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India's aid schemes fail to tackle poverty: World Bank

May 19, 2011

Aid programmes in India are 'beset by corruption', poor administration and under-payments, according to a new World Bank report. Despite billions spent on these programmes each year, they have failed to improve conditions of the poor.

india-poverty.jpgNew Delhi: India is currently at an exciting juncture in its implementation of various anti-poverty and social protection policies. Several reforms have been introduced in recent years and many states are demonstrating innovations in moving towards effective delivery of programs. However, the overall returns to spending in terms of poverty reduction has not reached its potential, says a new World Bank report.

The report, Social Protection for a Changing India, launched here today says while India devotes over 2% of gross domestic product (GDP) to her social protection programs and the spending allocated to each rural household on major centrally sponsored schemes is significant at 40% of the annual rural poverty line in 2004-2005, the poor are not able to reap the full benefits of such large investments. The administrative capacity of poorer states is typically low coupled with a range of implementation problems, it says. While states with higher poverty are allocated more funds from the central budget, they have the lowest capacity to spend effectively, the report adds.

The report, prepared at the request of the Government of India, is the first comprehensive review by the World Bank of the performance of India’s key anti poverty and social protection programs such as the Public Distribution System (PDS), Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREG), Indira Awaas Yojana (IAY), and Indira Gandhi National Old Age Pension Scheme (IGNOAPS) among others.

“Over the years India has brought in several innovations in its social protection programs. This review, produced at the request of the Government, aims to analyse the status of implementation of these programs. Lessons from the success and challenges of individual programs, and from the experience of states, will help improve the impact of these programs,” says Roberto Zagha, World Bank Country Director in India.   

Public Distribution System (PDS)

The Public Distribution System (PDS) continues to absorb substantial public resources at almost 1% of GDP. While it covers up to 25% of the households, its benefits for the poor have been limited, the report states using the National Sample Survey data. Leakage and diversion of grains from the PDS are high. Only 41% of the grains released by the government reach households, according to 2004-2005 NSS, with some states doing much worse. In 2001 the Planning Commission has estimated this leakage of BPL grains at 58% nationally.

In the medium to long term, the report recommends offering households the option of a cash transfer while continuing food-based support for specific situations such as in areas where access is an issue, for disaster relief and for specific vulnerable groups. This reform would not eliminate the need for food buffer stocks.

“Experiences in India and in many other countries have highlighted the benefits of targeted cash transfer. Bihar, for example, has already introduced food stamps or coupons to improve access. At the same time, states such as Tamil Nadu and Chhattisgarh, by enabling effective community participation, robust monitoring and smart IT solutions, have done particularly well in ensuring universal access to transfers in kind in the form of subsidised grain. These diverse experiences stress the need for further evaluations and the fact that immediate and medium term solutions may vary in different states", Roberto added.

Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREG)

The report recognises the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREG) for a number of innovations such as social audits of its performance in states like Andhra Pradesh and Rajasthan; a central role for communities and Panchayati Raj Institutions (PRI); and ensuring a dedicated budget with a well-defined program structure for its implementation. The MGNREG has achieved impressive coverage when compared with previous public works programs. According to government data, about 31% of the Scheduled Castes (SC), 25% of the Scheduled Tribes (ST) and about 50% of women workers have been included in this program. In fact, MGNREG serves as a model for future reforms in other safety net and anti-poverty programs, the report adds.

Employment generation under MGNREG is also much higher than under any other wage employment program in the past – it provided nearly 43 person days of employment per household in its first year (despite limited coverage to 200 districts) compared to 26 person days generated by the pan-India Sampoorna Grameen Rozgar Yojana (SGRY) in 2005-06. However, unfulfilled demand for work is high and the program does not guarantee 100 days of work per rural household just yet, the report adds.

