India’s whopping ₹7.86 lakh crore allocation for school education in the 2025-26 Union Budget underscores the government’s commitment to learning. However, higher spending has not translated into better learning outcomes as can be seen by the Annual Status of Education Report (ASER) 2024. The report shows that 44.8% of Grade 5 students in government schools can read a Grade 2 text, and only 30.7% can solve basic division problems. This gap reveals an underlying systemic issue around the effectiveness of education spending that lies not in its scale, but in its strategic allocation. Real impact comes from outcome-linked investments in schools that have a proven track record of enhancing learning.

Targeting High-Impact Providers

One of the key takeaways from India’s education landscape is that schools differ widely in their ability to deliver learning outcomes based on the resources they receive. Government schools play a vital role in providing free education across the country, often reaching communities that have limited access to learning. Investing in their growth can significantly improve educational outcomes for millions of students.

Private and government schools also need to work together and be equipped with resources and tools to improve the Gross Enrollment Ratio (GER) for higher education. As of 2024, India’s GER in higher education stood at 28.4%. The goal is to reach 50% by 2035. For this to improve, both government schools and private schools would need to get sufficient funding. Funding for government schools should be primarily supported by both state and central governments. For private schools, financial support can be mobilized through private sector institutions such as non-banking financial companies (NBFCs) and banks, which can offer tailored lending solutions to help expand access, upgrade facilities, and improve educational outcomes.

That’s where mission-driven financial institutions like Varthana come in, providing affordable, tailored loans to school owners. This helps them to upgrade infrastructure, invest in teacher training, or introduce new learning methods into the classroom. As of 2025, Varthana has  funded over 12,500 affordable private schools in the last 12 years and given close to 20,000 loans to help schools grow and improve their facilities.

In addition to financing, Varthana also provides non-financial support to schools. This includes access to outcome assessment tools, edtech partnerships, curated digital content, and operational toolkits to help school leaders manage classrooms more effectively. By combining capital with capacity-building, such organizations enable schools to make sustainable improvements that directly benefit student learning.

Results-Based Financing

After identifying high-impact schools, the next step is a shift toward outcome-linked financing such as Development Impact Bonds (DIBs) and Outcomes-Based Financing (ObF)—tools that channel capital toward high-performing schools and programs, and unlock funding only when real student progress is achieved.

The world’s first education DIB, launched in rural Rajasthan, was designed to bring out-of-school girls back into classrooms and improve foundational skills. It achieved 116% of enrollment goals - significantly exceeding its target of re-integrating girls into formal schooling. Additionally, it met 160% of its learning targets, as measured by independent assessments of literacy and numeracy. By linking funds to verified improvements, this model reversed the traditional funding logic - paying for outcomes, not inputs.

Following the success of this pilot, Quality Education India DIB (2018-2022) initiative mobilized $11.2 million across 600 plus government and low-cost private schools in Delhi, Gujarat, Maharashtra, and Uttar Pradesh. Partnering with leading nonprofits, it focused on improving foundational learning for over 200,000 primary school students. Both initiatives clearly demonstrated that outcome-based financing can drive measurable improvements in learning and make a compelling case for tying future education funding to results, not just inputs or activities.

Smarter School Funding

India allocates nearly 4% of its GDP to education, yet the outcomes often fall short of expectations. While increasing investment is a step in the right direction, the real challenge lies in channeling funds toward schools that are truly making a difference.

The path forward lies in adopting blended financing models that combine capital with capability-building, and are rooted in school-level accountability. Smart financing is about aligning incentives including flexible loan products, outcome tracking, and partnerships with edtech firms, so that schools become more outcome-oriented and data-driven. This approach fosters continuous improvement and ensures that resources flow to schools delivering the greatest impact on student learning.

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Steve Hardgrave is the Wholetime Director and Executive Vice Chairman of Varthana. He previously served as Senior Managing Director at Gray Ghost Ventures, where he conceived and incubated the Indian School Finance Company. He began his career working with at-risk youth in Los Angeles, later launching a microfinance institution in Mexico. After earning his MBA from UC Berkeley’s Haas School, he joined Omidyar Network before founding Varthana in India.

Views expressed are author's own.