EDUCATIONAL INVESTMENT IN DEVELOPING COUNTRIES

In the context of economic development, the educational product as a whole not only includes components of consumption (enjoyment of the fuller life permitted by education) and direct investment (increased earnings to the educated person, i.e. “internal” gains of education), but also “external” gains which accrue to other members of the community, i.e. the economic and social system at large.

The most important characteristic of educational investment is externality. This aspect of external benefits of education lies in the change in the social and cultural climate, incident to the widening of horizons, which education entails. At the same time, this benefit result is not an automatic consequence of general education, but only of the proper type, quality and quantity of education. Supply of professional people who cannot be absorbed into appropriate positions may readily become an external diseconomy and source of instability.

Apart from the factor of externality, educational investment has certain other characteristics:
The product of education outlays carries the joint features of consumption and investment. For this reason, the share of resources allocated to education cannot be considered wholly an investment outlay. The consumption component of education may be divided into current consumption (the delights of attending school) and the future consumption (the ability to appreciate life more fully later on). Future consumption being the major element, the consumption component is largely in the nature of a durable consumer good and hence investment. Thus the essential distinction is not between consumption and investment aspects of education, but between education investment which generates imputed income (fuller life later on) and education investment which generates increased factor earnings to the labour supplied by the educated person.

The imputed-income component of education tends to be of particularly great importance at the early stages of development. Extension of secondary education becomes the primary goal of education policy in countries with a low level of education capital stock with extension of elementary education and technical training at the next level of capital stick and expansion of higher education at a more advanced stage.

Secondly, investment in education is characterized by a gestation period which is substantively longer than that of many other types of capital formation. Periods of ten to twenty years may be involved, depending on how far the education process is carried, and even longer spans may be involved if teacher training is taken into consideration. Even though certain skills may be acquired fairly rapidly, especially if a previous foundation is laid, the educational capital stock cannot be changed quickly, particularly for the more advanced type of education. This is a constraint in investment planning requiring public policy guidance and planning.

A further feature of investment in education is the relatively long useful life of the educational asset as compared to other competing investments. Obviously, there may well arise a difference between the government’s and the private investor’s allocation of share for education in investment outlays. The relatively long, useful life makes it necessary that the type of education be chosen in order to meet future demands in particular skills. This applies more to specialized and technical education. Thus, educational planning in the context of a longer-term development view is essential.

Finally, the resource cost of education not only includes teachers’ salaries, buildings and equipment, but also the opportunity cost of lost income on the part of the student. Where there is a general surplus of labour supply, the opportunity cost of foregone earnings will be small or non-existent. Other components of education cost (school teachers’ salaries in particular) tend to be relatively high in developing countries. So, even though the income stream from a given factor input into education will be large, the rate of return on educational investments is therefore not as high.

Sensible education targets must be developed by considering the needs of the particular economy and the demands posed by its specific plans in order to absorb additional supplies of educated manpower. The matter of educational priorities is of vital importance. Unless the right kind of education is provided, setting overall targets has little meaning. Educated persons who are unable to find suitable jobs, fail to add to the national product and also become a source of political instability. Since the cost of various types of education differs greatly, the very setting of overall targets has to be based on the composition of education supply.

Whether undertaken privately or in the public sector, the necessity for investment planning cannot be denied. Left to household decisions, neither market knowledge, nor foresight nor financial requirements are present which are needed to secure adequate supplies. This is especially the case in developing countries where the whole attitude towards education has to overcome conventional barriers and become reoriented to the development process.

AGEING OF POPULATION

Ageing is an inescapable reality of human existence and a vital factor in the global demographic transition. According to projections by the UN Population Division, there will be two elderly persons for every child in the world by 2050. This implies that the aged 60 and above, which currently constitute less than 20 per cent of the world population, will account for 32 per cent of the population by 2050.

Moreover, according to the UN agency, future fertility levels in most developing countries is expected to fall below 2.1 children per woman, which is the level needed to ensure the long-term replacement of the population at some point in the 21st century. Thus, with higher life expectancy and lower fertility levels, there will be more of elderly and less of young people in the age structure. This changing balance between the age groups would create multidimensional socio-economic problems both in developed countries (acute manpower shortage, for instance) and developing countries.

In India the age structure (urban) according to 2006 estimates was: 30.8 percent in the 0-14 age group, 64.3 percent in the 15-64 age group and 4.9 percent in the age group 65 years and above.

The average age of Indians is 26 years. Hence, talking of an old-age crisis in a country where nearly two-thirds of the population are below the age of 30 appears ludicrous, but there is no denying the problem. For countries like India and Thailand , it will take only 25 years for their aged population to get doubled. The population of senior citizens, aged sixty and above, in India has increased from 42.5 million in 1981 to 55 million in 1991 and then to 70.6 million in the 2001 census. They comprise about 6.9 per cent of the total population. It is estimated that the number of older persons will grow to 137 million by 2021 in our country.

In India, provisions have been made under legislations such as the Code of Criminal Procedure,1973 and the Hindu Adoption and Maintenance Act,1956 to enable aged parents with insufficient resources to meet their needs. However, the process under these legislations is cumbersome and time consuming. The Government of India adopted the National Policy for Older Persons in 1999. Recognizing that financial security is one of their needs, the Government of India commissioned a National Project titled 'Old Age Social and Income Security' (OASIS) in 1999 with an aim to draw up a comprehensive plan for the financial security of workers on retirement and old age in sectors where no formal arrangements for post retirement have been made. The Government covers around 32 million workers and their families under schemes for provident funds and health and insurance facilities. However, there is a need to reach out to many more who do not have access to such schemes and would be rendered vulnerable on attaining retirement and old age. The Older Persons (Maintenance, Care and Protection) Bill, 2005 which subsequently became an Act will hopefully meet this need.

The nations of the world had gathered at Vienna in 1982 for the First World Assembly on Ageing and brought out the International Plan of Action on Ageing. The Plan of Action was drawn up with clear understanding of the implications that the increase in the ageing population would have on the socio-economic structure of both the developed and developing countries. The basic aim of the Plan of Action

was to ensure that ageing is both a graceful and a productive process. The Second World Assembly on Ageing was at Madrid in 2002, which focussed on ageing agenda with current global developmental issues. Across the globe, steps have been taken by various countries such as the United States, Canada, the United Kingdom, New Zealand and Germany to provide social security systems for the elderly and other disadvantaged groups. Such systems ensure that senior citizens are not deprived of their most basic needs when they lack the resources to fulfil them.

The role of Non-governmental organizations is crucial in promoting the welfare of the aged. The Government of India provides financial assistance to NGOs for certain projects aimed at providing shelter and meeting recreational and medical needs of the elderly. Special privileges like old age pension, tax concessions and various amenities in the transportation and health services, provision of services at the grass root level by NGOs and emerging civil society groups which proactively voice the concerns of the aged are some of the encouraging developments in our country.

