India - Reducing poverty in India : options for more effective public services

Report No. 17881-IN India Reducing Poverty in India Options for More Effective Public Services June 29, 1998 Poverty Reduction and Economic Management Division South Asia Region ZflIffimmo  CURRENCY Rs/ US$ Currency Official Unified Market a Prior to June 1966 4.76 June 6, 1966 to mid-December 1971 7.50 Mid-December 1971 to end-June 1972 7.28 1971-72 7.44 1972-73 7.71 1973-74 7.79 1974-75 7.98 1975-76 8.65 1976-77 8.94 1977-78 8.56 1978-79 8.21 1979-80 8.08 1980-81 7.89 1981-82 8.93 1982-83 9.63 1983-84 10.31 1984-85 11.89 1985-86 12.24 1986-87 12.79 1987-88 12.97 1988-89 14.48 1989-90 16.66 1990-91 17.95 1991-92 24.52 1992-93 26.41 30.65 1993-94 31.36 1994-95 31.40 1995-96 33.46 1996-97 35.50 1997-98 37.16 Jan 1998 39.36 Feb 1998 38.91 Mar 1998 39.50 Note: The Indian fiscal year runs from April 1 through March 31. Source: IMF, International Finance Statistics (IFS), line "rf"; Reserve Bank of India. ' A dual exchange rate system was created in March 1992, with a free market for about 60 percent of foreign exchange transactions. The exchange rate was reunified at the beginning of March 1993 at the free market rate. Vice President Mieko Nishimizu Director Edwin Lim Sector Manager Roberto Zagha Task Leader Zoubida Allaoua  CONTENTS Currency Abbreviations and Acronyms Acknowledgments Economic Development Data Executive Summary Chapter 1: Policies for Growth and Poverty Reduction: The Challenges Ahead ...............................1 Introduction ......................................................I Poverty incidence: India-wide and by region .......................................................3 Who are the poor? .....................................................5 Escaping poverty: Barriers in UP and Bihar .......................................................6 Growth and poverty reduction: Policy priorities .................. ....................................8 What needs to be done? .......................................................8 Chapter 2: Poverty, Gender, School Availability and Quality ........................................................... 11 How much do the poor benefit from public spending on education? .......................................... 12 How does the distribution of public spending affect educational outcomes? .............. ............... 12 What causes such gaps in enrollment and achievements? ........................................................... 16 What are the implications for public policy? .......................... .................................. 18 Public actions to raise the enrollment rates of the poor ............................................................ 19 Chapter 3: Poverty, Health Status, and Health Policy to Reduce Poverty .................... .................... 27 Health status of the poor ...................................................... 28 Determinants of health status of the poor ..................................................... 29 What are the implications for health policy? ..................................................... 33 Chapter 4: How do Anti-Poverty Programs Benefit the Poor? ........................................................: 37 Introduction ................................................ 37 Background: Government anti-poverty programs ................................................. 37 How much do the poor benefit from these poverty programs? ................................................ 39 How much would spending reform benefit the poor? ...................... .......................... 40 Regional distribution of benefits ................................................ 41 What reforms can best reduce non-poor capture of program benefits? ....................................... 44 Options for reform ................................................ 45 Food-linked transfer programs ................................................ 47 Annexes ..................................................................................... 51 References .......89  List of Tables Table 1. 1 Poverty In India: 1993-94 ............................................................3 Table 1.2 State rankings on the basis of alternative indicators of well-being, 1993-94 .................. 4 Table 1.3 Rural poverty by agro-climatic region ............................................................6 Table 2.1 Average primary school enrollment in rural India ........................................................ 12 Table 2.2 Marginal odds of primary school enrollment ........................................................... 13 Table 2.3 Proportion of 6 to 14 year-olds who are currently 'in school", by economic group ..... 13 Table 2.4 Simulated flow of 100 children through elementary schooling by economic group .... 15 Table 2.5 Gender gaps in the proportion of 15 to 19 year olds who have completed grade 8, by economic group .16 Table 2.6 Change in service quality for lowest 40 percent of households with decentralization .25 Table 3.1 Prevalence of disease ............. 29 Table 4.1 Central plan budgetary expenditures on anti-poverty programs: 1990-91 to 1997-98.37 Table 4.2 Average participation rates for India's main anti-poverty programs in rural areas ...... 39 Table 4.3 Marginal odds of participation for India's anti-poverty programs ................................ 41 Table 4.4 Centrally-sponsored social security schemes ......................................................... 48 List of Boxes Box 1.1 Poverty reduction: the primacy of growth and human capital development .................. 1 Box 1.2 The centrality of education to growth and individual and society's welfare .................. 