According to the report states such as Andhra Pradesh, Chhattisgarh, Madhya Pradesh and Rajasthan stand out as high performers with respect to the percentage of participating households as well as person days of employment generated per rural household. However, the program is yet to make a significant dent in states like Bihar and Orissa where the incidence of poverty and hunger are high, indicating likely supply-side constraints in the provision of work rather than a lack of demand.  Andhra Pradesh, Gujarat, Tamil Nadu and Rajasthan are also states that have demonstrated significant innovations in implementing MGNREG, including the use of IT-based solutions for monitoring and planning, focus on accountability and community involvement in oversight, financial inclusion, etc.

The utilisation rate for MGNREG funds is also fairly high when compared to other social protection programs, but field studies indicate delays in the transfer of funds to gram panchayats, the report says. In 2008-09, about 25% of MGNREG funds were unspent, but the ability of states to spend on MGNREG varies considerably. Fund utilisation rates range from 56% in Tamil Nadu to 89% in Rajasthan. There are also significant variations across districts within states, with some districts (e.g., in Orissa and Karnataka) even reporting expenditure in excess of available funds.

Field studies across the country also demonstrate ways through which accountability mechanisms are not functioning as intended, including through inaccurate muster rolls, incomplete job cards and account passbooks. Several studies also report payment of wages which are below the established norms or are delayed.

Rashstriya Swasthya Bima Yojana or RSBY

When compared to safety nets, insurance and pension programs in India are less developed and cover less than 10% of the labor force. Recognising this public policy gap, the Government of India introduced a targeted health insurance scheme for the poor known as the Rashstriya Swasthya Bima Yojana or RSBY. The program provides subsidised hospitalisation coverage for a registration fee of Rs 30 annually up to a limit of Rs 30,000 per family. According to the report the experience of the first year or so has been positive, particularly in terms of demonstrating that the target population can be reached (despite the poor quality of the BPL list). A future priority should be to strengthen its capacity to oversee and administer the expansion of the program through the key oversight of a specialised agency, the report suggests.

The RSBY now provides insurance for hospitalisation to more than 70 million poor people and is growing rapidly. The RSBY attempts to simultaneously take into account the perspective of the poor, focuses on getting the incentives of the various players that have to deliver the benefits right and encourages changes over time based on evidence, the report states.

Recommendations

Today most safety net and social security programs in most Indian states are characterised by a range of implementation challenges that reduce their potential for poverty reduction. There are programs which have wide coverage but are plagued by leakage of subsidies that limit the impact on the poor (e.g.,PDS), others which are well-targeted and well-designed but face a range of implementation challenges (e.g., public works - MGNREG), and still others which appear to be well-designed and with systems for better implementation (e.g., RSBY). However, experience across programs in states like Andhra Pradesh, Kerala, Gujarat, Tamil Nadu, Rajasthan and Karnataka suggests that problems in service delivery can be overcome.

“Marginal changes alone may not deliver the kind of safety net which a changing India needs for its poor and for its economy. The large numbers of central and state schemes could be streamlined over time to a core set of flagship programs and by introducing an element of choice and flexibility necessary for meeting the varied needs of states,” says John Blomquist, World Bank’s Lead Economist for Social Protection in India.

“3 +block” strategy

The specific proposal of this report is that over time India should aim for a “3 +block” strategy. This would involve three core Centrally Sponsored Schemes (CSS) or “pillars”, combined with a block grant from which states could finance other safety net or social security programs.

“This will give states more leeway to adapt to the needs of the poor in their states. Programs such as the PDS, MGNREG and RSBY could serve as the “three pillars”. Beyond the three “pillars”, states could receive an additional transfer and implement state-specific programs,” John suggests.

How this is programmed can vary according to state-level priorities, and include interventions such as livelihood support of different forms, targeted housing, interventions to incentivise use of basic social services, nutrition and/or early childhood care (e.g., through conditional cash transfers as being piloted in some states), specific urban social protection programs, or other options as proposed by states, the report says.

Source : World Bank
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