In India it is the last stage of life that society accords the highest respect and prestige to an individual. This is why old age home concept, though not alien, is rare in Indian families. However, globalization and its economic effects, is causing a silent and invisible transformation within the social structures. Fragmentation of the traditional family network is leading to an erosion of the available support within the immediate and extended family. Migration of younger generations from rural to urban areas and from one urban centre to another and transnational migration results in the elderly persons being left out to fend for themselves at a time when family support becomes more necessary. This has increased insecurity and loneliness among the geriatric (elderly) population. Poor financial status, physical and mental disorders and guilt of being dependent on others are some of the problems nagging the elderly population in India and other countries around the world. An ageing society will give rise to special problems from health, family and social angles.

Besides shelter, medicare and nutritional problems, the elderly population in India also faces a multi-dimensional socio-psychological pressure. A paper on the mental health of the ageing population by Dr. Vikram Patel and Martin Prince, points out that in the developing world, including India, the aged with psychological problems do not get the required medical attention. In particular, the study found that while dementia is considered a normal process of ageing that a doctor cannot help much, depression is rarely diagnosed or treated. An increasing number of older persons are also falling prey to other geriatric diseases such as rheumatism, arthritis, osteoporosis and cardiac complications. An in-depth study by the New Delhi-based All India Institute of Medial Sciences (AIIMS) found that elderly women are affected more by dementia, depression and psychosomatic disorders than their male counterparts. According to this study, the population structure of the elderly is dominated by poorly educated women, economically dependent on children without any tangible authority or status in the family.

Apart from the serious social crisis, there is an important fiscal angle to the problem of ageing, as large proportion of the resources meant for developmental activities will have to be diverted to take care of the needs of the elderly population. For, as a study done by Gautam Bhardwaj of the Invest India Economic Foundation (IIEF), a think-tank that works on the pensions sector, and ex-UTI chief Surendra Dave estimates, providing a pension cover for just the civilian employees of the central and state governments adds up to 55 per cent of the country's GDP. Less than a sixth of those about to retire in the next decade are covered by some form of pension, and only 2 per cent of those not working in government (where pensions are generous) will be able to fund their retired lives if they cut expenses by half, according to an all-India survey done by the IIEF.

Very little attention has been focused on the pitiable plight of the elderly population in rural areas of the country. Field studies pertaining to the problems of the aged in rural India reveal that deteriorating health and economic insecurity are the most pressing problems facing the elderly population in the villages in the absence of financial support from family and old-age pension schemes of the State governments. Inspite of their poor physical and mental health, the aged males are forced to work to eke out a living.

While the problems of the aged often cut across national boundaries and have almost an equal impact, there are bound to be some differences both in perceptions and actual ground realities from nation to nation. Unfortunately, the concept of a welfare state where many of the needs of the ageing population are taken care of by the state is being criticized by agencies, such as the World Bank, which are keen that governments provide only minimum levels of social security to the elderly population groups.

Ageing is an ongoing process. The population of older persons is increasing every year and the changing social order is not always conducive to their well being. Striking a balance between aspirations of the young and the rights of the aged members of society is a daunting task for any nation, particularly for economies in transition such as India. In this context, it must not be forgotten that the elderly people in their productive spans of life have made significant contributions. Awareness programmes relating to traditions of the country, importance of values, morals, ethics etc.should be organised frequently to educate the younger generation to respect and care for their seniors. Moreover, steps may be taken to promote schemes such as the ‘adoption of senior citizens’ by persons or families having means as a welfare measure. Such a scheme would not only provide financial security to senior citizens, but also create a sense of belonging. Sometime back, the UN Secretary General Kofi Annan, while referring to the ageing population had observed: "Trees grow stronger over the years, river wider and like with the age, human beings gain immeasurable depth and breadth of experience and wisdom. That is why older persons should not only be respected and revered but they should be utilized as the rich resource to society that they are".

Interrelationship between Primary, Secondary and Tertiary Sectors

People are engaged in various economic activities within the economy. There are several ways to group them: primary/secondary/tertiary; organized/unorganized; and public/private. These groups are called sectors.

Primary Sector: There are many activities that are undertaken by directly using natural resources. For example, the cultivation of cotton. Cotton production depends mainly (though not entirely) on natural factors like rainfall, sunshine and climate. So cotton is a natural product. Similarly, in case of activity like dairy, we are dependent on the biological process of the animals and availability of fodder etc. The product milk is a natural product. Minerals and ores are also natural products. When we produce a good by exploiting natural resources, it is an activity of the primary sector. This is because it forms the base for all other products that we subsequently make. Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sector.

Secondary Sector: This sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. It is the next step after primary. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential. This could be in a factory, a workshop or at home. For example, using cotton fibre from the plant, we spin yarn and weave cloth. Using sugarcane as a raw material, we make sugar or gur. We convert earth into bricks to make houses and buildings. Since this sector gradually became associated with the different kinds of industries that came up, it is also called as industrial sector.

Tertiary Sector: After primary and secondary, there is a third category of activities that falls under tertiary sector. These activities help in the development of the primary and secondary sectors. But these activities, by themselves, do not produce a good but they are an aid for the production process. For example the goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops. At times, it may be necessary to store these in godowns. We may also need to talk to people or send letters/mails (communicate) or borrow money from banks to help production and trade. Transport, storage, communication, banking, trade are some examples of tertiary activities. Since these activities generate services rather than goods, the tertiary sector is also called the service sector.

Service sector also includes some essential services that may not directly help in production of goods. For example, we require teachers, doctors and those who provide personal services such as washermen, barbers, cobblers, lawyers and people in administrative and accounting works. In recent times, certain new services based on information technology such as internet café, ATM booths, call centres, software companies etc have become important.

Thus it is clear that the various economic activities, though grouped into three different categories, are highly interdependent. Further examples of economic activities can be cited which shows how the three factors are dependent on each other.

(a) Farmers sell sugarcane to a particular sugar mill. If these farmers refuse to sell sugarcane, the mill will have to close down. This is an example of the secondary (industrial) sector being dependent on the primary sector. The manufacturing sector depends on the primary sector for raw materials.

(b) In turn, the primary sector depends on the secondary sector. One aspect of dependence is the fact that the output of the former is used as inputs in the latter. If fabric manufacturers decided not to buy from the Indian market and import all cotton from abroad, the plight of the Indian cotton cultivators is unimaginable. Indian cotton cultivation will become less profitable and the farmers may even go bankrupt, if they cannot quickly switch to other crops. Cotton prices will fall. The other aspect is that output of the manufacturing sector is used as inputs in agricultural production. For example, farmers buy many goods such as tractors, pumpsets, electricity, pesticides and fertilizers. If the prices of fertilizers or pumpsets go up, cost of cultivation of the farmers would rise and their profits would be reduced.

