Problems Cash transfers cannot solve

    After the government announced the phased roll-out of direct cash transfers in 2013, there was criticism from some quarters. Swaminathan Aiyar addresses some of those objections:

The most imaginary and hilarious objection (from Arvind Kejriwal, the BJP and CPI) is that a cash transfer is a bribe to voters. Political parties have for decades offered welfare goodies such as free electricity and water, subsidized food, free TVs, free bicycles and so on. These are unashamed ways to woo voters. But a bribe is illegal gratification. Welfare giveaways can be called unwarranted or misdirected, but not illegal.

Others say cash benefits for education or fuel may be diverted by a beneficiary to liquor instead. True, but this is equally true of benefits in kind. Mid-day school meals mean less family spending on food, so the money saved can be spent on liquor. Subsidised kerosene or rice can be sold in the open market and the proceeds used for liquor.

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Some critics claim that cash transfers will be a way of reducing total benefits. That's pure mendacity. In fact, much more money will actually reach beneficiaries, which is why rival politicians are so worried.

Still others say cash transfers might mean the dismantling of all public systems like ration shops and government schools. Sorry, but the Congress is ideologically incapable of such libertarianism. Montek Ahluwalia has clarified that ration shops will continue, and government educational and health facilities are being expanded rapidly.

And he points to some potential pitfalls of the program:

However, there are indeed many real problems. There is no good system of identifying those truly in need, so benefits can go to better-off folk, especially those mis-identified by sarpanches. It may prove politically impossible to withdraw benefits from once-poor folk who become better off. Many poor illiterates may not be registered under Aadhar or may not be linked to bank accounts, and can get left out.
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Many glitches will arise in rolling out such a scheme. Some pilot projects have already tested different transfers in different areas, and corrected the glitches. But more experimentation is needed. The danger is that the scheme will quickly be extended to the whole country in half-baked shape simply to help the election prospects of the Congress. This can mean a flawed CTS that later needs overhaul.

    Some see it as a solution that can fix all ills that plague social programs run by the public sector. I will list a few delivery systems that cannot be fixed by a direct cash transfer.I am sure there are many other examples.

    Most rural areas do not have functional primary health facilities within reasonable living distance.It is not uncommon to find quacks passing off as doctors practicing medicine with deadly consequences. Each year, needless number of deaths are caused by lack of access to adequate healthcare.  India's maternal mortality rate remains unacceptably high when compared among developing countries. These shortcomings in healthcare cannot be resolved by simply handing out cash to folks. It is much better to strengthen programs like this one.

   For millions of undernourished infants and children of school-going age, the mid-day meal scheme is critical in supplementing their diets. The public program designed to address this problem currently suffers from extreme corruption:

Surprise visits by the state commission for protection of child rights, for its report in 2010, revealed several complaints of children having fallen ill after consuming the ready mix. Instances of diarrhea, vomiting and worm infestation of the ready mix packets were also reported.

The National Institute of Public Co-operation and Child Development (NIPCCD), which analysed the samples, found the food blends unhygienic. The samples also were found to contain the banned colour 'Sunset Yellow FCF' besides coliform.

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Supreme Court Commissioner Harsh Mander told NDTV, "I think it's a really disturbing trend. Globally we have enough experience from countries in Africa and elsewhere about the great danger when for-profit organisations enter the area of child nutrition. In simple terms what we are doing is stealing food from the stomachs of the poorest and smallest child.

    Akshayapatra,a public private partnership which provides mid-day meals to school children sets a fantastic benchmark for doing this the right way. Studies have shown the positive impact of an effective mid day meal program on children's overall well being:

An impact study done in one of the rural areas served by Akshaya Patra, which was conducted by the M.S. Ramaiah Medical College, revealed that the number of children below the optimal nutrition level was reduced from 60% to almost 0%. Anemia was reduced from 40% to less than 5%. Skin infections decreased from 80% to almost 0%. In addition, children developed better resistance to diseases, and they showed significant improvements in height and weight. When Akshaya Patra first began the program in rural Baran, children gained ½ kilo (1.1 lbs) of weight per month. In contrast,during a ten day winter break in the villages, when the program was not in operation, the average child dropped ½ kilo in weight.

 In a study the Akshaya Patra program conducted by the Department of Education, Government of Karnataka, 99.6% of students felt that they could pay better attention, and 93.8% of teachers reported overall academic improvement.

In Bangalore, the headmaster of a school that served 560 students reported that 25% of students were totally dependent on Akshaya Patra midday meals. Since Akshaya Patra began providing food,he claimed that attendance was more consistent, drop-outs and long absences decreased,concentration improved, as did height and weight, and students were more mischievous because they were more energetic.

