To arrest the high dropout rate, government proposes to introduce a new National Means-cum-Merit Scholarship Scheme which will encourage students to continue their education beyond class VIII.

Presenting the Union Budget for 2007-08 in the Lok Sabha on Wednesday, Finance Minister P Chidambaram said under the new scheme, eligible students studying in classes IX to XII would be given Rs 6,000 per year.

Besides, 100,000 scholarships would be awarded every year, he said.

To fund this programme, a corpus fund of Rs 750 crore (Rs 7.5 billion) would be created this year and a like amount would be added to the fund every year over the next three years, Chidambaram said.

He said a sum of Rs 750 crore would be placed with the State Bank of India and the yield from the fund would be used for awarding the scholarship.

He said while the Sarva Shiksha Abhiyan improved the enrolment ratio in schools to 96 per cent, the drop out ratio continued to be high.

The government also proposed to increase the allocation for school education by about 35 per cent, he said.