(c) People working in industrial and service sector get the food that they need from the primary sector. If the farmers decide not to sell their products food will become scarce and workers of the industrial and tertiary sectors will suffer. On the same footing, if there is a strike by transporters and lorries (service sector) refuse to carry vegetables, milk and other food items from the place of their production to the markets, the farmers will be unable to sell their products.

(d) The industrial sector thrives on the services from the tertiary sector and the existence of the service sector would be meaningless if it had no services to render to the other two sectors.

HEALTH CHALLENGES FACED BY THE DEVELOPING COUNTRIES INCLUDING HIV/AIDS

A Report of a study named Disease Control Priorities in Developing Countries (released at the Beijing Second International Medicine Organization Conference on April 3, 2006), identified four key challenges faced by the public health sector in the developing world: the transformation of epidemiology, the HIV/AIDS epidemic, the emergence of new diseases, and high sanitation imbalances among countries. The study, which contains contributions from 500 of the world’s top epidemiologists, sanitation experts, and public health practitioners is a joint effort of the World Health Organization (WHO), the World Bank, and the U.S. National Institutes of Health (NIH).

As a first challenge, the study notes that rapid changes in global health over the past century have contributed to a transformation in disease. Mortality rates worldwide have experienced a remarkable decline in recent decades, a trend that is projected to continue over the next 20 years. “Lifestyle” diseases linked to tobacco and alcohol use and injuries now account for a rising share of deaths, and non-communicable diseases, such as circulatory-system ailments, cancers, and psychiatric disorders, are expected to replace infectious diseases and child malnutrition as the greatest contributors to the global disease burden. Researchers attribute this epidemiological shift primarily to the rapid aging of populations, with senior citizens experiencing the highest rates of non-contagious diseases of any age group.

A second key health challenge cited in the study is the spread of HIV/AIDS. Although the epidemic has been reined in to some extent in middle- and high-income countries, AIDS is expected to remain widespread in developing countries, particularly among high-risk populations. The Worldwatch Institute has reported that in as many as 20 developing countries—nearly all in sub-Saharan Africa—more than 15 percent of the total military force is thought to be HIV-positive. And nearly 74 million workers worldwide could die from AIDS-related causes by 2015.

Emerging and evolving diseases, such as the rapidly spreading avian influenza virus H5N1, will also continue to be a threat, contributing to new global outbreaks, said the study. The severe acute respiratory syndrome (SARS) virus that emerged in China in late 2002 and affected 27 countries illustrated that inadequate surveillance and response capacity in a single country can have repercussions for public health throughout the entire world. Experts believe that whether SARS becomes endemic or not will depend on the post-outbreak surveillance and setup of international mechanisms for outbreak alert and response.

The fourth challenge identified by the study is the need to close the sanitation gap between countries. While global public health inequalities have improved, many developing countries still face severe sanitation challenges that have impeded local economic development and poverty reduction efforts. The study notes that while mortality rates for children under age 5 are declining in most countries, they actually increased in 23 countries between 1990 and 2001 due to breakdowns in the public health infrastructure and the emergence of HIV/AIDS.

The World Bank published the first edition of “Disease Control Priorities in Developing Countries” in 1993, with contributions from the WHO, scholars, and public health practitioners and specialists. In September 2002, the WHO, World Bank, and NIH jointly launched the Disease Control Priorities Project (DCPP) to assess disease control priorities worldwide and to produce science-based analyses and resource materials to inform health policymaking in developing countries. The newly published study is an expanded second edition of the 1993 publication.

(With acknowledgement to Worldwatch Institute.htm - Study Highlights Four Key Health Challenges in Developing Countries; China Struggling With All by Zijun Li on April 11, 2006.)

HEALTH POLICY FOR THE DEVELOPING COUNTRIES

Investment in health constitutes an important component of investment in human capital. The state of health which is considered a stock, depreciates over time and at an increasing rate in later life. Investments in health would broadly include child care, nutrition, clothing, housing, medical services, and the use of one’s own time. “Healthy time” or “sickness-free time” contributes towards work, consumption and leisure activities.

The most important advance in population quality has been the increase in life span of people in low income countries. This reveals improvements in health. Since about 1950, life expectancy at birth has increased 10 percent or more in many LDCs. People of Western Europe and North America never attained so large an increase in life expectancy in so short a period. In India life expectancy at birth of males rose by 43 percent and that of females by 41 percent from 1951 to 1971.

Longer life spans provide additional incentives to acquire more education as investments in future earnings. The additional health capital and other forms of human capital tend to increase the productivity of the workers. Longer life spans result in more years of participation in the labour force and reduces “sick” time. Better health of workers in turn leads to more productivity per man hour at work.

Poverty is the major cause of disease in developing countries and more needs to be done than simple provision of medical facilities to improve health conditions. Reduction in poverty is to be seen as an overall objective of all general development and health policies in these countries. Health policies must be related much more to the environment and to the ecological, cultural and nutritional situation. Health programmes have been biased toward a small section of the urban population, which needs to be changed. Also, treatments should be widespread and ‘preventive’ rather than being ‘curative’.

Malnourishment is a major development problem. The interaction of malnourishment and infection has a far more serious effect on individuals than the combined effect of the two working independently. Consequently, the effects of nutrition actions and health programmes undertaken simultaneously are greater than the sum of their effects on the same populations would be if the actions were undertaken separately. Since integration of nutrition with health services is a particularly efficient way of using limited resources, improved nutrition should be considered an explicit objective in all relevant health work.

Substantial efforts are called forth on the part of governments and other development institutions towards addressing the health challenges being faced by the developing countries. Assistance agencies should emphasize food production, but with increased attention to those foods consumed by low-income groups and further support to projects that help to strengthen the purchasing power of the poor. They can also help government bodies fill gaps to their knowledge. Increased emphasis on nutrition is a logical extension of the effort to increase food production and consumption by those who need it. The food-health policy approach can complement and broaden other work of development-assistance agencies.

SPECIAL DRAWING RIGHTS (SDR)

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international organizations. Its value is based on a basket of key international currencies.

The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

Under the amended rules, the activities of the Fund were conducted under two separate accounts. The general transactions of the Fund including the sales of foreign currencies, to member countries, were conducted through the General Account. In other words, the Genral Account dealt with the general drawing rights of the member countries. But with the new scheme, a new account had been opened known as Special Drawing Account. All operations and transactions involving special drawing rights were conducted through the special drawing account. In other words, this account dealt with the special drawing rights of the member countries.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

Today, the SDR has only limited use as a reserve asset, and its main function is to serve as the unit of account of the IMF and some other international organizations. The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.

SDR valuation

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF's website. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.

The basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the world's trading and financial systems. In the most recent review that took place in November 2005, the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF. These changes became effective on January 1, 2006. The next review by the Executive Board will take place in late 2010.

The SDR interest rate

The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid and charged to members on their SDR holdings, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

SDR allocations

Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. Such an allocation provides each member with a costless asset on which interest is neither earned nor paid. However, if a member's SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall. The Articles of Agreement also allow for cancellations of SDRs, but this provision has never been used. The IMF cannot allocate SDRs to itself.

There are two kinds of allocations:

General allocations of SDRs have to be based on a long-term global need to supplement existing reserve assets. General allocations are considered every five years, although decisions to allocate SDRs have been made only twice. The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72. The second allocation was distributed in 1979-81 and brought the cumulative total of SDR allocations to SDR 21.4 billion.

A proposal for a special one-time allocation of SDRs was approved by the IMF's Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. This allocation would double cumulative SDR allocations to SDR 42.8 billion. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund subsequent to 1981—more than one fifth of the current IMF membership—have never received an SDR allocation. The Fourth Amendment will become effective when three fifths of the IMF membership (111 members) with 85 percent of the total voting power accept it. As of end-March, 2008, 131 members with 77.68 percent of total voting power had accepted the proposed amendment. Approval by the United States, with 16.75 percent of total votes, would put the amendment into effect.

(From internet.)

Merits and demerits of SDRs must be studied as well.

Central Assistance to Assam’s Economic Development

An amount of Rs 350 crore has been spent till date on the implementation of the National Rural Employment Guarantee Act (NREGA) schemes in Assam. Schemes under the NREGA have been implemented in all the 27 distircts of Assam.

Under the provision of the Act, 20 lakh families have been provided with job cards and of them, 9 lakh job cardholders have been provided employment, creating more than 2 crore mandays during 2008-09 till September 2008.

Assam received an amount of Rs 71.95 crore in 2008-09 as its first instalment of an allocation of Rs 143.90 crore from the Centre for implementation of the SGSY schemes. Assam has formed 166685 SHGs under SGSY and of them, 102626 are women SHGs.

Of these SHGs, 39225 have been provided with bank loans and subsidy. These SHGs include 21376 women SHGs.

In the rural road sector, under the Bharat Nirman project, the GOI has provided its share to Assam for construction of blacktopped and concrete roads in the villages having more than 1000 habitats in the plains and over 500 habitats in the hilly and tribal areas by 2009. An amount of Rs 6176 crore has been cleared for connectivity to 72 per cent of the total earmarked habitats in Assam. So far, Rs 1894 crore has been spent to construct roads of the length of 4616 kms, connecting 2903 habitations.

(The Assam Tribune, October 21, 2008)

HEALTH AND PRODUCTIVITY: Investment in Health, Food and Nutrition

Human capital theory treats everyone’s state of health as capital, i.e. as a stock. Part of the quality of the initial stock is inherited and part is acquired. The stock depreciates over time and at an increasing rate in later life. Gross investment in human capital entails acquisition and maintenance costs. These investments include child care, nutrition, clothing, housing, medical services, and the use of one’s own time. The flow of services that health capital renders consists of “healthy time” or “sickness-free time”, which are inputs into work, consumption and leisure activities.

A healthy manpower is a great aspect for a developing economy as it leads to greater output per man (productivity). Poor health and undernourishment adversely affect the quality of manpower. In LDCs people are underfed and undernourished, resulting in poor quality of manpower. Deficiency in proteins and vitamins in people’s diet and lack of proper medical facilities are common. But at the same time improvements in health revealed by the longer life span of people in many low-income countries, have undoubtedly been the most important advance in population quality in these countries.

Since about 1950s, life expectancy at birth has increased 10 percent or more in many of these countries. People of Western Europe and North America never attained so large an increase in life expectancy in so short a period. In India, from 1951 to 1971, life expectancy at birth of males increased by 43 percent and that of females by 41 percent.

The favourable economic implications of these increases in life span are far reaching:
1. Longer life spans provide additional incentives to acquire more education as investments in future earnings.
2. Parents invest more in their children.
3. More on-the-job training becomes worthwhile.
4. The additional health capital tends to increase the productivity of the workers.
5. Longer life spans result in more years of participation in the labour force and bring out a reduction in “sick” time.
6. Better health and vitality of workers in turn lead to more productivity per man hour at work.

The best way to improve the quality of manpower in LDCs is to provide adequate food and better nutrition to people, better sanitary facilities and the extension of medical facilities which in turn will raise the efficiency and the productivity of the people. Such improved facilities raise the flow of earnings above what it would have been in the absence of the improvement in well-being in the following ways:
1. These return an absent worker to the active labour force,
2. Help lengthen his working life span,
3. Make him overcome a debility that is reducing his productive capacity,
4. Enable a child to return to school, improve his understanding and retention power,
5. Enable an adult to absorb more effectively in-service training.

Thus improvement in health can help to improve or maintain the productivity level of an active member of the labour force, or it can take the form of an investment – for example, helping to push up the expected lifetime earnings of a two-year-old child.

One measure of the benefits of a nutrition programme is in the medical costs saved through reduced demand for medical services. It is cheaper to prevent malnutrition than to cure it. Another potentially large nutrition benefit for developing countries is the reduction in productivity losses caused by the debility of a substantial portion of the labour force. Again, improved nutrition lengthens working years. This reduces the country’s dependency ratio, other things being equal. Lower dependency ratios increase per capita income.

In addition to direct productivity benefits, health programmes promise a number of economic benefits:
1. As the incidence of communicable diseases among the adequately nourished is lowered, the exposure of others to these diseases will be reduced.
2. The increased income of well-nourished workers (or well-nourished children when they enter the labour force) should improve the living standards of their dependents, thereby raising both their current consumption and their future productivity.
3. Mothers will improve performance on such economically important functions as the quality of care for the young when they are themselves in better health and nourishment.

Recognizing the increasing importance of skilled manpower and general labour quality for future national growth, investments in health of large numbers of malnourished children today can improve the quality of a significant fraction of the future labour force. Accordingly, health efforts should be so designed as to expand food supplies in order to benefit the poor, improving marketing system and agricultural price policies, change food preferences, improve health and environmental conditions – water, sanitation, immunization etc. The effects of nutrition actions and health programmes undertaken simultaneously are greater and the very poor, especially the rural poor should be the targets of these programmes. Substantial efforts are called forth on the part of governments and other development institutions towards this end.

IMF and International Liquidity Problem

International Liquidity is the sum total of international reserves of all the nations participating in the world monetary and trading system. The term ‘International Liquidity’ comprises all those financial resources and facilities which are available to monetary authorities of member nations for financing the deficits in their international balance of payments. The various components of international liquidity are: (i) Gold held by Central Banks (gold held by private individuals is not included), (ii) Foreign currencies held by Central Banks, (iii) Borrowing facilities available from the IMF under different schemes, (iv) Special Drawing Rights first introduced in 1970 by IMF as an international monetary asset and (v) A country’s borrowing capacity in the international money market.

