Poverty Alleviation Programmes and Structural Changes in the Rural Economy M.K. Sukumaran Nair & P.M. Mathew Institute of Small Enterprises and Development ISED Road, Cochin 680 028 Sponsored by PLANNING COMMISSION Yojana Bhavan, New Delhi 110 001 March, 2000 Poverty Alleviation Programmes and Structural Changes in the Rural Economy CONTENTS (i) Introduction (ii) Executive Summary Chapter - 1 National Issues, the Kerala Model, and the Emerging Challenges Chapter - 2 The Design of the Study Chapter - 3 The Regional Setting Chapter - 4 The Clusters Chapter - 5 Government Programmes in Vypeen Chapter - 6 Employment, Income and Asset Creation Chapter - 7 The Sustainability Question Chapter - 8 Issues of Governance Chapter - 9 Some Key Areas of Concern Chapter - 10 Policy Imperatives Chapter - 11 Concluding Observations and Suggestions (iii) Selected Bibliography (iv) Selected Statistical Tables (v) List of NGO Programmes Introduction The planning era in India has witnessed the design and implementation of several development programmes geared to poverty removal and employment generation in the rural areas. The impact of these programmes have been periodically evaluated by the respective Ministries/Departments as well as by the Planning Commission. Such evaluations have generally tried to look programme implementation from the administrative point of view than from that of the ultimate beneficiaries. Often leading to wrong conclusions and policy prescriptions they fail to capture adequately, the limits and constraints of the key participants. It was against this background that the present study was entrusted to Institute of Small Enterprises and Development by the Planning Commission. It looks into the quality of programme design and implementation by different tiers of government, right from the Gram Panchayath. The agenda before the study is to see things from the point of view of the common man. It was carried out in Vypeen, Ernakulam district, Kerala. Besides a sample study of poor households, we have put in our best efforts to document the several governmental programmes being implemented in the village, their linkages, and the perceptions of different sections of society regarding these programmes. We have also physically verified a large number of public assets created in the area over the past several years, and have clear insights into their performance and usefulness. We would like to place on record our sincere appreciation for the Planning Commission to take up such a vital investigation, and for trusting the capabilities of our Institute. We would also like to note that the present assignment is a continuation of the cooperation we have had with the Planning Commission for the last several years. Our Institute is indebted to Mr. K.C. Pant, Deputy Chairman, Planning Commission, who has shown keen interest in this series, by personally attending the agenda-setting Conference at Yojana Bhavan on 19th July, 1999. Dr. N.C. Saxena, Secretary, Mr. S.S. Meenakshisundram, Adviser (Monitoring) and Mr. Shilendra Sharma, Adviser (SER), have shown keen interest and have extended active support for the successful implementation of this project. Sincere thanks are also due to Mr. S.M. Vijayanand, IAS, Secretary, Department of Local-Self Government- Rural, Government of Kerala, who assured that the project gets support and encouragement from various departments of the State. The district Administration of Eranakulam, the Gram Panchayaths of Vypeen, public men, scientists, and non-governmental organisations have helped the project in several ways. But above all, the rich insights and experience shared with us by our respondents of Vypeen have placed this study in its present form. We would also like to thank all of them whom we may have inadvertently failed to mention. M.K. Sukumaran Nair P.M. Mathew Cochin March 31, 2000 Executive Summary The Environment The Kerala model of development is by now well known in development literature. The stagnation of primary and secondary sectors, and the disproportionate growth of the services sector has brought the economy of the State into a ratchet effect. The services sector has crossed its absorbtive capacity, leading to the vital question of sustainability. The stagnancy of the primary and secondary sectors has resulted in a draining off of resources from these sectors. The State is, therefore, on the verge of a serious economic crisis with far-reaching adverse implications on maintaining even the existing welfare programmes meant for the poor people. Vypeen Island, which is supposed to be ranking the first in terms of the density of population in any rural area, has several peculiar features, which in turn, have far-reaching implications on programme design and implementation by several government departments. Relevance of Government Programmes The relevance of government programmes in Vypeen has to be understood in relation to the massive problems of high density of population, unemployment, environmental degradation and consequent poor health standards of the people. Against these massive problems, individual programme design and implementation at the Gram Panchayath level has been found to be very ineffective. Commonality of Underdevelopment A cluster-based investigation into the development processes as well as the living standards