2 Box 1.3 Who is poor? Evidence from village studies in UP and Bihar ........................................5 Box 1.4 Labor market imperfections and the distributional impact of non-farm employment in India ............................................................7 Box 1.5 Will deregulation of food processing industry help the poor? ...................................... 10 Box 2.1 Availability of government primary schools: Community perceptions from UP ......... 17 Box 2.2 The basics of reform: specific challenges ............................................................ 19 Box 2.3 District primary education program (DPEP) ........................................................... 20 Box 2.4 Decentralization of education management to PRIs: Madhya Pradesh's experience ... 22 Box 3.1 Use of public health facility: Evidence from village studies in UP and Bihar .............. 32 Box 3.2 Illustration of the importance of the relative burden of disease .................................... 34 Box 4.1 What is 'benefit incidence' analysis? ............................................................ 40 Box 4.2 PRA participants' perceptions of central government poverty-alleviation programs ... 42 Box 4.3 Leakages to the non-poor under the public works programs ........................................ 43 Box 4.4 Diverting IRDP funds to the non-poor ............................................................ 44 Box 4.5 What makes a good workfare scheme? ............................................................ 47 List of Figures Figure 2.1 Attainment profiles for 15 to 19 year old by economic group ...................................... 14 Figure 2.2 Spending per student and enrollment ............................................................ 21 Figure 2.3 Spending per student and the gap in enrollment between the richest and poorest group .21  Figure 3.1 Under 2 mortality in percent ......................................................... 28 Figure 3.2 Prevalence/incidence of disease conditions .................................................. ....... 28 Figure 3.3 Percentage of children with diarrhea or symptoms of ARI during survey period ........ 28 Figure 3.4(a) Source of water, urban areas ......................................................... 31 Figure 3.4(b) Source of water, rural areas ......................................................... 31 Figure 3.4(c) Sanitation facilities, urban areas ......................................................... 31 Figure 3.4(d) Sanitation facilities, rural areas ......................................................... 31 Figure 3.4(e) Highest education level attained, urban areas ......................................................... 31 Figure 3.4(f) Highest education level attained, rural areas ......................................................... 31 Figure 3.4(g) Access to infrastructure, rural areas .................... ..................................... 31 Figure 3.4(h) Access to health facilities, rural areas ....................... .................................. 31 Figure 3.5 Place of treatment for ARI symptoms ......................................................... 32 Figure 3.6 Income effect on presence of facilities ......................................................... 32 Figure 3.7 Effect of water and sanitation on under 2 mortality ...................................................... 34 Figure 3.8 Percent of users of public facilities (for fever, ARI and diarrhea) by income group .... 35 Figure 3.9 Value of insurance as percentage of expected cost by level of income and type of service ....................................................... 35 Figure 3.10 Value of insurance as percentage of expected cost by cost of service and income ....... 35  Abbreviations and Acronyms AIDS Acquired Immune Deficiency Syndrome APL Above Poverty Line APP Anti-Poverty Program BPL Below Poverty Line DC District Collector/Deputy Commissioner DPEP District Progranmme for Elementary Education DRDA District Rural Development Authority DWCRA Development of Women and Children in Rural Areas EAS Employment Assurance Scheme ECD Early Child Development EGS Employment Guarantee Scheme FCI Food Corporation of India GDP Gross Domestic Product HIV Human Immune Virus ICDS Integrated Child Development Services IRDP Integrated Rural Development Program JRY Jowahar Rojgar Yojana MOP Marginal Odds of Participation MWS Million Wells Scheme NAS National Accounts Statistics NCAER National Council of Applied Economic Research NEP National Policy on Education NFHS National Family Health Survey NGO Non-Governmental Organization NIEPA National Institute of Educational Planning and Administration NRY Nehru Rozgar Yojana NSAP National Social Assistance Program NSS National Sample Survey NSSO National Sample Survey Organization PDS Public Distribution System PHC Primary Health Center PRIs Panchayati Raj Institutions SC/STs Scheduled Castes/Scheduled Tribes SEWA Self-Employed Women's Association SHASU Scheme of Housing and Shelters Upgrade SHGs Self-Help Groups SUWE Scheme of Urban Wage Employment TB Tuberculosis TLC Total Literacy Campaign TPDS Targeted Public Distribution System TRYSEM Training of Rural Youth for Self-Employment UPBEP Uttar Pradesh Basic Education Project WDR World Development Report  ACKNOWLEDGMENTS This report was prepared by a team led by Zoubida Manager, SASPH) and Salim Habayeb Allaoua. It draws on contributions from Valerie commented on the health chapter. Keith Hinchliffe Kozel (Beneficiary assessments from UP and and Adriaan Verspoor (SASED) commented on Bihar), Martin Ravallion and Peter Lanjouw the education chapter. The report also benefited (Benefit incidence analysis of spending on anti- from comments of a number of other colleagues poverty programs and primary education), Deon within and outside the Bank. The team would like Filmer and Lant Pritchett (Education), Jeffrey to thank Michael Walton (Director Poverty Board, Hammer (Health), Gunnar Eskeland PREM) and