The Hindu Business Line : It costs Rs 6 to reach Re 1 to the poorest

The only way to improve efficiency in lending to the poor is by promoting healthy competition and increasing the freedom of the borrowers to shift from one agency to another based on the interest charged.

SWARNA S. VEPA, AUTHOR, ‘BEARING THE BRUNT: IMPACT OF RURAL DISTRESS ON WOMEN’.

While agricultural technology is scale-neutral, profitability favours those who have the capacity to hold the stocks and sell at high prices, reduce the cost of production and forge market tie-ups, probably in commercial crops. And mainly they contribute to agricultural growth.

Thus observes Swarna S. Vepa, author of Bearing the Brunt: Impact of Rural Distress on Women (Sage), and Visiting Professor, Madras School of Economics, Chennai, during a recent lunch-hour interaction in Business Line. She rues that the debt burden of the poor is increasing.

“The debt-asset ratio of the poor is 20 per cent as against 2 per cent for the rich. We find pauperisation of the farming community due to high cost of inputs including seeds, highly volatile prices, fluctuating yields and low profitability.”

The trend is spreading to animal husbandry as well as poultry, where the enterprise is decisively shifting into the hands of the big farmers owning more than four hectares, Vepa finds. “Commercial interests play a very big role in commissioning crops, providing inputs and credit and buying the farm produce cheap and sell at high prices and reap the benefit of agricultural growth.”

Increasingly, Indian agricultural growth is benefiting the commercial interests rather than family farms, bemoans the author-economist. The National Sample Survey of 2003 has shown that 40 per cent of the farmers want to quit agriculture if they find a viable alternative, she informs.

Excerpts from the interview:

What are the challenges in reaching finance to the poorest in the economy?

As per the report on ‘Performance evaluation of targeted public distribution system’ by the Planning Commission in 2005, for one rupee worth of income transfer to the poor, Government of India spends Rs 3.65. This is the average cost. The cost of reaching a poorest man in the remote tribal areas could be even higher: at almost Rs 6. It means that Re 1 of budgetary consumer subsidy is worth only 27 paise to 13.5 paise to the poor.

No doubt it is partly due to the inefficiency of the system. Yet, one has to realise that the organised sector and the government administrative machinery cannot effectively reach the poverty groups at low cost.

The poor buy in small quantities and more frequently, thus increasing the transactional cost. Most of the poor also buy on credit. Selling on credit to the poor also has the risk of default. There is always a risk premium and the higher transactional cost is extracted from them by the local moneylenders and traders.

National Sample Survey data analysis has shown that the implicit prices (expenditure divided by the quantity consumed) paid by the lower expenditure groups on food items is higher than the implicit price paid by the higher expenditure groups.

Are there ways in which we can achieve greater efficiencies in the delivery of credit?

The only way to improve efficiency in lending to the poor and bringing down the interest rates for the poor is by promoting healthy competition and increasing the freedom of the borrowers to shift from one agency to another based on the interest charged. At present, most of the poor are stuck with one agency and there is not enough competition in the market even though the interest rates are high.

Micro-credit is much more expensive than bank credit, even when the former is backed by banks. Reaching the target group is expensive. The cost of organising them as groups and monitoring the disbursement and repayments are borne by non-governmental agencies and micro-credit institutions. This cost is often added to the interest paid by the poverty groups.

Further the risk premium of lending without collateral makes the credit more expensive than bank credit. The local moneylender with more information about the borrower has a low risk as well a monopoly in the market. He also has the leverage to apply moral pressure and force repayments. It is the monopoly that makes the credit by the moneylender more expensive.

Self-help groups (SHGs) are an alternative to the local moneylender and exert moral pressure on the members to repay; they can also provide micro-credit effectively. Yet, members of the SHGs also get stuck with the group and they have to save and pay high interest rates. If they do not follow the group discipline they lose the line of credit and hence members abide by it, though it would be cheaper to borrow against savings directly from the bank. The best thing is to allow as many institutions as possible to enter the market and compete against each other.

Is the contribution of women to GDP measured properly?

Though a lot has been said about gender budgeting, it is difficult to find any reliable estimate of contribution of women to GDP and the share of the budgetary allocations that effectively reach women. GDP of contribution of rural and urban women who work from home is missed out now.

The economic activities of women who are recognised as non-workers are quite substantial. The purpose is not just to recognise the high contribution of women and low share of the budget allocation, but to make the government pursue policies and programmes that reduce the burden that women bear now.

The major burden borne by women is the burden of additional work due to the failure of the government to provide effective public services.

For example, if there is no drinking water in the vicinity of the home, women will have to walk long distances. If affordable cooking fuel is not available, many women use fire-wood and the smoke affects their eyes; some may end up with blindness.

If affordable healthcare is not available, the old and the sick are nursed at home by women. If community work of natural resource conservation and micro-credit is promoted only with women SHGs, without proper attention to benefit-sharing, women end up contributing free labour and pay the loans used by men.

There are numerous examples leaving alone the more obvious ones such as low wages for women and glass ceiling in promotions. A much more systematic policy-oriented research is necessary in this area.

Do you find that the economic crisis/slowdown impacts the women more?

It is common knowledge that a crisis situation does impose higher burden on women. Yet it is difficult to prove in statistical terms. It is because family or a household is a unit of reference. Intra-family differences in work burden (economic and non-economic work), differences in food intake, differences in incidence of disease, healthcare expenditure, education expenditure, etc., are not available. Some aspects are difficult to measure and others are not collected. Time series data are needed for this purpose to prove the point.

The adverse impact is more apparent indirectly in the levels of unemployment faced by women in the labour market compared to men, the larger number of women marginal workers compared to men, and higher levels of self-employment for employed women compared to men.

While most of the self-employed men control the enterprises and the income from the enterprise, most of the women self-employed are only workers in the family enterprise, with hardly any control over the enterprise or the income from the enterprise.

The fact that the number of the women unemployed, and self-employed had gone up with the rural distress at the turn of the century, points to the fact that the burden is more for women. The relative wage gains are also less for women than men in recent years.

Women are counted as workers as they are involved in the economic work and contribute to GDP. The occupational distribution also shows that there are fewer women in highly-paid occupations and more women in less-paid occupations as the economic crisis deepens. The fact is economic crisis affects both men and women, but it affects the women more.

D. MURALI

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