of the people indicate that Vypeen is a case where, the problems of the people are less sector- specific or activity specific. Therefore, any policy measure meant to attack poverty and unemployment is not likely to lead to significant positive results. The implementation of government programmes in the Island has to be understood against this background. People's Perception and Participation The field research indicates that, poor people's perception on most of the development programmes are as temporary relief measures, rather than as programmes capable of shaping the economic position of their households. Naturally, the death rate as well as sickness among assets created under government programmes (eg. IRDP) remain significantly high. The bureaucracy also do not consider these programmes as serious. The monitoring part is found to be weak. Transparency A major victim of such lack of interest among people is transparency. The panchayaths do not maintain the relevant muster rolls. Manipulative techniques in the Gram Sabha have been widely reported. A significant number of beneficiaries are not aware of the role and functions of the Gram Sabha. Similarly, many beneficiaries have availed of the benefits of anti-poverty programmes even without attending the Gram Sabha once. Income and Employment Changes Unlike in other parts of the State, the survival of the household is dependent not only on the income of the head, but also by the income subsidies provided by other members. There is only a very negligible labour mobility both temporally and spatially. Even under such a situation, dependency ratio remains high, with significant adverse implications on the economic survival of the household. Employment has not recorded any significant changes over the last five years, despite the presence of several government programmes. Wage rates, however, have gone up to some extent. Lack of Programmes Many of the programmes being implemented by the Gram Panchayaths and the Block are repetitive, with very poor positive results. On the other hand, there are some sectors where relevant programmes are totally absent. For instance, where there is a trend of massive unemployment, programmes related to entrepreneurship development and industrial promotion are almost totally absent. Even available funds are not properly utilised. Irrelevant programmes like digging of wells for the poor, vegetable cultivation (due to salinity of soil) etc. are found to be common. Need for Large Projects The mounting problems of the Island suggest the need for projects of a critical minimum size, which at a time, can provide employment opportunities, can create new assets, and can reduce social costs like environmental degradation, mounting medical expenses etc. We have identified eleven crucial sectors where alternative programmes can lead to positive results. Need for a Consortium Approach The people's planning model in Kerala, to some extent has been successful to translate the aspirations of the people into concrete reality. However, the wisdom of the Gram Sabha has limitations. While the Gram Sabha has to be taken into confidence, imaginative projects are needed to improve the situation of the Island. It is vital for the Gram Panchayaths to think of some consortium approach, while designing and implementing development projects in the Island. Capacity Building As a bridge between the people and the political leadership, it is necessary to enhance the capacity of the personnel in the Gram Panchayaths. This is necessary to improve the quality of administration and to assure that the fruits of development reach the people in the appropriate manner and time. The Panchayaths do not have any relevant databases. The officials were also found to handle even minimum vital data. Capacity building at the level of the Gram Panchayaths and monitoring their activities are important for meaningful implementation of Panchayati Raj. The task of monitoring should be taken up by the State government. The State Planning Board, the most appropriate agency for this, should be supported by the Planning Commission in this regard. Primacy of a Clean Environment Vypeen should learn from the environmental experience of places like Surat. Major projects meant for improving the environmental standards of the Island should be initiated urgently. The State Government, probably with the support of international funding agencies should think of such a major project. The interest and involvement of donor agencies like the World Bank, SDC and the Dutch government should help to explore further initiatives in this area. Gap Between the People and the Panchayaths We note with grave concern the fact that the will of the people, as reflected in the resolutions of the Gram Sabha, do not get materialised adequately. For instance, innovative projects identified by the Gram Sabha, in many cases, have not got implemented in right time and in the correct manner. Inter-Plan Changes We do not find any major changes in the culture of programme design and implementation over the Eighth and Ninth Plans. People's involvement in Plan design and implementation, even under the 'People's Planning' approach is far from satisfactory. The findings from Vypeen cannot, however, be generalised. Success stories of several Panchayaths in Ernakulam district and elsewhere