Colin Bruce for their support. The (Decentralization), Ravi Srivastava (Panchayats report was prepared under the guidance of Roberto role in social development), and Rajni Khanna Zagha (Sector Manager) and James Hanson (Review of DPEP literature). Bhaskar Naidu and (Economic Advisor). The document benefited Lin Chin assisted with the statistical appendix. from discussions held in June, 1998 with officials from Uttar Pradesh, Himachal Pradesh, Rajasthan The report benefited from the comments and and the Central Government. advice of John Williamson (Chief Economist, South Asia), Dominique van de Walle and Lionel Arrangements for missions were made by H. Demery (reviewers for the whole report), Bhawani. The report was desktoped by Lin Chin. Kalanidhi Subbarao (reviewer for the chapter on Financial support for preparatory work was safety nets), and Marlaine Lockheed (reviewer for provided through the Netherlands Poverty Trust the education chapter). Richard Skolnik (Sector Fund and the Swiss Trust Fund.  ECONOMIC DEVELOPMENT DATA GNP Per Capita (US$, 1996-97): 380a Gross Domestic Product (1996-97) Annual Growth Rate (% p.a., constant prices) % of 70-71- 75-76- 80-81- 85-86- 92-93 93-94- US$ Bln GDP 75-76 80-81 85-86 91-92 96-97 GDP at Factor Cost 323.7 90.0 3.4 4.2 5.4 5.2 5.3 7.1 GDP at Market Prices 359.7 100.0 3.3 4.2 5.6 5.4 5.3 7.0 Gross Domestic Investment 90.7 25.2 5.3 3.7 5.7 6.6 12.3 11.4 Gross Domestic Saving 78.8 21.9 4.4 2.6 4.6 7.9 9.7 12.5 Current Account Balance -4.7 -1.3 -- -- -- -- - -- Output, Employment and Productivity (1990-91) Value Added Labor Force b V. A. per Worker US$ Bin. % of Tot Mill. % of Tot. US$ % of Avg. Agriculture 82.5 31.0 186.2 66.8 443 46.4 Industry 78.0 29.3 35.5 12.7 2198 230.2 Services 105.7 39.7 57.2 20.5 1848 193.7 Total/ Average 266.2 100.0 278.9 100.0 954 100.0 Government Finance General Government Central Government Rs. Bln. % of GDP Rs. Bln. % of GDP 96-97 96-97 90-91-96-97 96-97 96-97 90-91-96-97 Revenue Receipts 2476.1 19.4 19.3 1531.4 12.0 11.5 Revenue Expenditures 2936.8 23.0 23.1 1834.1 14.4 14.9 Revenue Surplus/ Deficit (-) -460.8 -3.6 -3.8 -302.7 -2.4 -3.4 Capital Expenditures d 436.6 3.4 4.3 399.9 3.1 3.7 External Assistance (net) ' 29.9 0.2 0.6 344.3 2.7 2.3 Money, Credit, and Prices 90-91 91-92 92-93 93-94 94-95 95-96 96-97 (Rs. billion outstanding, end of period) Money and Quasi Money 2658.3 3170.5 3668.3 4344.1 5314.3 6040.1 7001.8 Bank Credit to Govermment (net) 1401.9 1582.6 1762.4 2039.2 2224.2 2577.8 2888.2 Bank Credit to Commercial Sector 1717.7 1879.9 2201.4 2377.7 2927.2 3446.5 3753.6 (percentage or index numbers) Money and Quasi Money as % of GDP 49.6 51.4 52.0 53.6 55.2 54.0 54.8 Wholesale Price Index (1981-82 = 100) 182.7 207.8 228.7 247.8 274.7 294.8 314.6 Annual Percentage Changes in: Wholesale Price Index 10.3 13.7 10.1 8.4 10.9 7.3 6.7 Bank Credit to Government (net) 19.7 12.9 11.4 15.7 9.1 15.9 12.0 Bank Creditto Commercial Sector 13.2 9.4 17.1 8.0 23.1 17.7 8.9 a. The per capita GNP estimate is at market prices, using World Bank Atlas methodology. Other conversions to dollars in this table are at the prevailing average exchange rate for the period covered. b. Total Labor Force from 1991 Census. Excludes data for Assam and Jammu & Kashmir. c. Transfers between Centre and States have been netted out. d. All loans and advances to third parties have been netted out. e. As recorded in the government budget.  Balance of Payments (US$ Millions) Merchandise Exports (Average 1990-91-1996-97) 1994-95 1995-96 1996-97 US$ Mil % of Tot. Exports of Goods & NFS 32,990 39,668 42,379 Tea 386 1.6 Merchandise, fob 26,855 32,311 33,764 Iron Ore 486 2.1 ImportsofGoods&NFS 41,437 51,213 54,271 Chemicals 1,919 8.1 Merchandise, cif 35,904 43,670 48,063 Leather & Leather products 1,457 6.2 of which Crude Petroleum 3,285 3,442 4,797 Textiles 3,000 12.7 of which Petroleum Products 2,396 3,759 5,239 Garments 2,875 12.2 Trade Balance -9,049 -11,359 -14,299 Gems and Jewelry 3,894 16.5 Non Factor Service (net) 602 -186 2,407 Engineering Goods 3,229 13.7 Others 6,363 26.9 Resource Balance -8,447 -11,545 -11,892 Total 23,610 100.0 Net factor Incomea -3,711 -3,497 -3,863 External Debt, March 31, 1997 Net Transfersb 8,093 8,506 11,071 US$ Mil. Balance on Current Account -4,065 -6,536 -4,684 Public & Publicly Guaranteed 74,406 Private Non-Guaranteed 7,382 Foreign Investment 4,922 4,794 5,834 Total (Including IMF and Short Term) 89,827 Official Grants and Aid 416 345 410 Net Medium & Long Term Capital 1,539 -382 -4,197 Debt Service Ratio for 1996-97 Gross Disbursements 6,715 6,641 3,044 Principal Repayments 5,175 7,023 7,240 % curr receipts Public & Publicly Guaranteed 20.6 Other Capital Flowsc 3,228 -1,169 5,397 Private Non-Guaranteed 1.3 Non-Resident Deposits 818 944 3,439 Total (Including IMF and Short Term) 24.5 Net Transactions with IMF -1,174 -1,719 -972 IBRD/ IDA Lending, March 31, 1997 (US$ Mil) Overall Balance 6,858 -2,004 6,199 IBRD IDA Change in Net Reserves -5,684 3,723 -5,227 Outstanding and Disbursed 8,768 17,616 Gross Reserves (end of year)d 21,160 17,436 22,664 Undisbursed 3,097 4,368 Outstanding incl. Undisb. 11,865 21,984 Rate of Exchange End-Mar 1998e US$ 1.00 =Rs. 39.50 -- Not available. a Figures given cover all investment income (net). Major payments are interest on foreign loans and charges paid to IMF, and major receipts is interest earned on foreign assets. b. Figures given include workers' remittances but exclude official grant assistance which is included within official loans and grants, and non-resident deposits which are shown separately. c. Includes short-term net capital inflow, changes in reserve valuation and other items. d. Excluding gold. e. The exchange rate was reunified at the market rate in March 1993. f. Total exports (commerce); net of crude petroleum exports. Sources: Natinal Accounts Statistics; Ministry of Commerce; Union Budget Documents; Reserve Bank of India; 1991 Census;World Bank Debt Reporting System.  