The problem of international liquidity is concerned with the imbalances in the demand for and supply of international liquidity. International liquidity shortage leads to recession in the world economy, whereas international liquidity surplus tends to have an inflationary impact on international economy. Solution to the problem relates to attempts at balancing supply and demand for international liquidity.

In case all the countries have equilibrium in their balance of payments (BOPs), there can be no problem of international liquidity. Secondly, if the national currencies of all the countries become fully convertible, and freely acceptable in international payments, no shortage of international liquidity can arise. Thirdly, if all the deficit countries are allowed to have an unlimited and unconditional access to borrowing and trading, there would have been no problem of international liquidity.

The liquidity problem has two aspects: qualitative and quantitative.

The Qualitative Aspect of the problem refers to the nature and composition of international reserves. In the composition of international liquidity, gold and reserve currencies (mainly dollar after World War II) play a dominant role. But since gold reserves cannot be increased much, growing international liquidity requirements are to be met by increasing reserve currency holdings. This means creating BOPs deficits in the reserve currency’s country (USA), if the other nations tend to accumulate the reserve currency. This leads to the confidence problem.

Quantitative Aspect: Although the international liquidity reserves had expanded from $48 billion to nearly $800 billion during 1950-88, yet it is too small in comparison with the expanding world trade. The reasons for the shortage of international liquidity are the following:
Payments deficits: BOPs deficits of all nations except Japan, Germany, Switzerland, Belgium and OPEC. This problem was aggravated by oil crisis of 1970s. The deficit of non-oil producing countries has increased by 4 times during 70s and early 90s.
Redistribution of international reserves: The international reserves are distributed more favourably to the DCs. International reserves are flowing away from USA amd developing nations since 1960s to countries like France, Germany, Italy, Belgium, Scandinavian nations, Japan, Switzerland etc.
Attitude of the DCs: The DCs are not reducing their BOPs surpluses by buying from the LDCs. They allege that the LDCs are responsible for this crisis. Their problems of international liquidity has arisen due to mismanagement of their economies, extravagant public expenditure, unproductive wasteful expenditure, over ambitious social and economic goals and trying to do too many things at the same time.
Little access to markets of DCs: LDCs have very little access to the markets of the DCs. They are putting tariff walls against the imports of developing nations. The DCs are forming economic unions imposing high common external tariff.

If satisfactory arrangements are not made to overcome the problem of shortage of international liquidity, both rich and poor countries tend to suffer in the long run. The problem of international liquidity forces LDCs to resort to import restrictions, exchange controls, devaluation, restrictions on capital flows etc, which adversely affects the DCs as well.

Many proposals have been made to solve the problem of international liquidity. The IMF contributes to international liquidity in two ways: by providing (a) conditional liquidity and (b) unconditional liquidity.

(a) Conditional Liquidity. The IMF provides conditional liquidity under its various lending schemes. The credit provided to its members is generally subject to certain conditions. Most of the IMF loans require an adjustment programme to be undertaken by the member nation for improving its BOPs position. Moreover, funds from the IMF under agreed conditions increases the member’s access to international capital market.

Important credit facilities by IMF are:
Basic Credit Facility
Extended Fund Facility
Compensatory Financing Facility
Buffer Stock Facility
Supplementary Financing Facility
Trust Fund
Structural Adjustment Facility etc.

In order to make the resources easily and more adequately available, the IMF has been introducing various procedural changes from time to time.

(b) Unconditional Liquidity. The supply of unconditional liquidity takes the form of reserve assets that can be used for BOPs financing. The IMF provides unconditional liquidity through the allocation of Special Drawing Rights (SDRs), and also in the form of reserve positions in the Fund. Member nations can use their holdings of SDRs and reserve positions in the Fund to finance their BOPs deficits without having to enter into policy commitments with the Fund.

IMF: Objectives, Procedures of Borrowing and Repayment

The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It also offers financial and technical assistance to its members, making it an international lender of last resort. Its headquarters are located in Washington, D.C., USA.

The IMF describes itself as "an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". The present Managing Director Dominique Strauss Kahn of France.

After the First World War, every country imposed trade restrictions, exchange controls and resorted to exchange appreciation in order to encourage exports. There was a decline in the world trade. In order to end this international economic and political crisis and furhter ease the tension, 44 nations assembled at the United Nations Monetary and Financial Conference in the Mount Washington Hotel at Bretton Woods, New Hampshire (USA) from July 1 to July 22, 1944.

The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The statutory purposes of the IMF today are the same as when they were formulated in 1944. It started functioning from March 1, 1947.

Objectives of IMF:
1) International Monetary Cooperation. To promote international monetary cooperation by providing a convenient forum for member nations to get together and provide means to strengthen out international monetary problems.
2) Stability in Foreign Exchange Rates. To fix parity rate of currencies and bring the members closer to a regime of stable exchange rates.
3) Elimination or Reduction of Balance of Payments Disequilibrium. To assist members in overcoming short-run disequilibrium in balance of payments (BOPs) by lending the required foreign currencies on specified terms and conditions.
4) Promotion of International Trade. To provide technical guidance and consultation to members for facilitating orderly growth of world trade and economic cooperation.
5) Establishment of a Multilateral Trade and Payments System. To replace the old bilateral trade agreements which obstructed world trade by a system of multilateral trade and payments sytem.
6) Balanced Economic Growth. To contribute to the promotion of rising level of employment, particularly in backward nations.


Membership:
Membership of the IMF is voluntary. But withdrawal of membership may be voluntary or compulsory.

Quota:
After becoming a member, a country is assigned a quota of subscription (membership fee), which determines its voting power and its drawing rights.

A subscription quota is fixed on the basis of the economic importance of the members, such as its exports, imports, GDP and gold and foreign exchange reserves. 25% of that amount of subscription is to be paid in the form of gold or US dollar and the remaining 75% amount in terms of domestic currency of the country concerned. The former part is called gold tranche (slice) and the latter is called credit tranch (credit in the sense that this part is to be paid in gold or US dollars later on).

The quota amount is revised from time to time (normally once in five years). India’s subscription was the fifth largest at the beginning (1947), but her current position is eleventh, with 4158.2 million SDR quota amount, which is 2.44% of the total subscription amount of the Fund. (The table is kept here for reference purpose.)

