Governments around the world fund schools and are also involved in operating them. There is wide agreement that governments should be involved in provision of education, but the appropriate level and form of their involvement is a subject of debate. The key justifications for government involvement are externalities and credit market imperfections, and this thesis examines these inefficiencies within the context of India's education system. Chapter 2 assesses human capital externalities in India. It demonstrates that living in a locality with educated individuals has a strong beneficial effect on wages over and above the effect of one's own education. In line with theoretical predictions, the effect is strongest for small geographical areas. In contrast to a general equilibrium interpretation of the results, skilled labour also benefits from a better level of local education. Furthermore, human capital externalities are more pronounced in nonprimary industries. Chapter 3 analyses the effect of credit constraints on education. The principal findings are that credit constraints significantly reduce school attendance and increase wealth inequalities in educational outcomes. Temporary income shocks reduce the probability of attending school, but access to credit mitigates this effect. Finally, the results are not limited to short-term outcomes, but are also seen to be present in long-term outcomes. Chapter 4 studies how representation of teachers in India's state Upper Houses affects the provision of education. The main results are that teacher representation increases employment of teachers in represented schools and reduces employment in unrepresented schools, with a corresponding effect on educational outcomes. Rather than achieving the intended objectives of teacher representation, teachers seem to have used their political power to shift resources in their favour.

In 1947, when India became independent, she had a new Constitution which embodied hopes for a better future for all Indian citizens and a range of institutions which represented the historical heritage of India. These institutions included the ancient Hindu caste system, and village government, and a great number of administrative systems established by the British. The school system was an integral part of the British system of administration. Chapters Two and Three of this thesis explore the problem which was brought about by the change in normative aims introduced by tne Constitution and the lack of change in the institutions. They also look at the different ways in which the new norms were interpretea, particulary the different views of modernisation taken by Nehru and Gandhi. Chapters Four and Five deal with the First and Second Five Year Plans respectively. The Five Year Plans are treated as tentative solutions to the problem set out in the early chapters. Although the first plan incorporated some of the rhetoric of Gandhi, the main tnrust of both plans was in line with Nehru's vision of the development of India. The chapters not only look at the general plan frames and the provisions made in the plans, but also look at the beneficiaries of the plans. For the most part the plans benefitted tne better off, and failed to provide for the basic needs, for food, housing, health, clothing and employment of the poorest sections of society, especially the rural poor. Education, and the close coordination between the education system and government and business administration, helped to ensure that those who had access to the traditional educational system had preference in the competition for housing, health and work. Chapter Six deals with education in detail. Kerala offers a unique opportunity to stuay the relationship between education and development. Education has played an important part in the development of Kerala, which on many indeces has a very highly educated population; literacy rates are high, and the state of Kerala has a very high number of newspapers. But while the high level of education is reflected in some otner indicators, it has not produced economic growth, and Kerala has one of the lowest per capita incomes among the States of India. Chapter Seven examines the relationship of education and development in Kerala. The concluding chapter of this thesis draws together the criticisms of the current system of education of India, and proposes a system of education based on problem-solving, to help supply the basic needs of all India's population.