India Social Indicators Latest single year Same regiontincome group South Low- 1970-75 1980-85 1990-96 Asia income POPULATION Total population, mid-year (millions) 613.5 765.1 945.1 1,265.8 3,236.2 Growth rate (% annual average) 2.3 2.1 1.8 1.9 1.8 Urban population (% of population) 21.3 24.3 27.1 26.6 29.1 Total fertility rate (births per woman) 5.6 4.4 3.1 3.4 3.2 POVERTY (% of population) National headcount index .. 35.0 Urban headcount index .. .. 30.5 Rural headcount index .. .. 36.7 INCOME GNP per capita (US$) 180 280 380 380 490 Consumer price index (1987=100) 45 85 227 233 275 Food price index (1987=100) .. 83 238 INCOME/CONSUMPTION DISTRIBUTION (% of income or consumption) Lowest quintile 5.9 .. 9.2 Highest quintile 49.4 .. 39.3 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 0.7 0.8 1.5 Education (% of GNP) .. 3.4 3.8 3.0 3.6 Social security and welfare (% of GDP) .. .. Net primary school enrollment rate (% of age grup) Total Male Female Access to safe water (% of population) Total 31 54 81 78 76 Urban 80 80 85 83 80 Rural 18 47 79 74 72 Immunization rate (% under 12 months) Measles .. 1 84 82 80 DPT .. 41 86 83 81 Child malnutrition (% under 5 years) .. .. 66 Life expectancy at birth (years) Total 50 52 63 62 63 Male 51 52 62 61 62 Female 49 51 63 63 64 Mortality Infant (per thousand live births) 132 101 65 73 68 Under 5 (per thousand live births) 202 173 85 93 94 Adult (15-59) Male (per 1,000 population) 324 261 229 239 231 Female (per 1,000 population) 353 279 219 230 206 Matemal (per 100,000 live births) .. 460 437 World Development Indicators 1998 CD-ROM, World Bank.  ExEcuTIvE SUMMARY 1. The reforms India started in 1991 hold the and raise the poor's health status and education provide promise of considerably improving the living standards them with the skills to take advantage of opportunities of the country's 320 million poor. The economy has for better paying jobs, while avoiding the ravages of responded well to the reforms, and the government has ill-health. Such policies have worked in other explicitly committed itself to accelerate the developing countries and in some Indian states. development of the country's human resources. By maintaining its commitment to economic liberalization, 4. The central finding of this follow-up report is that redirecting towards infrastructure, health and basic the success of education and public health in reaching education the large resources now absorbed by ill- the poor depends not only on more spending but on targeted subsidies, and improving the effectiveness and improving the quality of service they receive. The targeting of spending in education, health, and anti- importance of effective delivery of education and poverty programs, India can give its long battle to health is underscored both from qualitative surveys in reduce poverty a new impetus. India's poorest districts in UP and Bihar and from a new empirical assessment of the degree to which the Where does India stand? poor benefit from public spending on education, health, and anti-poverty programs. 2. In the half century since its independence, India has made many notable social and economic 5. The report suggests that targeting govemment achievements in a democratic political setting: among spending to primary education, reducing them, the eradication of famine, the reduction in communicable diseases, improving water and population growth and the creation of a large pool of sanitation, and reducing household insecurity through technical and scientific talent. It also managed to public works programs would do most to reduce reduce poverty over that period, but only since about poverty. Early results from the implementation of the 1975 has the decline become fairly steady, albeit slow. TPDS in UP and Bihar indicate that the poor seem to And, although the incidence of poverty has declined be benefiting more than the non-poor from the from 45 to 36 percent between 1950 and 1993-94, subsidies on foodgrains. If this finding is generalized population growth caused the numbers of the poor across India, then targeted foodgrain subsidies could almost to double in the same period from 164 to 320 supplement public works programs to reduce million. Of that total, more than three out of four (76 household food insecurity. percent) live in rural areas. The face of poverty in India 3. Where policies have increased growth, particularly agricultural growth, and improved human 6. Being poor in India means lacking the good development (as measured by various indicators), health and skills to make the most of the economic poverty has fallen faster, as indicated in the World opportunities growth can open. Over half of India's Bank's 1997 Poverty Assessment. In contrast where children under 5 years of age still suffer from growth was slow, or where human development malnutrition and, later in life, from the illnesses to policies lacking, or ineffective, or misdirected to the which an ill-nourished childhood exposes those who politically or economically more-advantaged, poverty survive it. Being poor in rural India means, as well, a reduction has been relatively slow. Policies that higher than 50-50 likelihood of being illiterate. In the sustain and accelerate labor-intensive economic growth states of Andhra Pradesh, Bihar and Rajasthan, barely half the rural men (poor or not) can read; in Rajasthan  ii Executive summary and Bihar barely a quarter of all the women are infant mortality rate and the highest rates of male and literate, a percentage that drops to 17 percent in rural female literacy, managing to get almost as high a level Rajasthan and 22 in rural Bihar. of enrollment in primary school for its poorest children (88.7 percent) as for its wealthiest (97.5 percent). 