Table showing the top 21 member countries:

IMF Member Country
Quota: Millions of SDRs
Quota: Percentage of Total

Australia
3236.4
1.49
Belgium
4605.2
2.12
Brazil
3036.1
1.4
Canada
6369.2
2.93
China
8090.1
3.72
France
10738.5
4.94
Germany
13008.2
5.99
India
4158.2
2.44
Italy
7055.5
3.25
Japan
13312.8
6.13
Korea
2927.3
1.35
Mexico
3152.8
1.45
Netherlands
5162.4
2.38
Russian Federation
5945.4
2.74
Saudi Arabia
6985.5
3.21
Spain
3048.9
1.4
Sweden
2395.5
1.1
Switzerland
3458.5
1.59
United Kingdom
10738.5
4.94
United States
37149.3
17.09
Venezuela
2659.1
1.22
Remaining 165 countries
60081.4
29.14


Lending Operations:
IMF caters to the short run loan requirements of member countries. The resources of the Fund consists of gold and specified quantities of currencies of the member countries in the form of quota subscription. A member facing temporary BOPs problem could borrow the required currency or currencies from the Fund.

Restrictions on borrowing as per original rule:
Borrowing may be only for temporary duration, not more than five years to adjust short run current payment difficulties in BOPs.
The capacity to borrow of the member nations is in proportion to their respective quota subscription.
A country cannot borrow more than 25% of its quota in any one year, by paying equivalent domestic currency at declared parity rate to the IMF.
No member country could borrow to an extent which would cause the Fund’s holdings of currency of that country exceed 200% of the debtor country’s quota. (This rule is discretionary and could be relaxed in exceptional cases.)
Currency borrowed from the Fund cannot be used for affecting capital transfer from one country to another.

Conditions of borrowing:
The conditions of borrowing refer to set of conditionalities which the IMF intends to apply to the borrowing nations for ensuring a high degree of economy in performance and of policies of the borrowing country. Therefore, the Executive Board of IMF prescribes certain specific guidelines and conditions which the recipient country is expected to fulfil for securing financial accommodation for correcting BOPs deficit. These guidelines are –
The recipient country is required to undertake such tax reforms as provide incentives to the producers to step up domestic production and export.
It is required to reduce/remove controls on prices so that favourable conditions are created in the economy for increasing production and export.
The prices of products of public sector enterprises should not be administered as these would entail loss in efficiency for the undertakings.
Artificial supports such as subsidies should be eliminated wherever possible.
Borrowing country should take appropriate steps for export promotion.
Investment programme of the country should be production oriented.

Repayment:
The borrowing country will have to repay the dollar loan or in other words, repurchase its own excess over-quota currency by paying dollar or gold or other approved hard currencies so that the debtor country’s currency with the IMF reaches 75% of quota again. Except for the gold tranche, the Fund charges an interest on borrowing on sliding scale, which rises steeply with the rise in the excess holdings of the borrower’s currency.


[An example to illustrate the borrowing and repayment procedures:

Suppose the exchange rate is $ 1 = Rs 10.
Suppose India is required to pay Rs 1000 as subscription quota. Of this, Rs 250 is in gold/dollars and Rs 750 in Indian currency.
According to rules, India can borrow upto 200% of its quota, i.e. Rs 2000 (which is the ceiling).

Borrowing: Suppose India needs a short term loan of $125 to tide over BOPs problem. ( Note: With $100 = Rs 1000 quota, India cannot borrow more than $125).
So India has to deposit equivalent amount in Indian currency with the Fund i.e Rs 1250. ($1=Rs 10, $125=Rs1250).
This will raise Indian currency with the Fund to Rs 2000. (Rs 750 in credit tranche + Rs 1250 deposited for borrowing $125).
IMF then lends India $125. For the first 25% of quota, there is no interest charged. The rate of interest charged for excess holding of borrower’s fund goes on rising at a sliding rate.

Repayment: Now India has Rs 1250 in excess of its quota in Rupee with the Fund. So India will have to repurchase this with gold/ dollars or any hard currency. Thus the dollar loan of $125 is paid back along with whatever interest rate that IMF charges.


An interesting digression: If some nation borrows currency of a particular nation, then the borrowing capacity of the lender nation rises.
Suppose, as in the previous example, India borrows $125 and in exchange kept Rs 1250 with the Fund, increasing Indian rupee to Rs 2000 with the Fund.
Now suppose Bangladesh is in need of Indian rupee and borrows Rs 100 from the Fund. So Indian rupee with the Fund becomes Rs 1900 (Rs 2000-100). This makes it possible for India to borrow another $10 (=Rs100) from the Fund, because Bangladesh’s borrowing has reduced its borrowing extent to 190% from 200% and so it can borrow another 10% ($10 in this example) again.
While repaying, India has to repurchase only Rs 1150 (Rs 1900-750) back. While borrowing India kept Rs 1250 initially (borrowed $125), now it can buy back only Rs 1150 or pay back only $115 to the Fund. This has been possible because Bangladesh borrowed Rs 100 from the Fund. As for Bangladesh, it will repay the Rs 100 loan in the usual procedure.]

Amartya Sen

The Philosopher Economist

Santiniketan seasoned Sen
Cambridge enlarged his ken.
Invaluable we declare
His contributions to Economics of Welfare:
Economics is ‘demand and supply’,
‘Its focus is but Man’ is his reply.
Problems of famine and poverty
Have engrossed the rare Master of Trinity.
Christened ‘Amartya’ by Tagore,
Each a great mind and humanist to the core.



Born in Santiniketan on 3 November, 1933, Amartya Sen studied at Santiniketan, Presidency College, Calcutta University and Trinity College (Cambridge University ).
He became Professor of Economics, Jadavpur University (1956), Delhi University (1963-71), London School of Economics (1971-77), Oxford (1977-80), Drummond (1980-88), Harvard (1988-1998), Master of Trinity College, Cambridge since 1998.

He won the Nobel Prize in Economics in 1998 for his contributions to Welfare Economics. Welfare Economics was once considered to be a non-subject by prominent economists including Richard Kahn and Joan Robinson.

He is probably the second economist after Adam Smith to have occupied the chair of a Professor of Economics and Professor of Philosophy simultaneously in Harvard.

Presently he is Lamont University Professor at Harvard, and Professor of Economics and Philosophy, at Harvard University . He was Lamont University Professor at Harvard also earlier, from 1988 – 1998.

Amartya Sen’s books have been translated into more than thirty languages, and include Collective Choice and Social Welfare (1970), On Economic Inequality (1973, 1997), Poverty and Famines (1981), Choice, Welfare and Measurement (1982), Resources, Values and Development (1984), On Ethics and Economics (1987), The Standard of Living (1987), Inequality Reexamined (1992), Development and Freedom (1999), and Rationality and Freedom (2002), The Argumentative Indian (2005), and Identity and Violence: The Illusion of Destiny (2006), among others.

