Given the state of the poor in our country, most people who can read and write would likely fall outside the ambit of poverty alleviation programmes of our government; very few of us would have actually applied for a subsidised housing programme, or the green ration card with extra privileges, or guaranteed employment schemes. But we talk about them. Especially in the light of the recent election results, when so much discussion has revolved around the term Reforms with a human face. We have an abstract construct of the teeming millions of rural poor, without a visceral connection to them.
What we do know is that there is tremendous inequity in our country, and that there must be some way to change that. But how? And what does it mean for our own privilege? Half ridden with guilt and half riddled with ignorance, we therefore allow our governments to seriously contemplate new kinds of reforms, those that promise yet again not to leave anyone behind. And if we are serious, we must get away from the artificial urban-rural divide and recognize that at the turn of this century, there were 100 million poor citizens of India living in our cities and towns. This number is bigger than the entire population of Germany, France or the United Kingdom. By 2030, 600 million Indians will be living in our cities and towns, and a third of them may be poor.
But if these reforms really have to go from New Delhi to the towns and villages of India where the poor live, we must think about the nature of these reforms. While the talk of reforms with a human face seem to suggest that we need new directions in poverty alleviation, many might agree that the problem is not misplaced ideology, but bad implementation. In fact, there is almost universal agreement that the government has poor delivery systems. The puzzling part is, why do we not fix the delivery systems, irrespective of which path of the idealogical fork we choose to take our country down?
This point is especially appropriate given the recent elections results. With the oncoming monsoons, we also have a charged ideological climate now in our country. There is talk about the limitations of the laissez-faire ideology underlying liberalisation, of bringing social justice back onto the table. This is a healthy debate, and will only result in positive outcomes, especially given that extreme options at both ends are now considered out-of-bounds.
In this context, it would be useful to get a better appreciation of what these delivery gaps are, specifically in the context of poverty alleviation. Let us examine the delivery of poverty alleviation programme in some detail. To do this, we need to identify those bundle of goods and services that need to be made available to the poor. I mean exclusively as a separate group, as targeted beneficiaries, not just as part of the larger citizenry. Before that, let's look at the public services that target everyone, not just the poor.
Everyone benefits from the public transport system. Where it runs well, public transport cuts across class barriers. What about education? Same argument. If we had a robust public education system, most people would opt for it. As they do overseas: very few people in developed countries can afford to send their children to private schooling; in fact, they choose where to live based on the quality of public education. In India, clients of public education are sending a signal about the quality of service delivery: whoever can afford to opt out does so. The same goes for healthcare. Given the escalating costs of healthcare, if we had a solid public heathcare system, most citizens would opt to use it, not just the poor.
Ditto for roads, highways, water supply, sanitation, registration of births and deaths, crematoria, drivers licences and so on. Wherever the government provides these services, it is for the benefit all citizens. In fact, in some of these, like water supply and sanitation, the poor are actually not even getting the same basic services as the middle class and the rich. The challenge here is therefore universal access, which one step before exclusive services for the poor.
So, what are the services that need to be made available exclusively for the poor? Three items stand out prominently: food, housing and livelihood. There could be others, but these are decidedly the most significant.
In each of these, it can be argued that the poor need a helping hand, to ensure that they climb out of poverty and that there is a safety net beneath them as they make this journey. So, second-generation reforms or reforms with a human face could be about more and better services in food supply, housing and livelihoods for those below the poverty line.
I will use examples from each of the three items of food, housing and livelihoods above, to illustrate the delivery challenges that we face.
Take food supply, in the form of our public distribution system. Assume that there is a new food supply programme that is announced, for example more rice and grains and kerosene for each poor family, at subsidised prices. This is a policy directive that emanates from deep within the bowels of North Block in New Delhi. The poor live scattered all over the country. So, how will they get the benefits of this new scheme?
First off, there is a complex supply-chain of delivery within government for this new scheme to trickle through. Assume that this scheme actually arrives without distortion to the local village or town, in the sense that there are clear guidelines, as well as supplies and funding. This scheme now needs to be implemented by some second-division assistant in the Food and Civil Supplies department.
How will he do this? The first question is, Who will qualify for these benefits?, to which the answer is The poor, of course. But how do we determine who is poor, it is such a fuzzy term. There is a definition called BPL, which is Below Poverty Line. So, anyone who is BPL is eligible for these benefits. OK, second question, What defines the BPL threshold?
Without getting into technicalities, it is defined in terms of calories of food intake per person per day; this is then translated into an income figure, which is different for different states. So, let us say that we have an annual income figure of around Rs 20,000 for a family, below which they qualify to be on the BPL list.
Now, how does this second-division assistant determine income levels among the poor? They dont pay taxes, or file returns; their incomes are invariably sporadic, cash-based, daily wage-based, seasonal etc. Since the income is hard to determine, the department uses proxies for income: what is the type of house, do they have their own toilet, do they have an electrical connection and so on. In total, there are about 60 such parameters that the Food and Civil Supplies department uses to determine qualification for the green card for BPL families.
