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This chapter addresses two broad questions related to poverty alleviation

in India: how much in aggregate does the government spend on povertytargeted

programs and how effective have these programs been in targeting

the poor and in alleviating poverty?

The apparently straightforward query as to how much the country spends

on poverty alleviation, and how the money is spent, has several complex

answers. Like the proverbial elephant being explored by seven blind men, the

answer depends on the slice put under the analytical lens. There are several

reasons for this, starting from the fact that in intensely poor countries with

pervasive poverty, it is arguably legitimate to characterize a vast spectrum,

if not virtually most government intervention as poverty reducing. These

can include in principle investments in social and human capital, physical

infrastructure, or even regulatory reforms to enhance economic growth. A

fi rst twist of the lens to focus on more direct poverty alleviation shows a

great number of programs and interventions that may be characterized as

broad or activity-targeting interventions, relying on broadly defi ned targets

wherein the benefi t incidence is expected to be higher for the poor than for

the relatively better off. These typically include government expenditures on

social sectors such as health and education, particularly primary education

and basic health services. A further narrowing of the lens leads to a focus

on government interventions that, within the broad spectrum of activities

to reduce poverty, explicitly seek to target the poor, and particularly the

poorest of the poor, for impact.

Poverty alleviation in India displays the whole panoply of such

interventions – from broadly targeted to narrowly focused – which are

quite substantial in magnitude, but diffi cult to track comprehensively since

there is little effort at transparency and consolidation. To begin with, there

are large sums of public money spent on activity-targeted interventions

including expenditures on social sectors and subsidies for other economic

services including irrigation, fertilizers, food and power. According to the

Indian Constitution, a majority of social sector expenditures are in the

domain of state governments, and total expenditures by states far exceed

those by the central government. There are considerable variations across

states in the amounts spent and in the implementation arrangements and

effi ciency of expenditure.

Expenditures on subsidies, though large quantitatively, are not always

transparent. According to recent estimates by Srivastava et al. (2003),

aggregate budgetary subsidies of the central and state governments

combined equaled Rs 2357.5 billion in 1998–99. This amounted to almost

13.5 per cent of the GDP at market prices, and roughly 86 per cent of

the combined revenue receipts of the center and the states. The share of

the central government is about one-third of this amount, with the state

governments accounting for the rest.

In addition to these broadly targeted expenditures in social sectors and

subsidies, the government also funds Centrally Sponsored Schemes (CSS),

which are implemented by state governments. Despite repeated calls for

consolidating and rationalizing these schemes, CSS have continued to

proliferate and in 2001 there were 360 schemes in operation. The CSS

subsume most narrowly defi ned, direct poverty-targeted programs, but also

include several that are less directly targeted though they are explicitly

aimed towards improving the welfare of the poor. Selecting a core group

of poverty-targeted programs from the CSS portfolio thus inevitably entails

qualitative judgement in some cases. Detailed information on the schemes

under CSS is not easily available, being scattered across the numerous

ministries that implement these schemes. In addition, budget documents

of the Government of India show total amounts transferred to states under

Centrally Sponsored Schemes, but these amounts do not include larger

fl ows transferred directly from the center to the districts, bypassing the

state governments. These transfers in 2001–02 amounted to Rs 150 billion

compared to Rs 100 billion shown in the budget documents under CSS

(Saxena and Farrington, 2003).

To address the second question above, assessing the effectiveness of

direct poverty-targeted programs, the chapter focuses on fi ve schemes

that are nationally implemented, large in size, and include all relevant

categories, namely self-employment, food-for-work, pure income transfers,

and infrastructure creation. These schemes rely on a variety of targeting

mechanisms, including self-selection and indicators (such as geographical

location, social category and age). To retain focus and keep the discussion

manageable, the large broadly targeted expenditures on social sector and

general subsidies are not dealt with in any detail.

Given India’s immense poverty, where more than 800 million people exist

on less than US $2 a day, it is important to ask whether poverty targeting

is an important objective. Targeting is most useful if there is a well-defi ned

target within the whole, but less so when the target is almost as large as the

whole. This issue has been most vocally addressed in India in the context of

food security through subsidizing food using the Public Distribution System

(PDS). The public distribution system was provided universally until 1992,

but has since then sought to more narrowly target the poorest among the

poor, with relatively disappointing results in the sense of excluding large

numbers of people that are nutritionally at risk. In assessing the effectiveness

of poverty-targeting programs in India, this broader context is worth keeping

in mind. At the same time, the immense poverty also reinforces the need to

directly assist the poorest among the many poor.

Since most poverty-targeted programs in India are sponsored by the

central government but implemented by state governments and lower

levels of government at district level and below, it is necessary to provide

a brief review of the federal fi scal architecture of the economy. This is

done in the next section, along with an overview of trends in poverty

and poverty-targeted programs in the country. Subsequently, in the third

section, a brief discussion of targeting mechanisms is provided, including

the ‘Administrative Identifi cation’ system. The selected poverty-targeted

programs are reviewed in the fourth section, followed by a discussion of

fi nancial sustainability and the conclusions.