7. The incidence of poverty and the poor's access to Having forgone such investments, Bihar-the poorest social services varies considerably from state to state among India's 16 largest states-has the lowest level and even within states. Poverty in rural Bihar, for of male literacy, the second lowest level of female instance, was almost twice as widespread (a 58 percent literacy and the sixth highest level of infant mortality. rate of incidence) in 1993-94 as in rural Kerala (31 percent). Even within a single state, the variance can Are the poor benefiting from public spending? be striking, as for example, between rural poverty incidence in southern (68.8) and northern (45.5) 11. Public spending on education does not benefit the Orissa, and inequality is higher within wealthier poor, who either do not send or do not keep their regions. Similarly, living in Kerala than in Bihar made children in school, on an equal footing with the better an average child 25 percent more likely to attend off, even at the primary level. The evidence in Chapter school. And the better health status of the poor in 2 shows that enrollment and attainment levels of the Kerala is largely explained by Kerala's better two social-economic groups differ enormously. Fewer education, water and sanitation, and basic than half the children from poor households enroll and infrastructure services. when they do, only one in five of them completes basic education. By contrast, wealthier households do send 8. Even more noticeable than geographic differences their children of both sexes to school no matter where in poverty, social indicators, and regional inequality they live, and over 80 percent of them complete grade are the inequalities that persist across gender, caste and 8. Poor girls, in a brutal contrast that highlights gender ethnic groups. The size of the gender gap in schooling barriers, are only one-eighth as likely to complete varies widely across states, but works out to a grade 8 as their female counterparts among the well-to- significant average disadvantage for girls wherever do. Of course, failure to enter or complete primary they live and however affluent or disadvantaged their education means that the poor also do not benefit from families. Boys all over India are about 20 percent more the large subsidies to secondary and tertiary education. likely than girls to have finished the 8 years of basic education. Being a poor, pregnant woman means 12. Despite the economic and social returns to risking death. India's maternal mortality is so high primary schooling, approximately 33 million (437 per 100,000) that the nation accounts for one in youngsters (out of 105 million) between the ages of six every four maternal deaths worldwide. and ten do not attend school and four in five of those who enroll never complete basic education. It can be 9. Similarly, members of scheduled castes, presumed that their parents felt that the benefits from particularly their children are more likely to die schooling, or the costs to undertake it were not worth prematurely (Chapter 3). What is sadly consistent the effort. That unfortunate decision is made easier across states and regions is the higher risk of poverty when, as many villagers from UP and Bihar reported, among women, illiterates, the landless and members of classrooms are too far away or ill-equipped, teachers scheduled castes and tribes. are absent most of the time and not well qualified, and potential students from disadvantaged social groups are 10. The differences in reaching the poor and reducing made to feel unwelcome. Poor parents, moreover, are poverty reflect more than natural advantages or less likely to invest in the education of their daughters disadvantages. They partly mirror conscious decisions because the returns on such investment are seen to (as in Kerala) to improve the poor's health and their accrue to the family into which the daughters marry. education and, consequently, their opportunities to gain a share of economic progress. Kerala has the lowest  Executive summary 13. In health, the poor face a disproportionately 16. Priority for human capitaL The returns on higher risk than the rich of falling sick, particularly primary education are huge: better family health, from infectious diseases. They are more likely to lose smaller family size and healthier children for educated their children before they reach the age of two. Poor women, for instance. A mother's primary education members of scheduled castes run even higher risks of may do even more than food subsidies to improve premature death. And because they are less likely to child nutrition. Educated workers can take advantage be educated and they must often use shared sources of of growth in demand for labor to raise their water and surface water (lakes, streams, ponds) without productivity and earnings. And because educated adequate sanitation facilities, they are dangerously parents are more likely to send their children to school, exposed to illness (Chapter 3). Perhaps the most education (even if limited to the primary level) important finding of the research carried out for this perpetuates the benefits from one generation to the report is the failure of India's primary health centers to next. It is no coincidence that Kerala has enjoyed the deliver the care needed to reduce infant mortality. The highest levels of both male and female literacy and the study could not find any significant correlation fastest decline in the incidence of poverty over the past between child survival and the availability of public forty years. health facilities. 