This information now has to be collected; the agency has no staff to go around to do this, so they hire an outside firm to conduct this survey. Many of the parameters are quite subjective, and difficult to verify. In urban areas especially, it is difficult to really establish domicile. In addition to the collection difficulties, this data now has to be maintained and updated, for lakhs and lakhs of records. In Karnataka, for example there are 70 75 lakh green card families.
How does this data get stored? How are changes made? How often? What if someone dies, what if they move within the same area, or migrate? Simple logistical questions.
One would think that we could have some common data set for all citizens, like the Voter List, or the Census Board information. Unfortunately, the Census Board data is privileged, they do not give it out to anyone, including to government agencies. And the Election Commission Voter list is a) incomplete and b) adults only. And since we dont have a Social Security Number in our country, it is difficult to establish bona fides and weed out duplication.
What I have just described is for one department.
If there is another department that also needs a BPL list for its own special programme, say, housing, they dont use the same BPL list as the Food and Civil Supplies Department. Instead, they generate their own list. Which could have parameters that are not entirely consistent with that of the F&CS department.
In fact, in Karnataka, there are 6 lists of citizens being maintained by different arms of the government! And there is little overlap between these lists. I am sure that this story would not be different across the country.
Remember, inclusion on the list is the starting point to receive the benefits of the particular programme. One can imagine the pressure being applied to arbitrarily expand the list. Often, this is no longer an objective enumeration exercise, but begins to resemble a friends and family list of the local politician.
These are the little details that determine the success or failure of a programme. Even those schemes with the best of intentions, as they leave with the passport of political sanction from New Delhi, and get lost in the bylanes of bureaucracy. Note that this is not red-tape a convenient buzzword - but poor process design. The problem cannot be solved by cutting red-tape a favourite aphorism these days, it needs to be solved by government process re-engineering.
And because the solutions to fix the details are complex, we end up measuring inputs rather than outputs: how much money was spent on a new poverty alleviation programme rather than how many people are coming out of poverty, how many schools were built, rather than what are our scholastic levels are, and so on.
This is part of the governance problem: like the famous Supreme Court Judge in the US who, when pressed to define obscenity said, I cannot define it, but I know it when I see it, governance is a fuzzy phrase, hard to define, but easy to see in action. Whatever the definition, one aspect of good governance must be about the process of decision-making, about the quality of information that courses through the veins of the institutions, about the details that make up high-quality delivery.
This is the ground reality of poverty alleviation programmes. So, even before we look at the design of any new human face programme, let us recognise the delivery constraints in identifying the true beneficiaries.
Now, let us look at programme design. Take the second big poverty programme: housing. A typical housing scheme, Indira Awas Yojana in rural areas, (or Valmiki Ambedkar Malin Basti Avas Yojana (VAMBAY) in urban areas) is designed as follows:
Approx. cost of house: Rs 50,000
Upfront payment by the allottee: Rs 10,000
Loan from government: Rs 40,000
There is an interest component, as well as a subsidy component.
Check any state governments finances for the housing loan portfolio under these schemes. Hundreds of crores have been spent, which technically are to be recovered, with interest. The repayment rate is not even 5%. Large chunks of the housing loan portfolio of most governments can be classified as Non Performing Assets. And - if you can get your hands on them - check the financial statements and audit records of HUDCO (Housing and Urban Development Finance Corporation). Here is a financial institution with a balance sheet of over Rs 30,000 crores, a staff of 1,500 with outdated skills in financial management, no reporting lines to the Reserve Bank of India, and complete opacity in its functioning.
And this is the nations largest lender for housing programmes of the Union and State governments.
There are several issues with the design: First, the quality of construction leaves a lot to be desired; the allottees know this, that they are really getting only Rs 25,000 worth of home for the Rs 50,000 paper value. Secondly, none of the allottees thinks of the loan as a financial obligation: there was no discussion on terms before the loan sanction, and there will be no pressure for repayment either, and the whole issue gets swept under the rug.
Thirdly, since our governments dont have robust financial management systems, these outstanding loans dont show up in any formal financial statement, with the result there is no institutional mechanism to monitor, even where there is individual intent to do so.
What cannot be measured cannot be managed.
So we have a programme whose benefits are clearly needed by the poor: good quality, affordable housing. But the intent is betrayed by the implementation, the desire for good betrayed by the delivery of goods. Leaving aside the beneficiary identification problems that we talked of earlier, the government is now in the business of housing construction and housing finance, neither of which it has a core competence in.
Finally, lets take the third programme: livelihoods. Like those in the middle class, there are those among the poor who are more enterprising than the rest, and are risk-takers; the larger group is made of those who want the security of wage employment. If the intention of livelihood support is to provide a temporary helping hand, rather than a permanent dole, then both types of poor need to be helped; the former need entrepreneurial training and access to financial services, and the latter, appropriate skills for the changing economy.