in the State have been well documented. Such success stories suggest that, planning and programme implementation in the Island need a major restructuring. National Issues, the Kerala Model, and the Emerging Challenges 1.0. Kerala as a Model? The Kerala model of development is by now well known in international literature. The particular type of development pattern assumed by this part of the country has caught the attention of academicians and politicians alike due to its uniqueness. However, from the point of view of development, two crucial points standout: 1) should the Kerala model be understood in isolation from the wider experience of India as a whole; and 2) what does the experience of Kerala offer to the rest of the country? Before going into the details of the Kerala model, it is instructive to make a word of caution on how the model has been projected. A model becomes what it is only when it is able to present a consistent picture in terms of its strengths which far outweigh its constraints, both being defined in terms of a consistent framework. Unfortunately discussions on the Kerala model are largely a subject matter of professional academicians, rather than a debate in which several sections of the community participate. This itself implies a biased perception on what Kerala has already achieved and what more is expected of it. For instance, a segment of Kerala economists, as well as a few Kerala observers outside the country, have been instrumental in presenting the experience of this State as a unique model. It is history that shapes the development experience of any region of a country. Naturally, Kerala was endowed with certain positive factors such as higher level of education, which in turn promoted social consciousness, class movements and enhanced politicisation. While other parts of the country were not favoured with many of these positive factors, the latter regions have their own strength in other areas like higher levels of industrialisation, emergence of a innovative business community and enhanced international relations through industry and trade. Kerala, however, has been deprived on many of these aspects. Therefore, as indicated earlier, the crucial question is as to what Kerala has gained from the rest of the country, and what the rest of the country have learned from Kerala's experience. Unfortunately, most academic discussions in this area have a "Kerala-mania" The Kerala's experience has been studied largely by Keralites than by outside observers within the country. Majority of the Indians do have to necessarily wait for an indefinite future for the hump of economic growth to be crossed, for schooling, house-sites, primary heath-care, food at fair prices and so on. Kerala's development experience questions such a sequence of agriculture, industry and subsequently, improvement in the standard of living of the masses. The challenge posed by Kerala relates to this historical sequencing of economic growth and mass welfare sanctified by the developed countries. One of the relatively backward states of India, with per capita domestic production consistently below the national average, Kerala has been able to provide for the basic needs of the majority of its citizens. This is revealed by comparative indicators of health, education and demographic transition. (Issac and Tharakan, 1995). The comparative index of quality of life, taking into account various factors, place Kerala far above the general situation prevailing not only in other parts of the country, but also in most parts of the Third World. Broadly speaking, there are two schools which try to explain the Kerala model and have arrived at their prognosis. The first school argues that Kerala has succeeded in achieving a quality of life nearly comparable to the developed countries at a much lower level of resource consumption. Arguing on these lines, they hail Kerala as the best sustainability model. Another variant of this approach hails Kerala as shortcut to development, where quality of life can be improved without economic growth or social change. They call it an ideal cheap model of development (Mencher, 1980). There have also been serious criticisms. As a reaction to the above position, there has been a tendency to denigrate the achievements of Kerala in the social sectors. Alternatively, taking into consideration per capita income, unemployment and other indicators of economic backwarness, it has been shown that Kerala has been slipping sharply down in the rank order of development, as a "growth-less model". The paradox of Kerala's experience lies precisely in achieving a relatively high quality of life at a low level of economic development. Low economic development is normally associated with low quality of life. This raises the question, if the people of Kerala are worse off because they have better education and health. There is also another extreme position. Kerala's educational and health development has been cited as another variant of the underdevelopment paradigm of colonial and neocolonial conditions. Despite the discussions at the overall level, significant deviation also been suggested. The overall indicators cited above contradicts with the experience of some communities that have been left out of the development process. Such communities include the tribes, the fisher