    Cash transfers in place of an effective meal program are no match for the results achieved by Akshayapatra. Access to good quality food products is still a challenge in many parts of the country. Parents of poorer children who live in difficult circumstances are ill equipped to deal with low nutrition levels of their offspring. They need assistance from targeted programs.

    Although middle class Indians no longer rely on public schools for primary education, there is still a vast majority of lower income Indians who depend on government schools for their children's education. Public primary education looks like this right now:

    Too many teachers do not bother showing up to work. Funds allocated for school infrastructure disappear without a trace. The poorest children of the country are robbed of a chance of moving up the economic ladder without a decent education. Although a case could be made for a school voucher system, success is far from guaranteed in India. For decades, the school systems have been in desperate need of reform.This again cannot be solved with cash transfers.

   I fully support Aadhar's framework for administration of some of the leaky social programs. The union government should create incentives and prod state governments to improve delivery systems for programs which cannot be replaced with a cash transfer. Because in several of these instances, there simply is no alternative to effective governance.

Articles of interest - 3 December 2012

Here are some interesting reads:

Renewable energy, the German way of doing it: Bloomberg/insideclimatenews

Top ten myths about china in 2012: New yorker Magazine

Real and imaginary problems of direct cash transfers: Swaminathan Aiyar

Theft in state run mid day meal schemes: NDTV

The long and short of IAC's crusade

    As IAC's(India against corruption) public campaign led by Kejriwal's continues, it is causing angst among a multitude of aggrieved subjects. Some of them are lashing out. Nobody needs convincing that all sides of the political spectrum are deeply entrenched in corruption.

    At the moment, news coverage of IAC's campaign against corruption has a reality TV vibe to it. It makes for entertaining television for viewers at home.In the short run, these exposes will resonate well with the aam janta. However, this approach may not work in achieving the ultimate objective, that of ridding graft from public life. That is not because IAC risks running out of crooked public figures to expose. It is just that a sense of fatigue sets in after a point.

     If future exposes are coupled with advocacy for reform, IAC's movement can appeal to a broader swathe of people.They are a political party now anyway.

    Reforms in the judicial system are urgently needed in order to tackle the backlog of pending cases. There seems to be tentative support from BJP as well as UPA for these reforms. For whatever reason, the judicial reforms bill that seemed to have some momentum earlier in UPA-2 has now lost ground. The much delayed police reforms at state level need a fresh impetus. Much like the earlier crusade that brought Lokpal bill to the forefront of debate , IAC could support these initiatives.

     Allocation of natural resources has been a fertile ground for shady deals. How about pushing for the enactment of a land acquisition bill? Sure, this bill is going to be contentious. It would not hurt to get behind a set of ideas that can handle allocation of land for industry. Same goes for the sale of telecom spectrum and fossil fuel(oil , gas and coal) extraction permits. How about demanding a more transparent auction mechanism in allocating these resources?

  To be sure , a disruptive movement against public graft is very much essential. But, even the most gripping TV shows lose their edge after a period of time. Without substantive policy proposals, IAC's series of revelations could get relegated to the pantheon of flashy movements that fade with no meaningful impact.

Articles of interest - 25 October 2012

Here are some interesting reads:

Trains in China : NewYorker magazine

Theft of food in India : Bloomberg news

Future of Solar power : A Stanford university study's findings

Persistence of hunger in India : Bloomberg news

The kingfisher descent

    While Kingfisher Airlines chairman has been issued a non-bailable warrant in connection with a bounced check to the Hyderabad airport the airline's primary hub, Bangalore has seen a sharp decline in it's domestic passenger numbers. (Data source: www.aai.aero)



     To put this in context, growth numbers for international traffic for the same time-frame look just fine. Kingfisher's contribution to international traffic from Bangalore was marginal .

 


    Although the airline is still grounded, final word on the fate of the company is yet to be had. However, all entities which did business with Kingfisher have been badly burned in this long running fiasco. That list includes aircraft lessors, employees of the company, airports across the country, fuel suppliers. Not to mention many of the banks that have about Rs.7000 Crores of exposure in their books. Many of them are state owned banks. In the absence of strict bankruptcy laws, lessons from the government's handling of Satyam may come in handy here.

A tricky fight to pick

   Every once in a while, a long bullied kid springs a stinging surprise on her perpetrators. UPA-2, after suffering serial humiliations at the hand of allies and opposition alike, responded with the single biggest set of reforms since 1991.The Banyan blog over at the economist has an excellent analysis:

 The states run by Congress, Mr Singh’s party, will presumably toe the government line. Others may prefer to wait and watch, but the chances are that all states will eventually agree. ...

The fact that parliament has just finished the monsoon session, and will not sit again for a couple of months, allows everyone to avoid a no-confidence motion. ...

