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.

Swarnajayanti Gram Swarojgar Yojana

Swarnajayanti Gram Swarojgar Yojana (SGSY) is a poverty eradication plan started from April1, 1999. It merged six other schemes, viz. IRDP, TRYSEM, SITRA, DWCRA, GKY and MWS. It is a programme of micro enterprises covering all aspects of self employment through the formation of self-help groups (SHGs). Initially, individual beneficiaries were given assistance but progressively majority of the funds have been for SHGs because group activities have a better chance of success.

Self- employment is a significant step to have sustained incomes and remove the shackles of poverty. Earlier programmes like IRDP were good but were not adequate to meet all the requirements. The government introduced this self-employment programme ‘Swarnajayanti Gram Swarozgar Yojana’ (SGSY) with an objective to bring the assisted poor families above the poverty line in 3 years by providing them income-generating assets through a mix of bank credit and government subsidy. It ensures the family a monthly net income of atleast Rs.2000. It intended to benefit the SCs, STs, disabled and women-headed households. But these sections will be excluded from the programme if they are not listed in the below poverty line (BPL) census. Under this programme, a group is given Rs 10000 per member and a maximum of Rs 1.25 lakh per group.

Under the SGSY, assistance is given to the poor families living below the poverty line (BPL) in rural areas for taking up self employment. The persons taking up self-employment are called swarozgaris. They may take up the activity either individually or in Groups, called the Self-Help Groups (SHGs). For successful self-employment, it is necessary to take up the right activity. For this purpose, 4 to 5 activities are selected in each Block with the help of officials, non-officials and the bankers. These are called ‘Key Activities’, and should be such that they give the swarozgaris an income of Rs. 2000 per month, net of bank loan repayment.

Subsidy under the SGSY will be uniform at 30% of the project cost, subject to a maximum of Rs. 7500/-. In respect of SC/STs and disabled persons however, these will be 50% and Rs. 10,000/- respectively. For group of swarozgaris (SHGs), the subsidy would be 50% of the project cost subject to per capital subsidy of Rs. 10,000/- or monetary limit on subsidy for irrigation projects.

Quite often, in villages, people have skills. If any BPL person feels that he/she can gainfully take up any activity he/she should approach the Sarpanch or the BDO or the Branch Manager of the nearest Bank. Effective self-employment not only means choosing the right activity but also carrying out the activity in the right manner. Self-Employment involves procurement of raw material, production, marketing of goods and dealing with finance. A single swarozgari may not be able to do all this by himself/herself. It is therefore advisable for the swarozgaris to form Groups – the Self-Help Groups. SGSY actively promotes Self-Help Groups.

The SHGs have been the focus under the SGSY. The formation of SHGs contributes to the empowerment and economic wellbeing of the poor by improving their collective bargaining power. Savings by members and internal lending help the group members to improve their economic position. A strong group which possesses special skills, technical knowledge, marketing linkage etc can reach the stage of micro enterprise.

SHGs become cohesive in the long run only if they are homogeneous. Social mobilization is an important step in the formation of SHGs. It requires a high degree of motivation, time and management skills for group formation. SGSY is implemented through the District Rural Development Agency (DRDAs). These DRDAs will have to be supported by NGOs, PRIs and other community-based organizations in the formation of SHGs. The SIDBI, NABARD, RMK and many zila parishads have helped in the formation of SHGs. Strong networks and linkages need to be established with such institutions under SGSY. NGOs have an advantage in reaching the poor because of their nearness, trust, commitment, flexibility in approach, responsiveness and cost-effectiveness. They have played a dynamic role in the formation of SHGs and have taken care of them over the years. Till December 2007, 29 lakh SHGs were formed in India. Of these 20% have taken up economic activities under the SGSY scheme.

But voluntary and non-governmental action is weak in some of the poorer states. Departments of Social Sciences, Agricultural and Rural Development in Universities and Colleges could be engaged as facilitators in the process of group formation.