folk etc. 2.0. Structural Changes The Kerala economy has been characterised by some structural changes, but these changes demonstrate one of lop-sided development. During the 1980s, the economy of the State demonstrated poor performance of agricultural and industrial sectors, severe power shortage, high incidence of educated unemployment and poverty. The development of the economy during the 1990s may be understood in two phases, i.e., the growth phase of the first half of the decade and the recession since the mid-90s. During the former period, the State's economy achieved higher growth, which can be attributed to the better performance of the secondary and territory sectors. But, the State could not sustain this tempo of development which was not rooted on sustainable factors. The decline in Gulf remittances, a severe jolt to the industrial sector due to acute power shortage, and a sharp fall in the prices of some commercial crops which form the mainstay of agricultural economy of the State, have led to a significant decline. This was compounded by factors such as enhanced unemployment, inadequate infrastructural facilities, especially against a mounting rate of urbanisation. The structural changes that took place in the regional economy were not capable of addressing themselves to these severe problems. 3.0. Gains and Losses The era of economic reforms and the revival of migration to the Middle East and consistent increase in inflow of foreign remittances to Kerala, have been remarkable features of the economy of the State during the first half of the last decade. The devaluation of the rupee in 1990 and the changes that have taken place regarding convertibility of rupee have helped migrants to earn more. These factors helped to keep migration as a sustained process even when the wage rate in many of the Gulf countries came down significantly. The number of Kerala migrants to the Middle East increased from 8.25 lakhs in 1971 to 14 lakhs in 1996. The corresponding remittances increased from the 230 crores in 1991 to 550 crores in 1995. The process of migration virtually promoted a structural changes in the economy through a very basic attitudinal change in the society as a whole. A spurt in price of land, and real estate, a boom in construction activity, enhanced speculative and rent seeking activities were the roles of these new environment. The speculative mind got reflected in the labour market as well. While economic activities got concentrated around the tertiary sector, it created a value system which is anti-entrepreneurial. Within this wider environment, the entrepreneurs themselves got subjected to a process of retarded entrepreneurship (Mathew, 1999). The picture on the economy of the state, as available today, is one of chronic stagnation. The data on Net Domestic Product (NDP) indicates that Kerala economy achieved a marginal increase in growth rate during the first half of 1990s compared to 1980s. The tertiary sector registered a higher growth rate, within which, sub-sectors like transport, storage and communication, registered the highest growth rate during the first half 1990s. Kerala's industrial sector has undergone stagnation since the mid-1960s. The share of manufacturing sector in the SDP is relatively small and the growth rate recorded has been marginal compared to the all-India figures. Industrial performance in India since the Second Five Year Plan has witnessed three phases: a) high growth rate since mid-1950s; b) a deceleration since mid 1960s; and c) a phase of recovery since mid-1970s. Studies like Goldar and Seth (1989) have analysed the spatial variations in the rate of industrial growth across the country. Such studies indicate that, Kerala, Andhra Pradesh and Karnataka, were three states which experienced continuous deceleration till the mid-1980s. The figures available thereafter indicates that both these states have improved their growth rates, i.e., Andhra Pradesh from 6.03 to 6.76% and Karnataka from 6.85% to 7.68%. Among the Indian states, Kerala showed continues deceleration in the rate of industrial growth since the second half of 1960s. The lopsided development observed in Kerala has often been explained in terms of high cost of production, labour related problems and the psychological fear of entrepreneurs. Unfortunately, much of the academic discussion during the 1980s - 1990s, were either for or against the 'labour- unrest hypothesis'. These debates however, failed to go deeper into the processes that are operating at the grass-root level as well as the mental models developed by Keralites which get reflected in their investment decisions. As already noted, the whole situation has to be analysed from the history of development of this economy. Mathew (1991, 1999) has provided a wellknown experience in terms of a crisis-cushion hypothesis. This hypothesis emanates from an analysis of investment behaviour that is observed in Kerala economy. While there has been an overall commercial orientation in investment decisions, the industrial investment themselves are of a specific breed which nurtures absenteeism. Mathew's study, carried out on behalf of the Planning Commission, shows that the small scale sector of industry, which is the only hope of State, given several constraints, is subjected to a process of informalism. While the