World Bank releases comprehensive review of anti-poverty programs in India

BIC South Asia here summarized the report “Social protection for a changing India,” first commissioned in 2004 and recently released.

Banking on Anti – Poverty Programs

Brief on the World Bank Report Reviewing Anti-Poverty Programs of Govt.

The report, ‘Social Protection for a Changing India’, was commissioned by the Planning Commission in the year 2004 and is the World Bank’s first comprehensive review of anti‐poverty schemes such as PDS, Mahatma Gandhi National Rural Employment Guarantee in India. This report has two volumes. Volume I report summarizes the findings and recommendations are detailed in the Volume II of the report.

The report organizes the discussion of social protection (SP) policies and programs in three categories. It puts the three main pillars of SP programs in India:

“Promotional” measures, which aim to improve incomes, both in the short to medium term (through livelihood interventions) and in the longer run (through human capital interventions). In the context of this report, the key programs in this area are SP interventions to support investments in human capital (e.g., stipends; midday meals; conditional cash transfers), and targeted credit and livelihood programs for the poor. Public works programs can be viewed as a hybrid of promotional and preventive measures.

“Preventive” measures, which seek to avert deprivation prospectively by supporting households to manage different risks and shocks ex ante. The main preventive instruments addressed in this report are public social insurance programs for the unorganized sector.

“Protective” measures, which provide relief against deprivation ex post to the extent that the other two sets of measures fail to do so. This could address those falling into poverty as a result of shocks, and/or for the chronically poor. The main protective public programs in the report are PDS, social pensions, and targeted housing programs for the poor. In the private arena, such strategies would include sale of household assets, reduction in consumption, running down savings, or taking children out of school.

Key Findings of the Report:

While India’s range of social protection programs is impressive for a developing country, the SP system in spending terms and priorities remains strongly focused on protective programs to mitigate chronic poverty, and on rural areas.

Insurance‐based interventions remain in their infancy in terms of coverage of the unorganized sector, though RSBY is an exciting and rapidly expanding initiative which can provide a way forward.

Promotional interventions in the public sector continue to receive relatively little emphasis, particularly given the continuing challenges in improving human capital outcomes.

Other than PDS, SP interventions in urban areas are negligible and even more strongly biased towards protective interventions. Very less focus on urban poverty with SP heavily biased towards rural areas, and the promise of JNNURM as a vehicle for transforming the situation in this regard has to date failed to be realized in any significant measure.

There remains a strong emphasis on food‐based support which is subject to major governance and implementation problems and which is of questionable relevance for many among the poor whose non‐food spending needs are an increasing source of pressure. At the same time, food programs remain important for certain groups, in certain chronic food deficit areas and at certain times in other areas. These issues are currently being debated in the context of the Right to Food legislation.

Report evaluates the safety nets in India:

According to the report, while India spends significant resources on its core safety net programs – over 2 percent of GDP in recent years – the returns to spending in terms of poverty reduction have been much lower than could be hoped for a variety of reasons.

In programmatic terms, the main driver of poor cost effectiveness and impacts of India’s safety net is its largest program – the public distribution system (PDS). While it consumes almost 1 percent of GDP and has wider coverage than other safety net programs – between 20‐25 percent of the population in the mid‐2000s based on actual drawing of grains by beneficiaries, and closer to 40 percent based on administrative numbers on BPL households ‐its impact on the poor is very limited in many states, particularly a number of lagging states

In recent years, there has been increasing recognition of the need for reforming the PDS as evident by the findings of the Wadhwa Committee report and the ongoing debate around the Right to Food legislation and the recent proposal in the 2010/11 Economic Survey in favor of direct subsidy (through food coupons) as opposed to the current indirect subsidy.

The most heralded reform of SP programs in recent years has been the introduction of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2006. The program also has a host of implementation innovations (e.g., social audits by communities of performance; a structured role for PRIs in implementation; closer attention to the staffing needs at lower levels of the system) which provide a model for future reforms of other SP programs.

Social security for unorganized workers: Insurance and pension programs are less developed relative to safety nets and cover fewer than ten percent of the labor force. Recognition of this public policy gap led to the passage of framework legislation in December 2009 and the creation of a Social Security Board. The most promising effort in this area is the targeted health insurance scheme known as Rashstriya Swasthya Bima Yojana or RSBY.

In addition to the RSBY, a number of important changes to the social security landscape appear to be unfolding both in terms of program design as well as delivery.

The report also evaluates the challenges for implementation of Administration and delivery of social protection programs in India:

  • Lack of coordination and overlap in delivery of programs (both within and across levels of government), reduces accountability of those responsible for SP service responsible for SP service delivery.
  • Maintenance of a “one size fits all” SP program and policy mix from the centre does not respond to the growing spatial diversity in living standards.
  • The basic “nuts and bolts” of program administration and procedures in most states are far below the standards that could be possible given India’s technological and human capital capacity.
  • For a number of programs, expansion of and innovation in the private sector has created possibilities for new modalities of Public Private Partnership (PPP) program delivery which have yet to be explored fully by the public sector.
  • Poorly designed and executed household targeting mechanism (the so‐called BPL 2002 methodology). The BPL method does not reflect good practice in design of proxy means testing mechanisms, and as a result in its design misidentifies almost half the poor as non‐poor, and conversely almost half the non‐poor as poor.

The report further goes on to recommend policy reforms in Social Protection in India. The report finds that significant reforms are needed:

A rebalancing of the policy mix across different types of public SP priorities;

  • Consolidation of the large number of central and state schemes to a core set of flagship programs
  • In the context of consolidation, introducing an element of choice and flexibility for states in the specific program mix of centrally‐supported schemes that they operate;
  • In some areas and for some programs, actively exploring the possibilities for leveraging the role of private players (both non‐governmental and for‐profit) in delivery of interventions.