17. If India is to meet its objectives of sustaining 14. Traditional anti-poverty programs are not high rates of economic growth with equity, then compensating for the shortcomings in the fields of schooling must reach the economically and socially education and health. Indeed, they are funneling disadvantaged. This would require policies that can many of their benefits to the non-poor. According to expand both the quantity and quality of schooling and data from the 1993-94 NSS, seventy-six percent of the that work to eliminate social exclusion based on wealthiest rural households, for instance, are likely to income, gender or caste. The problems are take advantage of the subsidized prices for food under concentrated in Andhra Pradesh, Bihar, Madhya the Public Distribution System while, at the opposite Pradesh, Orissa, Rajasthan, Uttar Pradesh and West end of the wealth scale, less than 70 percent of the Bengal. Notwithstanding the remarkable poorest households benefit from food subsidies. The accomplishments of the District Primary Education poor do participate in rural public works and to a lesser Project (DPEP) in increasing enrollment in lower extent in credit programs (IRDP), but all three schemes primary education, three quarters of the 33 million 6- (PDS, IRDP, and public works) remain loosely to-10 years-olds in these seven states are still not in targeted. school. Reducing poverty: What could public policy do 18. The policy prescriptions for bringing the poor better? children into school are not obvious. Success will depend on much stronger political commitment to 15. Since the bulk of the required investments to educate the children of the poor. There is no question build human capital comes from public rather than that spending levels on education inputs (teachers, private sources in India, and yields many externalities, classrooms, textbooks and instructional material) need it is important that poverty-reduction strategies focus to increase. Chapter 2 provides estimates of the increased public spending on expanding the poor's resource needs to put all children 6-14 years old in access to quality education and health care. To avoid school. That said, the empirical findings in this report increasing the already large fiscal deficit, the funding and those of other research in India produce a for these needed increases could come from reducing consistent picture that increased spending alone will the costly and integrated subsidies that are currently the not be enough to improve enrollment and attainment, source of large fiscal imbalances and microeconomic of the poor. Improvement in quality of schooling is distortions, as discussed in the World Bank's 1997 and crucial to attract poor children to school and retain 1998 Macroeconomnic Updates. them there as shown in Chapter 2. Because the  iv Executive summary opportunity cost is high for them and their families, not as easy as increasing spending and therefore a poor children would not go to school if they perceive it stock-taking exercise of what has worked elsewhere in as a waste of their time. the world and within India is also needed to inform public policy about the design of an effective 19. Improving quality of education needs educational system. fundamental reforms to change the incentive framework within which teachers, school officials, 22. Effective health programs must complement bureaucrats and politicians operate. The accumulated education in raising the potential productivity of labor experience under the DPEP, the Lok Jumbish, and the to reduce poverty. Yet, the research carried out for this experiences of states such as Kerala and Himachal report found that the public sector has failed to deliver Pradesh should be analyzed to help provide the some of the promised care to India's poor. This raises information necessary to underpin such deeper important issues and more research is needed to educational reforms, particularly in the seven states understand fully the factors behind the poor with the highest incidence of school dropouts or non- performance. This should constitute a priority research enrollnent. Interesting findings from recent theoretical area because the policy implications would be different and empirical research provide some guidance to if the main reason is poor quality than if it is because reforms that are likely to improve outcomes. Some of of the availability of an easily accessible and large these reforms are already under way in many states in private sector or both. India. These include decentralization of control over the provision of schooling to the local areas 23. Public expenditure on health as currently themselves; direct parental involvement; competition constituted, is likely to have only a limited through school choice, and community involvement. redistributive impact. Despite its relatively equitable Madhya Pradesh, for example, is by far the most distribution, it is small relative to overall health use advanced in decentralizing school management to local and, its effects on health outcomes appear to differ institutions such as the Panchayati Raj Institutions with greatly from one intervention to another and place to a consequent increase in enrollment and retention place, especially in its impact on the poor. Chapter 3 among children of underprivileged groups. of this report identifies four priority areas for increasing the impacts of public spending on the health 20. The process and the potential for bringing of the poor, and indeed on the economy in general. education closer to its users and beneficiaries through First, combating communicable disease and expanding decentralization has generated significant optimism, public health interventions (see below) would deliver but also considerable caution. The chief fears reflect substantial gains from public health spending concem that decentralization could perpetuate, and particularly for the poor. Second, improving access to quite possibly increase, regional disparities in school safe water sources and sanitation facilities and quality, and social and economic inequities in access to vaccinations would help reduce infant and child good schooling. Lowered funding