The projects combine education with factory work and children are employed outside school hours. The money they earn is put into the projects' "Children's Banks" and is later used to buy school equipment and pay for such village essentials as new irrigation schemes.
One of the biggest problems in overcoming rural illiteracy is convincing parents that, by sending their children to school instead of to work, families are not being deprived of their livelihood.
"Children as young as five and six are taught skills and by the ages of eight or nine already start earning," says Nanaji Deshmukh, founder of the Delhi-based Deendayal Research Institute, a non-governmental organisation running several anti-poverty projects.
Mr Deshmukh, a social activist and former politician, now in his eighties, has devised production centres to be set up in schools. Children can learn skills such as bamboo work or weaving, which are then marketed by the centres, bringing in a small income for the youngsters.
One project is based in the area of Chitrakut in the northern province of Uttar Pradesh. The population consists of landless forest-dwellers, mostly indigenous tribespeople, long neglected by the government. Illiteracy in some villages is as high as 90 per cent.
"The idea of the earn-as-you-learn programme is to make children as self-reliant as possible so that they can pursue a wider education," a project worker said.
Part of the money goes towards paying for the children's education, relieving the burden on their parents, and part of it is saved in special children's banks set up by the project.
The banks allow five to 15-year-olds to deposit as little as a few pennies at a time as long as they don't touch their savings for a year. "At the end of the year the children withdraw enough money for exercise books, pens and textbooks so that they don't have to turn to their parents for these things," says Mr Deshmukh. Providing books and writing implements adds to parents' perception that schooling is an expensive luxury, he says.
The banks pay 10 per cent interest on the savings and the deposits go towards financing small industries in the area, contributing to the general development of the economy. Small industries often have a hard time getting funds from the government-run banking system even if they are economically viable.
"We take the children to see these industries and show them how even their small amounts are helping their villages to prosper, giving both children and villagers a source of pride," says Mr Deshmukh.
In another project run by Mr Deshmukh in Uttar Pradesh, Children's Banks have amassed more than Pounds 10,000 in three years - the result of the work of about 9,000 slum children. This is a fortune in India in terms of economic development. And it convinces both parents and village chiefs that it is worthwhile sending children to school.
The projects have been treated with suspicion by such organisations as the World Bank, which is opposed to child labour. But supporters say this is an "Indian solution" to the problem in villages where landowners, chiefs and parents are often opposed to children going to school when they could be used as cheap errand boys and sweepers.