In terms of reorienting the policy mix, the report suggests several directions:

  • Increasing the emphasis on preventive programs which help the poor and those vulnerable to poverty to manage risks and shocks better. This would include insurance products like health insurance
  • Rethinking programs which seek to promote movement out of poverty in two ways:
  • Moving from administratively driven subsidized credit to public financing of a more diverse range of livelihood promotion approaches better suited to the labor market conditions of individual states as is currently being proposed under National Rural Livelihoods Mission (NRLM)
  • Considering the options for use of safety net transfers to leverage participation in core education, health and possibly nutrition services, in order to promote long term movement out of poverty.
  • Moving to more consolidated and more cash‐based social assistance programs for the chronically poor.
  • Need to start addressing the neglect of urban social protection policy.

The specific proposal of this report is that central SP programs over time aim for a “3 +block” strategy. This would involve 3 core centrally Sponsored Scheme SP programs or “pillars”, combined with an SP block grant from which states could finance other SP programs ‐or supplement benefits under the core pillar programs – more tailored to the poverty and vulnerability profile of the individual state.

A major social assistance program, that would be a significantly reformed PDS, merged for specific groups with existing social pension programs. This report details options for reform of PDS, with a preference for a predominantly cash transfer approach. Also, it looks at the public procurement system. The three reform options presented for PDS are (Pages 9‐16 of the Report):

  • An incremental approach to reform which would retain the current PDS model but with a host of improvements in the policy and implementation systems to increase efficiency from its often very poor state.
  • An intermediate reform option, which would retain a food‐based entitlement program but introduce private sector participation in grain procurement and delivery and a more fundamental overhaul of the PDS administration through use of smart cards.
  • Fundamental reform which allows for cash transfers instead of food‐based transfers, either when the state proves itself unable to fulfill its food transfer obligations or by offering households the choice of grain or the cash equivalent of the grain subsidy

A public works program, for which MGNREG would be the building block, as well as piloting expansion in urban areas.

A basic social security package for those outside the formal sector which could be expanded in terms of coverage and scope of benefits as institutional capacity and fiscal space is developed (Pages 2730). For this the report recommends three measures:

  1. In order to take advantage of economies of scale, to ensure portability and to facilitate supervision, some common standards would have to be developed, particularly in the area of recordkeeping. A good example is a universal standard for identification of covered workers that, in itself, would be a public good with many other uses.
  2. Appropriate contribution and insurance premia would be calculated based on rigorous actuarial calculations that were adjusted over time to reflect experience.
  3. Direct government subsidy is the third element of successful coverage expansion. In order to encourage voluntary take up among low income segments of the unorganised labor force, the required premia and contributions would have to be subsidized. This subsidy would have to be set at a realistic level given budget constraints.

The report provides suggestions on improving implementation of social policy reform also. The report also looks at the improving geographic targeting of the SP schemes. The report also focuses on improving household level targeting systems, which requires reforms in the BPL methodology (Pages 41‐44 of the Report). It draws heavily from the Saxena Committee Report (2009).

Commonalities: Approach to the Twelfth five year and World Bank Study

In April, 2011 the Planning Commission came out with the issues for the approach to the Twelfth Five YearPplan for India. The issues for approach for the social sector clearly seem to be influenced from the Report, ‘Social Protection for a Changing India’.

The one most significant common aspect is a clear bend towards the public private partnership (PPP) in social sectors like health, education etc. In the presentation of issues for the approach for 12th five year plan it is clearly mention that the role of PPP in secondary and tertiary healthcare must be expanded. Also, expansion of the health insurance to disadvantaged sections is being talked of. In the social protection study the recommendations clearly point towards the PPP as a model for social protection.

The World Bank study points out towards major reforms in the current PDS system with emphasis on an incremental approach to reform which would retain the current PDS model but with a host of improvements in the policy and implementation systems to increase efficiency from its often very poor state. The study recommends an intermediate reform option, which would retain a food‐based entitlement program but introduceprivate sector participation in grain procurement and delivery and a more fundamental overhaul of the PDS administration through use of smart cards. The issues to the approach to the 12th five year plan clearly spell out reforms in the Modification of Essential commodities Act and APMC Act, which would impact the procurement system and PDS significantly. Involvement of private sector in marketing and leasing out/in land by farmers is emphasized.

For centrally sponsored schemes the World Bank study points out that, maintenance of a “one size fits all” Social protection program and policy mix from the centre does not respond to the growing spatial diversity in living standards. The study points out that while the insight that “India is a big and diverse country” is a truism in public policy, the Centrally Sponsored Schemes(CSS) which continue to dominate social protection policies give states limited flexibility to tailor central subsidies and programs to their diverse needs; while there has been progress in allowing states flexibility at the margin in adapting implementation specifics of some schemes, their overall social protection policy mix remains largely determined on a uniform basis by the centre, more so in lagging states where own‐resources are limited. Taking from this, the issues to approach 12th five year plan clearly focus on the lack of ownership of the CSS by the states and its consequent effect in terms of poor implementation and need to rectify that.

The issues to the12th five year plan approach paper and the World Bank study both point out towards the revamping of the governance and implementation of the social protection programs and schemes. Involvement of non government entities in delivery and management has been pressed upon in both.

From the similarities between the issues to approach the 12th five year plan and the World Bank conducted study and with the approach paper to be out anytime soon, it seems much of the social protection would be defined by the recommendations of the WB study. With some of its recommendations having serious consequences to the whole fabric of the social protection in India, it is important follow the approach paper closely.

Read the Full Report

Volume 1 (World Bank website)
Volume 2 (World Bank website)