levels for education mortality and thus reduce fertility and improve also might be a problem if local control serves as a maternal health. Because these are activities in which pretext for diminishing central responsibility. the poor are vastly underserved, relative to the non- poor, public interventions in these areas will achieve 21. Guidance on the choice between the various their biggest impact on the poor. The net cost to the options and the likelihood of success requires further government of extending water and sanitation facilities analysis, however, to understand better what changes to poor areas may not be very large since willingness would be required to the underlying incentives to pay for these goods is usually quite high and could framework for teachers and officials to perform better. cover the extension of the system. Third, analyses Gradually expanding the DPEP model and collecting have shown that health education concerning basic appropriate information to assess its impact on hygiene, the value of better nutrition and preventive educational attainment is essential. Raising quality is care such as public campaigns against tobacco use and  Executive summary v for the use of appropriate measures to avoid programs (preferably through reallocation of spending contracting HIV-AIDS and other sexually transmitted away from the other less effective poverty programs), diseases are an important part of encouraging while benefiting the poor most, would also reduce the behavioral changes needed for long-term extent to which the non-poor could capture their improvements in health outcomes. benefits. The priority would therefore appears to focus on improving the effectiveness of public works 24. Fourth, because the rural poor must often meet through effective targeting to the genuinely needy, and the financial burden of medical emergencies through making them fiscally sustainable. Effective targeting debt, distress sale of real assets or reductions in food or need not be exclusive targeting. Some level of other important consumption items, there is merit in spillover to the non-poor is unavoidable if political subsidizing hospital treatment. The benefit of support for such programs is to be maintained. Such providing this "in effect" social insurance-on top of targeting could be done by setting the wage rate at a the value of the service itself-is in the range of 40-70 level which is no higher than the prevailing market percent of the costs of providing the service to patients wage where the scheme is introduced. Willingness to in the lowest 40 percent of the population, people for work at this wage rate would be the only eligibility whom insurance is not a realistic option. Public criteria. The scheme could also be geographically subsidies to hospital care can thus play an important targeted to poor areas and create assets that are of value redistributive role as long as referral systems are to poor people in these areas. reformed to ensure that access is based on need rather than income and social status. 27. In sum, the challenge that India faces in reducing poverty faster and more effectively than it has in the 25. The provision of medical care to the poor as an past is enormous. Last year's poverty report concluded insurance does not have to be provided only through that growth accounted for most of the reduction in publicly managed hospitals. The poor could also be poverty incidence over 1951-1993. Improvements in served by public financing of private provision of redistribution (which occurred either through deliberate services in rural areas (with an appropriate system of government policies or independently) achieved their incentives and monitoring); by a major effort to greatest impact by the mid-1960s, but even that was increase the quality of care through training, changes in minimal. As shown in last year's report, the gains to incentives and regulations; or by community-based the rural poor since 1970 have been due almost entirely insurance schemes. India's policy makers will need to to growth. That report also documented the evaluate the option of subsidizing hospital treatment ineffectiveness of the direct poverty programs in against other alternatives and choose what services raising the living standards of the poor. The benefit they will subsidize and what type of provision they will incidence analysis in this report confirms that finding. promote. Further research is needed, here again, to It is clear that there is a need to phase out a number of underpin the necessary reforms to both public and the anti-poverty programs as suggested in the private health systems in India and further guide the Approach Paper to the Ninth Plan, and direct some of policy. the savings to ensure quality education which the analysis has shown is more effective in reducing 26. Reforming anti-poverty programs. Public works poverty over the long-term than various poverty programs are generally considered to have been programs. For the poor to take advantage of the new relatively successful in reaching the poor. However, educational opportunities, however, their health status the benefit incidence analysis based on data gathered needs to improve and this calls for allocating public on such programs in the 1993-94 NSS has found that spending where it is expected to deliver the highest the non-poor benefit fairly significantly from such gains to the poor: attacking communicable diseases and programs, although less so than under the IRDP or the increasing access to the poor of good quality water PDS. The marginal incidence analysis suggests that and sanitation facilities. Improved access to basic expanding access of the poor to the public works services will not only make the poor healthier and  vi Executive summary better educated persons, it will also allow them to reforms are needed in the way in which the