Understanding slum people

Most of us while travelling on train must have got glimpse of how slums look. As train approaches a city one could notice rickety shelters, little kids half naked excreting on side of railway lines, filthy water and air, huge amounts of waste dumped, women washing clothes and utensils in green muddy water. Then, as train moves inside city we see buildings, roads and all sorts of modern stuffs and we could not help but wonder: why so much disparity?

As India moves closer to the mid-point of the Eleventh Five Year plan, urban poverty remains a problem of huge proportions. Of the world’s total number of urban poor, 39% live in India on less than $ 1.08/day (PPP2002). On measures applied domestically, one in every four urban residents in India survives on less than Rs. 19/day. Over 62 million people live in slum settlements under threat of eviction and without access to even the barest of services. Most of the urban poor are the result of rural poverty. With most of the people in rural India practising subsistence farming and disguised unemployment being rampant, it is no surprise why many rural people are migrating increasingly to cities. They migrate to cities in search for better livelihood opportunities and better standard of living but most of them subsist on the periphery of the poverty line, and remain vulnerable to economic and business vicissitudes and cycles. The capacity and capability of urban poor to choose their own way of life is very small but potential is immense. Let us in brief understand economic life of a poor person.

The biggest challenge in front of a poor person is to first come out of vicious circle of poverty. Poor people are characterized by low income groups. The vicious circle starts with low investment. This results in low income which is inadequate to meet consumption needs. This result in low savings and low savings again lead to low investment. Thus, this circle moves. Now a poor person if wants to break the shackles of poverty has to first break the vicious circle by increasing the level of investment. Additional income then leads to additional savings which again increases scope of more investment.


By investment here I mean spending money to buy physical assets (like auto rickshaw, sewing machine etc) or to gain personal skills (like electrician, plumber) which would them help in earning sustained income in future. However, to make investment you need to be Entrepreneurial and also have access to capital markets (to take loan). Slum residents are neither entrepreneurial (because of lack of education) and neither do they have proper access to capital market (because banks do not find them creditworthy). To solve these problems two things need to be done. First, children of slum people should be provided quality education at low cost and second there must be efforts to link slum people to the financial system so that habit of savings is inculcated in them. I greatly appreciate government’s move to ask private schools to reserve a certain percentage of seats for poor people in the city and charge less fees from them. Moreover, the unique universal identity card that our government intends to release will definitely improve financial inclusion. Microfinance institutions in cities are also doing great job to increase financial literacy of these people.

During my internship at SAATH, I got chance to meet many slum people and talk to them about their problems. I would like to share some with you. Most of the people I talked had come from villages of Rajasthan and Gujarat. They migrated to Ahmedabad in search for livelihood opportunities as it was becoming difficult to sustain in village. After coming to city they settled in one of the slum areas. Here I would like to add an interesting point. Nobody knows who owns the land where slums thrive. Slum people have divided land among themselves and charge rent when a new family comes to live on their land. Slum people who proclaim themselves to own land do not have any kind of registry to tell that they actually own the land and when they leave the city they also sell their land to another slum dweller for say Rs 5000 (too low amount to be true price of land). The land actually belongs to the government or a private party but nobody knows to whom. So, these slum dwellers live in constant threat of eviction. One day true land owner may come and ask them to evict.

Most of the people I talked did not have any bank account or social security instrument like insurance cover. I also found out that most of the children in slums went to schools but could not develop interest in learning. They would drop out of school by the time they reach class eight. Very few would go for matriculate and intermediate exams. Health facilities were also not adequate. Roads inside slum areas were not cleaned as municipality workers do not work there. Also, drainage system was poor. Moreover, there was large information asymmetry in the sense that many slum dwellers did not have information about many government programmes made for their benefit.

Another thing I noticed was that social capital is quite prevalent among poor. This in the form of kinship groups, whether by family, clan, tribe, caste, neighbourhood, religion. The poor invest a lot in maintaining their social capital because it serves as a safety net- a form of insurance in case adversity becomes more than normal. That is why one sees paradoxical situations where very poor households spend a fair amount of money, often taking a back breaking loan, for marriages and death feasts.