innovative entrepreneur progressively plunges into higher levels of involvement in industrial activities, the Kerala entrepreneur demonstrates a tendency of progressive withdrawal. This phenomenon has been explained in terms of the crisis-cushion hypothesis. The hypothesis says that the psychology of progressive withdrawal operates across all sectors of the economy. Not only the industrial entrepreneurs, the planners, the policy makers, bureaucrats, the academicians etc. demonstrate such rent-seeking behaviour. Unfortunately, this wider issue has been misconstrued in terms of 'lack of entrepreneurship' by some scholars. This wrong diagnosis has resulted in an unwarranted perception and treatment to the entrepreneurial community which provides atleast some relief to the development of Kerala economy. 4.0. Rural Development and Employment The debate on integrated rural development during the mid-1980s has significantly enriched our understanding of the dimensions of the problems of poverty as well as the nexus between employment and poverty (Rath, 1986, Dandwall, 1987, Dandekar, 1986 etc). The need for generation of employment opportunities on a massive scale was emphasised by several debates. Hence, emerged the search for the most suitable strategy of employment generation. The discussions revolved around the two major categories: wage-employment and self-employment. At the operational level, employment generation programmes received an added theoretical focus during 1980s. Subsequently, the concurrent evaluations undertaken by the Ministry of Rural Development and independent studies by several scholars gave a greater boost to debate. The concern of much of these evaluations and debates has been to pinpoint the sustainability of employment generation. While some success stories have been reported from different parts of the country, the various rural development programmes implemented by Ministries and central agencies could not report a significantly high rate of success in achieving the economic objective of sustainability and the wider social objectives. The achievement of such objectives, as outlined above, is essentially geared to structural changes in the rural economy, ipso facto, does not lead to higher levels of income and employment. It is necessary that these changes should be of the type which promotes positive and appropriate linkages in the economy. The new millennium brings in more challenges than hopes to the rural poor in India. While, latest studies indicate mounting unemployment and poverty as two crucial problems which need to be addressed to on a war-footing, it has become practically impossible to chalk out massive programmes that are capable of responding to these problems. The latest strategy has been to target the poorest of the poor through anti-poverty programmes of a reoriented nature. In Kerala, these programmes have further been fine-tuned through the people's planning approach. Despite all these initiatives, there has been substantial leakges in programme implementation. Besides, even with the best efforts the impact they can make in the rural economy remain negligible, in relation to the needs. 5.0. Health The development in the area of health-care in Kerala has been the kingpin of Kerala model. It has been noted that, "no other large population on earth adequately meets the requirements of small families, combined with modest consumption". (Mencher, 1980). While the achievements in the health sector of Kerala has to be appreciated, it is important to examine the reasons for the same as well as the methods by which these achievements can be sustained. Enhanced literacy level, enhancement of status of women in society, land reforms, an effective public distribution system, enhanced political consciousness etc have often been suggested as the key factors. However, an area which has been overlooked by most scholars is health-care infrastructure. (Ramankutty, 1999). The health-care legacy of Kerala dates back to the 19th Century. The princely states of Travancore and Cochin had initiated steps to set up vital health infrastructure, mainly for the objective of prevention of contagious diseases. Since Independence , this legacy continued. The number of beds in government hospitals increased from 13,000 in 1961 to 20,000 in 1971, and again to 29,000 in 1981; by 1996, it became 38,000. A look at the budgetary documents shows that, during 1985-86 to 1995-96, even under budgetary constraints, government expenditure in health-care has not come down. It is also important to note that, both in terms of the number of beds, and the number of employees, the private sector has outweighed the public sector. Simultaneously, the public sector is facing an unhealthy competition, mainly due to unfair practices by the private sector. In any society, what is expected of the health-care sector is to contribute to improve the quality of life of the people. Infact, a sound health-care system is the very foundation of a healthy economy. Three of the crucial issues facing the health care system in Kerala are the following: Mobilisation of adequate resources for maintenance of the existing infrastructure; The deteriorating quality of health services; The indiscriminate growth of private sector and its negative implications on meeting the health- care needs of the people.