public contribute to growth through the higher productivity sector delivers health and education services to the that education and good health bring and raise their poor, in order to allow them to take advantage of level of welfare through higher earnings that both opportunities for raising their living standards that will higher productivity and growth would offer. The come with rapid, labor-intensive growth. message for India is therefore clear: fundamental  CHAPTER 1: POLICIES FOR GROWTH AND POVERTY REDUCTION: THE CHALLENGES AHEAD Introduction Box 1.1: Poverty reduction: The primacy of growth 1.1 Can India overcome poverty? Although the and human capitat development proportion of poor people below the poverty line in Differing performances in rural poverty reduction: India has dropped from 45 percent in 1950 to 36 were due to both differing initial conditions in human percent in 1993-94, the total number of poor has nearly resource development and physical infrastructure and doubled from about 164 to 320 million. Of these poor different rates of agricultural growth. For instance, the incidence of poverty in Bihar declined at an annual people, more than three out of four (76 percent) live in rate 2.1 percentage points below that in Kerala, but the countryside, where sustained investments in human only about half of that differential is explained by the development and infrastructure have been lacking or initial conditions. Other factors, particularly the slow ineffective (or misdirected, in the case of many growth in agricultural output per hectare, have been important in explaining Bihar's unimpressive government poverty programs, to the politically or performance. It is nonetheless notable that if Bihar, economically more advantaged). Yet it is those had started off with Kerala's level of human resource investments, as complements to overall economic development in the 1960s, the differential in the rates of poverty reduction between the two states could have growth and to agricultural growth in particular, that the been narrowed to less than half their observed levels. World Bank's 1997 Poverty Assessment found to offer Also the implicit trade-offs can be large. For Bihar to the greatest prospect of reducing poverty. The report overcome the adverse effects of its initially found that policies which sustain and accelerate labor disadvantageous human resource development relative to Kerala would have required that its agricultural intensive economic growth and develop the human yields grew annually at a rate 3.4 percentage points capital of the poor by raising their levels of health and higher than Kerala's.. The study's results also suggest education offer them opportunities to escape from that Kerala's low growth rate in farm yields inhibited its rate of poverty reduction. Kerala's trend rate of solely selling their unskilled labor at wages too low to reduction in the poverty rate would have been 3.1 escape poverty. Such policies have worked in other percent per year, rather than 2.3 percent it has actually developing countries, and most importantly, in some achieved had it had the same trend growth rates in Indian states (Box 1.1). If recent high rates of growth farm yields as Punjab-Haryana- can be sustained, and with the committed Source: Datt and Ravallion, 1996b. implementation of effective public policies, India can :I_ and will shrink its massive rural poverty. poverty-reducing effects of industrialization and the role of urban areas in this process. Along with the 1.2 The stage is set for progress. Wherever in prospects for robust agricultural performance as a India policies to encourage growth and develop human result of deregulation, India's recent high rates of resources and infrastructure have been effectively growth and its continued integration into the world combined, poverty has diminished rapidly (Box 1.1). economy open the way for a concerted effort aimed at From these results, the lessons for the future are maximizing the beneficial impact of the expected clear. A more open trade regime since 1991, a future rapid and labor intensive growth itself on rural significant reduction in distortions, and a liberalized poverty and most likely on urban poverty. Butfor that economy with a major role for the private sector have effort to bear fruit, investments in human resources already improved agricultural incentives. They also are cruciaL They are thefocus of this report. are creating the conditions for labor intensive industrialization that will not only enhance the 1.3 Even in a setting of strong growth, poor country's growth prospects but also increase the women, men, and children must count largely on their  2 Chapter I own human capital to enable them to participate in and public spending (Chapters 2, 3, and 4), undertakes a benefit from a private-sector led growth, otherwise longer-term examination of the prospects for reducing they will be left behind. Their access to such social and possibly eliminating persistent chronic poverty services as health and education is therefore crucial to through more effective public policies to encourage their prospects for moving permanently out of chronic and sustain rapid and broad-based growth (Chapter 1) poverty and expanding that access is a key component and to bolster the human capital of the poor through of the long-term strategies for sustained economic the provision or pricing of education and health growth and poverty reduction (Box 1.2). services (Chapters 2 and 3). Recognizing, however, that transient poverty in poor households due to old 1.4 This report, after reviewing the profile of the age, drought years, disability, death of the bread poor (Chapter 1) and their share in the benefits of winner or other blows to income will remain an t~hievdacrs.the .-S 8 p?k uictan ciion s e ug}tthat Ea,ewIidscir~tyIi ..aedua.tita . 0t , l~aiqn.1