Most of the people living in normal societies see slums only in negative light. According to them slums disturb aura of their city and should be bulldozed and people be asked to return to their village. But, bulldozing is not a solution. To an extent media has been responsible to present only grim picture of slums where only diseases and criminals thrive. The truth is that advantages that we get from slums far outweigh the disadvantages. People living in slums provide invaluable service to other people residing in city. People living in slums are mainly Taxi drivers, vendors across street, maids in our houses, washer man, sweepers etc. We cannot imagine our life without them. The only grudge is that they are not provided with adequate infrastructure where they can thrive leaving their past behind. We usually forget that apart from providing their invaluable service to us, these slum dwellers are also service users. Let us not be staggered by the statistics that I presented above and conclude that since they cannot pay for the services they use, they are not provided basic facilities like drinking water, electricity, housing etc. That is so not true. Researchers have shown clearly that they can and are willing to pay for the services they use.

In conclusion, I would like to say that one has to look at every aspect of the life of a poor person to lift him out of poverty. If an NGO is focussing on providing livelihood, it cannot ignore health and education. So, the need of hour is Integrated Slum development Program. In India people have right to move wherever they want. So, it is not possible to stop formation of slums. The government should adopt an approach of in situ development. We all must keep one thing in mind that slums are a productive part of any city. They can do as good as a common people of the city.

Naxalism: A threat to India's Internal Security

Prime Minister Manmohan Singh has recently announced that Naxalites are the major threat to India's internal security. Why? Lets see it in this article.

Not until the Naxalites had stopped Rajdhani Express on 27th Oct was I interested in knowing about them. However that night I was travelling on a train from Howrah to Kharagpur and my train stopped in middle of no where for about 2 hrs. Then I came to know that since naxalites have stopped Rajdhani Express near Midnapur, my train is not being allowed to pass.

Naxals- Maoist- agitations in our country are different from the agitations that we observe in say J&K, Punjab or Assam. The activists in these states have a clear cut agenda of breaking away from mainstream India on the basis of difference in religion, language or other grounds. Today Naxal's movement has no such goal.
Naxal activities in India today spreads across 90 districs in 10 states: West Bengal, Andhra Pradesh, Bihar, Madhya Pradesh, Chhatisgarh, Uttar Pradesh, Orissa, Tamil Nadu, Jharkhand, Karnataka. A look at this list will convince you beyond doubt that goal of Naxalites is not to break away from mainstream India. At least six languages are spoken in 10 different states.

Another striking feature that you will observe is that Naxalism has spread its fangs on those states which have been very poor but abundant with natural resources. Studies show that 85 of India's 100 poorest districts are located in one of those 10 states. 32% of population is officially below poverty line as comapred to national average of 24%. Only 68 % of Naxal affected districts get safe drinking water as compared to national average of 74%. Only 43% of women in these areas get skilled medical attention during pregnancy as compared to national average of 51%.

In addition to all these statistics these states have for long been suffering from resource curse. As I previously mentioned that these states are very rich in mineral source but still they have poor economic growth and poor development outcomes than states will lesser natural resources. Around Dhanbad and Asansol in East, Coal mafias control everything: trucking, transportation, movement of Railway Wagonsand labour contracts. The power of local mining overlords make it easy for them to evict land, fell trees, sell minerals from ground illegally.

These Naxal hit areas are hotbeds of crime and the rural regions are specially ruled by the Naxalites with their rules and laws followed by village tribals. It is still not clear what they want. Following the footprints of Maoism, they have deviated largely from their goals. It is very difficult to remove Naxalites from these states by sending military and using violence. Mobilising support of people is absolutely essential to weaken their base. People have to become more aware of their politacal and social responsibilities. They should understand whom to vote and whom not to. By bringing a Naxalite to power only increases political power of these morons.

I have written this article with help of Economic Times, 17 Nov,09 and from Economic and Political Weekly, October,09.