His research has ranged over a number of fields in economics, philosophy, and decision theory, including social choice theory, welfare economics, theory of measurement, development economics, public health, gender studies, moral and political philosophy, and the economics of peace and war.

Sen was inspired by the ideas of thinkers such as Adam Smith, Francis Hutcheson, David Hume and Jeremy Bentham (British Classical Economists). He analysed various thoughts and concepts on which human happiness depends. He combined in his analysis – philosophy, economics, mathematics, human rights, management, ethics etc. – for solving the problems of poverty and hunger. He constantly strives to raise the status of Economics from a dismal science to that of a powerful instrument of social development based on ethics.

His first book CHOICE OF TECHNIQUES (1960) is a modified version of a dissertation written in 1955-57 for a Prize Fellowship of Trinity College, Cambridge , later on submitted for a Ph.D degree (1958-59) under Maurice Dobb. The book examines the contradictions involved in respect of the alternative techniques of production available to an underdeveloped economy which are agricultural and labour dominated, and throws light on the concept of disguised unemployment, fully supported by lucid diagrams. Joan Robinson studied the problem of disguised unemployment and like her, Sen believed that relatively capital intensive technique could score over labour intensive techniques in the long run.

In the early 1950s Kenneth J. Arrow forwarded a Social Choice Theory to suggest that a sum total of individual preference would lead to a collective or social choice. But he showed that under a set of circumstances, democratic decision making will be ruled out and a dictator would have to determine the collective or social choice. The theoretical problems involved in aggregating individual preferences led to his so-called Impossibility Theorem, which seemed an insurmountable obstacle to progress in normative economics. Sen overcame Arrow’s pessimism by developing and refining the latter’s analysis in his monograph COLLECTIVE CHOICE AND SOCIAL WELFARE (1970). He pointed out that information regarding inter-personal comparability of utilities and comparability of happiness would make a way out of the situation. This opened up a whole new vista of welfare economics and non-dictatorial social choice.

Sen witnessed the Bengal Famine (1943, World War II period: harvest was plentiful but food stored for allied troops in case of Japanese invasion) that destroyed more than three million people and the Dhaka communal riots (1946) leading to social deprivation during his childhood days. He found evidence of famine even without food shortage: a famine caused not by food stuff shortage but by lack of purchasing power (which he termed “boom famine”). Paradoxically some famine stricken nations even exported food. The newly independent nation of Bangladesh witnessed famine (1974) and there was China’s case too (1958-62): regimentation during Mao Tse Dung’s times whose policy was to give no publicity to it. According to him there is no famine in democratic nations and where the press is free. His analysis of famines which shows his abiding interest in the problem of social deprivation and social development vis-à-vis the process of economic development, is found in his POVERTY AND FAMINES-AN ESSAY ON ENTITLEMENTS AND DEPRIVATION (1981).

He supports globalization and market reforms, but he is convinced that liberalization without creation of social opportunities like education, health, land reforms, administration, micro-credit, gender differences, deprivation of women and neglect of the children will lead to social deprivation and unfair competition. He says, “It is not a question of more or less government but what kind (quality) of government.” In India and Pakistan government over-activity in industry and under-activity in the health and education sector have proved counter productive. His study with Jean Dreze, INDIA – ECONOMIC DEVELOPMENT AND SOCIAL OPPORTUNITY (1995) shows that the basic thrust of India’s economic reforms is right but inadequate as a method of dealing with India’s enormous problems. They suggested cuts in military expenditure to make provision for the social sector.

He wrote ON ECONOMIC INEQUALITY (1973) and INEQUALITY RE-EXAMINED (1992). In his latter book he analyses the nature and content of equality. The issue, according to him is not ‘whether equality’ but “equality of what?’ Egalitarians may demand income equality or welfare equality or equal weights on utility of all or a whole gamut of rights and liberties. But attainment of one egalitarian goal is not without sacrificing another. The freedom to achieve human capacity building is an ethical requirement, which will remove social deprivations.

Poverty Index: Sen developed a poverty index by combining the concepts of absolute and relative poverty. This is regarded as a major contribution to both theoretical and applied Economics. Sen opposed the ‘head count’ approach which defined the poverty line. He emphasized three different variables while developing his index of poverty:
(1) The number of poor people and total population below the poverty line, ‘H’.
(2) The distance between the total poor population and the poverty line, ‘T’, i.e., the total poor people in the society (can be expressed as a ratio).
(3) Index of probability of inequality of poverty among the poor, ‘G’.

Sen added ‘G’ to the existing ‘H’ and ‘T’ in contemporary studies. If all are equally poor, ‘G’ is not needed, otherwise all the three variables are equally important. Mathematically,
P= f (H,T,G)

This is called Sen’s Index. According to him the index must be so constructed that it fulfils four conditions:
(a) If income of a person below poverty line falls drastically, it must be reflected in the index.
(b) If income of a rich person above the poverty line decreases but he has not become poor, or if income of a poor person increases but he has not become rich, such a situation must be reflected in the index.
(c) The index will emphasize on poverty, not on society’s materialism – this thought should be reflected.
(d) That there is inequality of poverty even below the poverty line must be reflected in the index.
The variable ‘G’ is of particular importance for the last condition. The practical value of the index is tremendous, not only in knowing the number of poor, but in devising anti-poverty measures. It also helps in comparing poverty conditions in different nations.

Human Development Index: In association with his close friend Mahbub–ul Haque, Sen developed new indices of development which found expression in United Nations Development Program (UNDP)’s Human Development Report.
The Human Development Index (HDI) = (LEI+EAI+ARPII) / 3,
where,
LEI= Life Expectancy Index
EAI=Educational Attainment Index
ARPII=Adjusted Real Per Capita Income Index.

Gender inequalities: Prior to Sen, there was no elaborate discussion on economic inequality between men and women. He wrote an article titled “Missing Women” in the British Journal. According to him, the main problem in India is not population explosion; it is an offshoot of other problems. If men and women receives equal nutrition, equal health care, equal educational opportunities, then female fertility rate decreases, as a result of which population growth rate will diminish.

There are millions of missing women – killed by discrimination – on account of less food and medical care as compared to boys and men.

There is the high-touch (philosophical) origin to Economics as well as the high-tech (engineering) one. The former is about ethics, conduct, behaviour, achievement and the nature of good life; the latter is about output, inputs, production function, linear programming and general equilibrium. Often there has been too much of engineering and intellectual models in Economics but very little of philosophy and human touch. According to Sen, there is need for more focus on the philosophical side at present.

SHG and Assam

THE ROLE OF SELF-HELP GROUPS (SHGs) IN ERADICATING RURAL POVERTY IN ASSAM – PROBLEMS AND PROSPECTS

A Self-Help Group (SHG) is a group of about twenty people from a homogeneous class, who come together for addressing their common problems. The concept of SHG was introduced in India by NABARD in 1992, inspired by its success in Bangladesh. Today it is the largest rural development programme, going on with the active cooperation of NABARD, DRDAs and NEDFi.

