never be raised .Instead it should be mentioned blatantly that all of it is being pocketed in the form of kickbacks, bribes etc.The topic of discussion these dyas is inflation.the current govt blames it for global slowdown and chiefly the US recession.That the govt is applying various methods such cutting rates etc to bring it down is such a big lie.Our politicians just get away with anything.Right since independence , there has been such mismanagemnt.Ours was supposed to be a social welfare state with a somewhat capitalistic approach so that each an every citizen could benefit from it.Alas, that was not to be. Our leaders behaved like leeches sucking away the last drop and the aftermath is for everybody to see.They tax the poor in the name of poor.They lead a luxurious lifestyle and Dr. Manmohan Singh asks or rather directs the industrialist to lead a sober lifestyle!.

  14. May 15, 2008 9:13 am

    Saurabh, if our money was used in a proper way and we had no corruption India would be a developed nation!

    Tajbinder, All of the money it is being pocketed in the form of kickbacks etc. The govt. uses a lot of money for party activities and sops as well. And I am sure there are other avenues which I have not mentioned.

  15. May 15, 2008 6:42 pm

    i really get infuriated when i hear about education cess…
    so much money is collected, yet the conditions of indian primary education has shown not even any sign of improvement.

  16. tiwari permalink
    March 16, 2011 7:54 pm

    the indian govt.. sux..and needs a change…before its too late!!!!we need a new group of leaders,who r well educated..and good hearted ppl to lead this country…a new party!!!

  17. February 26, 2013 11:52 am

    Dear all, We did a detailed study on how education Cess is utilized by filing RTI’s, scouring budget documents and government MIS, as well talking to various officials. Broadly, the cess goes into the funding of the Sarva Shiksha Abhiyan and the Mid-Day Meal scheme. We looked at the various categories within these on which it is spent, and how well it is being spent. Hope you find it useful. and

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