Challenges confronting Indian Government

One year after one of the most severe financial crisis hit the world economy, our country is trying best to recover from the downturn. However, there are some serious challenges in front of Manmohan Singh led government. On his recent visit to Hyderabad Prime Minister maintained that the stimulus package has to continue till the economy operates at its full capacity. However, Indian economic scenario is not the same as that of western countries. In western countries, consumer price index is still low while in India it is howering at around 10-12%. This means that continuation of fiscal stimulus would bring inflationary tendency in the economy. Combined with this our country is already facing simultaneous flood and drought situation which has led to large shortfall in the production of foodgrains in India. It is estimated that local production of rice has fallen by 10 million tonnes. After being forced to import sugar now the country is also likely to import rice from international markets. The story does not end here. The rise of rupee vis-a-vis dollar is likely to sustain, hurting exporters further hampering growth. On 8th October rupee rose to its highest more than a year, closing at Rs 46.34 to the dollar, a gain of over 3% in just four seasons.A significant part of the appreciation is due to dollar inflows, both direct and portfolio. Inbound FDI has touched $9.5 billion in the first quarter this fiscal. This appreciation of rupee is likely to bring further inflationary tendency(apart from rising food prices) in the economy.(Appreciation of rupee brings inflationary tendency because RBI tries to counter increased demand of rupee by increasing supply of rupee in foreign markets by buying hard foreign currencies like dollar. However an appreciation of domestic currency generally leads to fall in price index to keep real variables like real exchange rate constant due to purchase power parity theory. However this theory applies when there is no central bank intervention. In Indian case central bank is intervening to keep nominal exchange rate constant, so there will be inflationary tendency and not disinflationary tendency.) This will again lead to increase in interest rates(inflation tends to raise rate of interest) which the government has tried to keep low and will crowd out private investment further hampering economic growth(also exports have declined). At the time when exports have declined for 11th consecutive month and there is evidence of human distress and job losses, a rising rupee would do more damage. Also this rising rupee is seen in short term. In medium term Rupee should fall again.(A rising rupee will distort balance of trade by making imports cheaper and exports costlier, so rupee must fall in medium term so that the economy returns back to its original balance of trade). So rising rupee should not be seen as a sign of strengthening Indian Economy. Unfortunately, any steps to mitigate this disaster- RBI buying dollars and pumping in Rupees- could well be an invitation to a bigger problem. It would add to money supply at a time when there is already surplus liquidity and aggravate inflationary pressures. The solution for RBI is to go back to its tight rope walking: balancing inflation and the exchange rate.

Floods in Andhra pradesh has led to huge loss of Infrastructure and the loss is estimated at around Rs 12000 cr. Such emergency situation is likely further increase fiscal deficit which has already been estimated at 6.8% of gdp in Union budget 2009-2010. Also government's plan to raise revenue by selling 3G spectrum to private players has been put on hold due to security concerns. The Government was planning to raise Rs 35000 cr by auctioning the spectrum.

So we can see that there are so many problems which confront Indian government and specially RBI. They have to decide a suitable monetary policy for this country.

I have written this article by taking references from Economic Times of the month of September and first week of October.

Understanding poor people

I was going through a paper "Access to Financial Assets and Economic Opportunities for the poor" by Vijay Mahajan, BASIX, India yesterday and it made me thinking about the challenges poor people have to face in their lives. The image that comes in front of our eyes as soon as we hear the word "poor" is that of people having very less income,robbed of economic opportunity and living in huts in unhygienic environment. The capacity and capability of these people to choose their own way of life is very small. But have we ever thought that why do these people remain poor, why dont they make progress in their lives. Is it because they dont want to make progress? May be. To answer this first we have to understand economic life of a poor person.

The biggest challenge in front of a poor person is to first come out of vicious circle of poverty. Poor people are characterized by low income groups. The vicious circle starts with low investment. This results in low income which is inadequate to meet consumption needs. This results in low savings and low savings again lead to low investment. Thus this circle moves. Now a poor person if wants to break the shackles of poverty has to first break the vicious circle by increasing the level of investment. Additional income then leads to additional savings which again increases scope of more investment.

The primary asset of a poor person is his own body, which he uses to generate minimum means of living. This is followed by bodies of their family members. Every additional body can be a source of income- even as it has to be clothed and fed. This explains why fertility rates in poor are higher than the rich- because a poor human being becomes source of capital fairly soon, and without much investment in his/her human capital.

Now as I mentioned above to come out of poverty a poor person needs to invest. But invest in what? And what does he need to invest?

Lets first understand investment. Investment is spending which leads to formation of real capital/physical capital(Buildings, plant, machinery), Human capital(nutrition, health, education, skills),and social capital(Association, trust, clubs). However to create any of these above mentioned capital a poor person needs financial capital( Savings, credit etc). Here I am talking about capital in its broadest sense.(In classical economics, "capital" is a good which is used to produce goods which are used for consumption).