Across rural and urban India, there are complex currents of economic change sweeping through the livelihood landscape. I am no expert on rural programmes, but I have tried for the past 6 years to get good quality information on urban economies in India. My conclusion: there is practically no data being collected on urban economic activities. In rural areas, under the aegis of NABARD, the entire banking industry is engaged in the creation of detailed annual District Credit Plans (DCPs). These are anchored by Lead District Banks, and reviewed by each State Level Banking Committee (SLBC) including the local District Collector from the State Government. At these reviews, priority sector allocations are discussed, challenged and monitored. On the face of it, it seems like a fairly rigorous system, quite well-institutionalised.
Unfortunately, there is no such structure for urban activities. None of the DCPs, including those districts which actually include cities and towns in them, have any detailing of urban economic activities. There is a complete credit-information vacuum of our urban micro-economy: the fact is that our governments and banks and policy makers are flying blind. A study that we are just completing suggests that the unmet credit needs of the lower half of urban residents in Bangalore alone is Rs 2,000 crores; this is being completely met by the informal sector, at interest rates anywhere between 5% per month to 10% per day. Way above what Ratan Tata and Mukesh Ambani are borrowing at.
One could claim that this weakness applies only to the urban areas. However, even the reasonably well-mapped rural areas have a different affliction: an extreme reluctance on the part of banks to lend for priority sector activities due to artificial constraints on lending rates. Recovery rates on priority-sector loans are often around 20%. While there are gradual moves to remove these ceilings from a regulatory standpoint, this relief is limited to a very small segment of priority sector lending.
This is at a time when we have a silent financial revolution that is sweeping across the country: evidence is fast piling up, demonstrating that the poor are indeed bankable; that what they need more than handouts are intelligently designed banking services. The increasing share of microfinance loans to the poor, both in rural and urban India amply demonstrate that if the products are designed correctly, the financial services to the poor can be viable, with recovery rates in the high 90s-percent.
These credit gaps are felt by the self-employed poor. The majority of the poor who wish to have wage-employment require skill development for new types of livelihoods, either in the rural areas or the urban ones. This needs a close connection to the marketplace, and a fairly thorough redesign of the employment programmes and skill development courses that are currently being conducted by government.
In summary, in all three areas of food, housing and livelihood, there are different debilities that seem to prevent government from actually delivering the much-needed reforms with a human face. The microstructure of governance is currently broken. The delivery systems are simply not there. If we need to pump more money into poverty alleviation programmes, we need to move beyond claims that one groups heart beats harder for the poor.
But there is hope. There are changes that are taking place throughout the country. In small trickles admittedly, in little innovations across the towns and villages of India, with leadership being taken either by a committed government servant, an enterprising politician, a determined civil society activist, or rarer still, by a miraculous combination of all three.
If there was consensus on the first generation of reforms, can we agree that focus on delivery needs to be part of the second generation? These changes cannot happen without public engagement. Just as the first phase of reforms arose out of crisis, we need to innoculate these reforms from political fortunes. Which means that a whole cross-section of stakeholders across civil society need to build the eco-system that sustains delivery-oriented reforms. Because the job will not be completed within one political term in government. At a minimum, we could begin a discussion on what it will take to improve delivery systems, and identify some of the key drivers for this change.
For my own part, I would like to submit a few ideas.
For one, it will need massive decentralisation, a pushing through of the panchayati raj and urban decentralisation reforms, giving them authority and accountability to determine their destinies. This means a paradigmatic shift in the power equation between the 3 layers of our federal system. Decentralisation is required not because it is morally right (it is so), but because it will increase efficiency and entrepreneurial energies (it has always done so).
It is here, that the detailing problems we discussed earlier will be solved, at the grassroot level, differently in different settings. Focus can shift to outcomes, rather than irrelevant input measurement. New service delivery arrangements can be experimented with, involving public-private partnerships. New, locally appropriate technology solutions will emerge. Mistakes that are made will be localised, from which there will be learning and adaptation.
At another level, a new dynamic needs to emerge between the banking system and policy-makers who wish to align the powerful forces of the financial markets towards the poor. One where there is freedom to operate, with responsibility for equitable outcomes. What is required on the part of government is an innovative regulatory mechanism, like benchmarking the profitability of the priority sector segment to the rest of the banks lines of business, and demanding sector-wise reporting. The critical learning is that programme design needs to be left to the marketplace, that the cost of doing business with the poor is higher than with other customer segments, and hence need to be priced differently.
When institutions are allowed to do this, the market will fill the financial services vacuum. We need to move beyond simplistic loan-melas and interest-waivers. If one truly wanted to see free markets, it is on display in India, with all its warts, reinforcing the belief that markets need effective regulation. But effective regulation needs a supple and disciplined government, coming down hard and fast when necessary on industry.
In the meantime, when the new policies of this government are announced, let us look closely to see if there is any change in the microstructure of governance, in the plumbing of the delivery system. Let us look to see whether these reforms with a human face can actually be called second generation reforms: focus on delivery.
If not, all these ideas will get choked in the thickets of the system, making our reforms look like our electricity supply: plenty of transmission and distribution losses.