The position of the opposition, the BJP, is now delicate. It forced the boycott, in effect, of parliament throughout most of the monsoon session. It may think of trying to block the government reforms now (despite its own history of being in favour of a more market-oriented approach to the economy) for the sake of pushing the idea of “policy paralysis” in government. But it must also take care, both not to damage India’s main interest—getting the economy revving again—and for not getting the blame itself if the economy does badly.

    From the Prime minister and UPA's point of view this looks like a great gamble. Without a display of some spine they would have been bullied by everyone all the way till the next elections in 2014.  Mulayam Singh Yadav's  SP and Mamata Banerjee's Trinamool are two parties that could potentially bring down the government. If you look a little deeper, their positions are somewhat shaky. Both UP and West Bengal need a lot of help from the centre to make economic progress. That would include higher funding allocations from the planning commission and assistance with handling state deficits.

    If they pull the plug on UPA-2 in the coming months, elections will be held in early 2013. Forecasters of parliamentary elections have gotten their predictions badly wrong in the last two cycles. In the aftermath of mid term elections with unpredictable results, it is improbable that both these parties will enjoy the same leverage and influence they currently command. 

    As for BJP, they are engaged in a fratricidal battle between Naresh Modi and Nitish Kumar for the leadership of NDA in the next elections.And they have their own baggage. After the debacle of 2009 for their obdurate opposition to the nuclear deal, they have to be wary of going to polls in the aftermath of brazen opposition to reforms they supported in the past. Are they willing to risk the prospect of being in opposition till 2018 after the polls, if they are held in 2013?

Articles of interest - September 08 2012

Scrutiny of Narendra Modi's record : NYTimes blogs

India's cram schools : Reuters

Rahul Gandhi's place in India's politics : The Economist

India's Healthcare system: The Economist

Bickering until everybody loses

    This Friday(31st August), India's GDP growth numbers for the quarter of April-June will come out. Analysts are forecasting tepid pace of growth following previous quarter's disappointing numbers. Meanwhile, investments are slowing down , infrastructure development is grinding to a halt .There is more pessimism about near term growth. RBI, worried about persistent inflation is unlikely to ease monetary policy drastically.The solution as ever, is to enact some of the long pending reform measures.

     Presidential elections were seen as a hurdle the government had to get over before starting a fresh reform drive. Elections have come and gone with no major signs of policy response by the government. On cue, the new parliament is in session and a familiar script is playing out. BJP , the main opposition party wants the prime minister to resign, this time over alleged irregularities in the allocation of coal blocks to private enterprises.
  
    Disruption of parliament proceedings is becoming a norm than an exception. To be sure, if BJP comes back to power in the next parliamentary elections who is to say their main opposition(Congress party) would not respond with the same scorched earth tactics. All they need to do is hold up evidence of malfeasance somehow connected to the ruling coalition and demand the ouster of the government. Lord knows there is enough graft and misgovernance to be found among all major parties' state and local governments. This cycle could become recursive. I wonder how long this has to go on before we have a government that is willing to govern and will be allowed to.

Articles of interest - 28 August 2012

Here are some interesting reads:

India's Olympics programme : India ink New York Times

Money in american politics: Bloomberg

Plundering India's PDS scheme : Bloomberg

Impact of enacting Goods and Services tax(GST): Bloomberg

The case for rooftop solar

    Indians who track infrastructure development in the country got a stark reminder of the ground yet to be covered when half the country was left with no electricity. Last week's blackouts may have been caused by problems in the grid. The sources of energy are a cause for concern too.

    Thermal power stations suffer from poor supply of coal leading to many of them remaining idle. When monsoons are deficient the hydro power capacity is hurt. Capacity addition in wind power is showing promise, but has a long way to fulfill it's potential. Solar however, is yet a vastly untapped source.

    I was in southern Germany a couple of weeks ago on vacation. Homes like these in the pictures below(taken during the trip) were all too common, a noticeably large percentage of homes with solar panels installed on their rooftops.

    North India gets about 300 clear sunny days in a year. and in the south that number is around 250 days a year. In many cities, solar powered water heaters are mandatory for new homes. Costs of the panels have been in steady decline in the last three years. Rooftop solar power should have a greater role in India's energy portfolio. India should set up a feed in tariff regime, which would allow homeowners to sell excess power back to the grid(Although the grid needs to be more robust to support feed in power).

   Sure, India cannot afford the levels of subsidy offered by an industrialized country like Germany. At the moment, solar power is still expensive . By having a more conducive regulatory regime, we may well unlock Indians' now famous ability at jugaad innovation in building cheaper systems. It is not wise for a government to drive industrial policy. Promoting solar energy, especially rooftop solar may just be a reasonable exception in India.