Since savings and credit availability to poor people is very less so they are unable to form any kind of real or human capital. However Social capital is quite prevalent among poor. This in the form of kinship groups, whether by family, clan, tribe, caste, neighborhood, religion. The poor invest a lot in maintaining their social capital because it serves as a safety net- a form of insurance in case adversity becomes more than normal. That is why one sees paradoxical situations where very poor households spend a fair amount of money, often taking a back breaking loan, for marriages and death feasts.

In the category of natural capital, land is a highly preferred asset. Livestock has similar place in the asset calculus of poor as human capital. It is the number of heads that matter, not how productive each one is, for sheeps, goats, cows are left free for grazing in field and whatever meat, dung and milk they produce is their net income.

It is Physical capital and financial capital that poor people tend to have very less of(which is actually required to break the vicious circle). In many cases if we calculate their net financial assets then taking into account their borrowings it comes out to be negative. Generally borrowing exceeds the amount of their net savings. Payment of high rate of interest on the borrowings add to the misery of these poor people. This is a classical debt trap. As long as poor people have natural capital in the form of land, livestock they can pay debt by liquidating these assets-though it may lead to distress. They also fall back on their social capital, using the extended family and other social networks to borrow, at least for consumption. In extreme cases bodies of family members and their own body becomes the only means of paying back debt. This leads to Bonded labor, child trafficking, prostitution.

Poor people also tend to have very less of Human capital(also a source of income) because of low literacy rate among them.

In such circumstances it is very essential to increase the net financial and human capital of poor people. Here comes the role of government. Government has to ensure easy availability of credit to poor people, build rural infrastructure, provide adequate education, give reservations to classes not adequately represented in social system, protect them from competition from the products of big industries etc. NREGA which is the flagship program of Congress party is sure to increase income of rural households and also create productive assets for rural people.(I am obviously assuming NREGA is efficient with minimum leakages although today it very inefficient with only 20p out of Re 1 reaching to poor). This year Finance Minister has sanctioned 39,100 crores for NREGA scheme. Also, debt waiver of 71,000 cr given to marginal farmers last year gave huge relief to them though it violated law of giving credit. This year huge impetus has been given to build rural infrastructure and increase literacy rate by focusing to reduce difference between "Bharat"(Rural India) and "India"(Urban India)in Union Budget 2009-2010. Apart from NREGA, allocation for Prime Minister Gram Sadak Yojna has been increased by 59%. It has been proposed to build rural mega clusters in West Bengal and Rajasthan. It has also been proposed to make India slum-free by 2012.

Thus we see that role of government is very important to raise income per capita of a country by redistributing income and also to lift people out of poverty.

Northern and Southern World

CUTS LRC on September 19^th launched its newest project called “Soho to Soweto”, a debate series designed to engage the British public with the development issues facing the world today. I have consolidated all debates and tried to focus on major issues faced by developing world today.

There are many issues of development that the world faces today. With development some problems disappear while others evolve making the development process more complicated. Though most of us are aware about the general problems faced by developing countries surely as - poverty, unemployment, there are other issues (like security, environment sustainability, form of government) as well that have led to important distinctions between the Northern and the Southern world.

Aid

Does Aid aid development?

By aid we refer to the economic aid given by developed countries to the developing countries. Aid treats only the symptoms of poverty rather than the disease (poverty) itself. Whatever aid is provided by the foreign governments does not reach the targeted people. As a remedy a proper Public Distribution System (PDS) is needed to minimise leakages/interfaces in between. Moreover, aid must be accompanied by strong political will if it is to further development. Many Northern world countries have realised this and during G8 summit, June 2007, Aid was put as top of the agenda and many aid schemes for Africa were launched.

There is a great importance of the involvement of NGOs and the private sector in aid disbursal and its use. Since the NGOs and private sector interact with people directly they identify their problems well and can work more effectively to raise funds and make effective development schemes to help poor people.

Trade

Are supermarkets responsible superpowers?

A supermarket is a grocery store that offers wide variety of food and household products. About 75% of all spending on food items in UK is on supermarket. Supermarkets usually offer products at low prices by reducing their economic margins. Most of the products come from developing countries and it may be possible that in a bid to offer lower prices these supermarkets do not pay producers in developing countries adequately. Although this is good for consumers, producers suffer resulting in low product standards, casualisation of employment, poor working conditions ultimately rupturing long term trading relationship.