The guru of micro-credit in Bangladesh Professor Yunus Mohammed is of the view that the poor need opportunity, not charity. With this ideology, the people forming an SHG are encouraged to make voluntary savings on a regular basis. They use these pooled resources to make small interest bearing loans to their members. The process helps them develop the essentials of financial intermediation, which gradually builds financial discipline in all of them. They also learn to handle resources of a size that is much beyond individual capacities. Once the group shows mature financial behaviour, banks are encouraged to give loans to SHGs.

NABARD emphasizes growth of strong and efficient SHGs internal loans to its members for productive purposes, irrespective of APL (above poverty line) or BPL (below poverty line) families. DRDA, under its Swarnajayanti Gram Swarojgar Yojana (SGSY) emphasizes on the growth of SHGs among BPL families for fulfilling the objective of poverty alleviation. NEDFi, under its micro-finance scheme, lends a minimum of Rs. 20000 and a maximum of Rs. 4 lakhs to an SHG with good record for on-lending to the needy for taking up productive activities. Prime lending rate and administrative charges are decided by NEDFi.

SHG movement’s success in South India:

The SHG movement in southern states of India has been successful to a great degree in uplifting the socio-economic conditions of the down-trodden, which can also be achieved in Assam provided adequate encouragement is provided. The Andhra Pradesh Government had taken up the theme of women’s empowerment (through SHGs) as one of the strategies to tackle poverty. All villages in the state have atleast one SHG and 75% of the villages have 15-20 groups in each. Nearly 60% of the women took up activities like vegetable and flower cultivation, food crops, pulses and oil seeds cultivation on leased land. Small business activities, handicrafts and handloom products making etc are also taken up by 25% of the poor women force. The SHG movement in Andhra Pradesh has helped significantly in reducing rural poverty to 11% by 1999-2000. Of late, the movement has started to show similar signs in Karnataka and Tamil Nadu.

Poverty Estimates in Assam:

The Planning Commission’s latest estimate shows that the incidence of poverty is very high in Assam, particularly in rural areas. Poverty estimates for Assam 1999-2000, on the basis of consumption expenditure data collected by NSSO (55th round), indicate that 40.04% of rural poor (overall – 36.09%) was living under the poverty line. The corresponding national figures were 27.09% and 26.10% respectively. In absolute terms, nearly 10 million people constituting 3.63% of the poor Indians were living in Assam. Open unemployment in Assam accounted for 2 millions, of which nearly 70% were educated unemployed youths. Another 3 millions of the total work force were disguised unemployed, primarily engaged in the agricultural sector.

Providing employment to such a huge army of unemployed is a large task for the government, moreso now with the job-contractionist policy all around. Traditional agriculture cannot offer any gainful employment. Options left are in the modernization of the agricultural sector and exploiting the huge untapped self-employment opportunities in the non-farm and services sector (transport, health, education etc.)

Modernisation of agricultural sector and creating employment avenues for the poor in the non-farm sector requires huge amount of capital investment. The different development schemes (till switch-over from IRDP to SGSY towards the end of 1999) did a precious little for the people who really needs outside help to break the vicious circle of poverty. The solution surely lies in fostering SHGs among the disadvantaged people and involving NGOs (through a systematic institutional encouragement to them) in guidance and support services (finance management, enterprise development, packaging and pricing of products) to the SHGs.

SHG and Assam:

SHG movement has unfortunately started very late in Assam. Since the beginning of the present millennium, a sizeable number of SHGs have started to crop up in almost every district of Assam. Of the total 66125 SHGs in the state in mid-2003, Sonitpur and Kamrup districts had 15000 and 7000 respectively. But only 4000 SHGs have accessed institutional credit till March 2003. Banks are still apprehensive of loan recovery. NGOs with professional skills are not coming up in this state.

The task of eradicating poverty from Assam warrants active cooperation from different development agencies – government, NABARD, banks, cooperatives, NGOs and other change agents. At present, the 66125 SHGs roughly cover 1 million people in the state. The need is to cover at least 14 million poor and nearly poor population. The credit needs of the poor are very small. What they need most are guidance and support. Group savings can meet only the members’ recurring demand for small loans for consumption and other contingent needs. For gainful employment, they need outside support in the form of investment and production credit, among others.


Problems:

The funds available to the SHGs are very negligible. Most of the SHGs find it difficult to maintain their accounts properly. Formal training in this respect will be of immense help.

Products of SHGs lack market exposure. Their market is limited within nearby areas.

Some people form SHGs in order to satisfy vested interests, distributing the revolving fund of Rs 10000 among themselves.

The rule fixed for SHGs under SGSY is that debtors of some banks are to be excluded from membership of SHGs. One of the purposes of SHGs is to make it possible for rural people to get easy loans. So this rule is itself a hindrance on the path of fulfilling the very purpose of rural development.

Prospects:

SHG is still a new concept in rural Assam. Widespread poverty and unemployment can be treated through these SHGs. SHG programme has lightened the burden of life for the average member of a SHG in many ways. There have been perceptible and wholesome changes in the living standards of the SHG members in terms of ownership of assets, increase in savings and borrowing capacity, income generating activities and in income levels.

Almost all members developed saving habit in the post SHG period as against 28.57% of households earlier. Moreover, SHGs bring people closer to the banking system by helping in getting loans easily and frequently.

Self-confidence of the SHG members has improved, helping them to confront social evils and problem situations. Most of the SHGs are involved in developmental works like literary programme, forestation, repairing of rural roads, providing medical facilities etc.

Thus, thr SHGs could be a very effective mode to mitigate rural poverty in Assam. These can act as a tool for women empowerment. The above-cited problems of paucity of funds, managerial inefficiency, lack of accounting knowledge, indifferent attitude of the bankers can be solved by active involvement of NGOs with necessary expertise. The NGOs can contribute significantly to the welfare of the SHG members by helping their part time occupation (piggery, rearing goat, chick, dairy farming, weaving, small business, mushroom and ginger cultivation etc) take a permanent shape.

IIT, Universities and Colleges can also play an important role in this regard. Even panchayats and religious institutions besides NGOs can come forward to act as financial and non-financial intermediaries between banks and SHGs.

In order to encourage people to take initiative in forming SHGs, DRDA Jorhat has introduced a scheme of rewarding people taking initiative in forming SHGs. This can be followed in the other districts as well.

To conclude, there is no denying the fact that SHG movement can add a new dimension to the fight against poverty and underdevelopment in rural Assam. What is needed is the speeding up of the process of people’s orientation in the development strategy and fight against poverty through guidance and support services to the SHGs from professional NGOs, VOs, PRIs, cooperatives and such other change agents.