Consumers in developed countries must be more aware of the products they are consuming. There must also be a regulator made which regulates the supermarkets and sets minimum standards. Fairtrade organisations are definitely helping the producers in developing countries receive fair and stable prices for their products covering cost of production.

Public concern about climate change and carbon emission has been growing rapidly in these recent months. A group of consumers has emerged who would not probably want to consume products imported by air because of higher carbon associated footprints. However debate around this issue could severely damage opportunities for sustainable forms of export agriculture to contribute to the economic and social development of poor countries.

Security

Does war on poverty = War on terror?

Security has very important implications for productivity. Uncertainty regarding security might depress GDP growth.

Developed countries such as UK and USA must become more consistent in challenging war crimes, regional and cultural conflicts and should fulfill their responsibility of protecting civilians threatened by abuses not only in their country but also in the Southern countries. For example in Sierra Leone, thousands of people had been killed or mutilated in the country’s brutal civil war in 2000. Many became refugees in Guinea and Liberia. UK with the help of the UN peacekeeping forces deployed troops in Sierra Leone and brought the situation back to normal by December, 2005. On the other hand in Rwanda millions of people died due to the genocide of 1994. About half a million lives could have been saved if troops with robust peace enforcement capabilities had been sent to Rwanda. But UK had suggested that UN peacekeeping forces not be sent citing disaster in Somalia in 1993 as the reason.

An opinion was voiced that governments of developed countries which have committed to spend 0.7% of their national income on international aid must fulfil their commitment.

Conflicts in developing countries is largely to cultural diversity and the innate propensity among people from different culture to fight each other for domination or autonomy. E.g. Tutsis and Hutus in Burundi/Rwanda. Also, these cultural differences are accentuated by political and social events.

Environment

Must development cost the earth?

Whenever we think about economic development and environment the question which always comes to mind is whether economic development is environmentally sustainable. The answer is not very simple. If a country has to develop then it has to build more industries and it seems that pollution will necessarily increase. A general historical trend shows that economic development and environmental degradation are directly proportional.

The efforts of advanced countries in controlling emission have been inadequate. Carbon trading has also not yielded the desired results as some firms simply buy credits from those firms which cause zero or very little pollution. Even if emission rates in 2020 was 25-40% below 1990 levels these would be associated with adverse ramifications. Acting now would be cheaper than acting later, costing 1% of GDP in 2008 in contrast to 10% of GDP in 2050. Around $ 200 billion would be needed to control emissions now and most of that would have to come from the private sector.

Democracy

Democracy and development: Friend or foe

By development we mean general well being of people at large including some basic political and civil freedom given to the citizens. A democratic regime which ensures more freedom, well being and provides basic fundamental rights to its subjects is conducive to development than a non-democratic regime. The debate was on whether democracy leads to development in reality.

There are examples of countries where democracy had not led to development. For example in Gaza people had chosen Hamas democratically to power in Jan 2006 but Hamas had not cared for development. Gaza depends on Israel for electricity, fuel and water but Hamas is determined to enter into conflict with Israel. Again in Zimbabwe which has been boiling in civil war for long, in the run-off elections of 2008 Robert Mugabe polled 85.3% votes while his opponent managed only 9.3%. The opponent had pulled out of the election because of widespread violence consisting of murder, beating, rape etc. Such forms of democracy where voters are forced to vote for a particular leader must be condemned.

The North has always tried to impose Western liberal democracy on the Southern countries. For example, in China a number of pro democracy organisations were formed by overseas Chinese student activists and there was considerable sympathy for the movement among the westerners who also formed China Support Network (CSN), a US based organisation promoting democracy for mainland China. Even in Venezuela, George W Bush gave $ 53,000 to Maria Cornis Machado, Director of Sumate organisation to promote election education. Now Maria faces criminal charges for accepting US government funds. One of the panellists, Sylvie Aboa- Bradwell made a very interesting remark that different countries may need different kinds of democracy and that imposed democracy was tantamount to slavery. Northern countries must also not force the countries of the Southern world to adopt democracy models but should be free to choose their own form of democracy.