The identification of main activities and planning are important components of SGSY. But it has been a weak link so far. It is necessary to identify the livelihood opportunities and the micro level planning process needs to be strengthened for the programme to succeed. After identification of the key activities, it is necessary to organize training programmes for the beneficiaries under the SGSY schemes. This not only requires short-term training but also on-the-job training (OJT).

The SGSY programme should be credit-driven. The demands for credit of the vast majority of poor remain outside the formal credit system. So, a system would have to be put in place which is flexible and responsive to the financial needs of the poor and is capable of timely and adequate supply of credit. The inadequacies of formal credit institutions can be overcome by combining the strength of commercial banks with the NGOs to effectively link the poor with the commercial banking channels. In the credit delivery system under SGSY financial intermediation should be encouraged. Since commercial banks cannot reach the rural poor in every part of the country, other formal institutions like Primary Agricultural Credit Cooperative Societies (PACs), Regional Rural Banks (RRBs) that cater to the specific credit of the rural population, can be integrated into the credit delivery structure under SGSY programme. The Government should try to give funds under this programme to the rural poor to diversify into non-agricultural activities. Governmental agencies like Khadi and Village Industries Commission (KVIC) and District Industries Centre (DIC) were set up to provide non-farm activities. Inspite of these, only 16% of rural population is engaged in non-farn activities. SGSY groups from a group of villages can form a federation. Such federation producing a single product can ensure better marketing, lower production cost, quality improvement and sell their products through KVIC outlets, state emporiums, handlooms and handicraft trade fare etc. Marketing strategy is an important part of every self employment programme. Construction of permanent spaces along with provision for storage godowns can be taken up under SGSY.

Self employment programmes are likely to have an uneven regional spread. The negative relationship between the incidence of rural poverty and access to land is established. The landless people face the greatest risk of poverty. Access to even small plots of land can significantly reduce poverty and food insecurity. The SGSY programme can continue to promote land based activities in the rural areas. Diversification into other land-based activities like sericulture, horticulture, floriculture, aquaculture would be encouraged. Women Swarojgaries can be the sole owners of redistributed land. Schemes that give subsidies and credit for land buying can be converged with the SGSY programme. The Integrated Rural Development Programme (IRDP) approach for fixing targets and time frames were given up under the 9th Plan itself. In the 9th Plan, both IRDP and SGSY were subsidy driven programmes. But this subsidy became a major obstacle in the promotion of self-employment project. The poor are capable and willing to pay for the credit and other financial services of NGOs and financial institutions without depending on government subsidy. So, financial resources can be directed for providing infrastructure and other support facility in the 10th plan.

The challenge before the government is to provide employment opportunity which provides increased incomes. Therefore, enlargement of programmes like SGSY and their effective implementation have become very necessary in such a scenario.

WTO and Developing Countries

The Great Depression (1929-35) and its aftermath began to induce the world community to think of some sort of harmonious trade relations on the global level. This common feeling resulted in the beginning of the multilateral trade negotiations on the General Agreement of Tariffs and Trade (GATT) in January 1948 in Geneva. The principal purpose of GATT was to ensure competition in commodity trade through the removal or reduction of trade barriers (free trade), the ultimate aim being the encouragement for growth and development of all member nations. Seven rounds of negotiations were conducted under GATT till 1986 for stimulating international trade by reducing tariff barriers and also non-tariff barriers on imports imposed by member nations.

The 8th Round of GATT (1986-1993) – The URUGUAY ROUND (UR) of Negotiations:

The 8th Round of GATT negotiations (Uruguay Round) was started in September 1986 at Punta del Este in Uruguay. During the four decades since the establishment of GATT in 1948 to 1986, world trade had undergone a structural change:

1) The share of agriculture in world commodity trade which was 46 percent in 1950 had declined to 13 percent in 1987.
2) The share of service sector in GDP of developed countries (DCs) was rapidly increasing (ranging between 50-70 percent of GDP by 1986).
3) The share of employment in the service sector of DCs was also increasing fast (about 70 percent).
4) Japan and other newly industrialized nations began having more advantage in commodity trade.

These factors impelled the DCs under the leadership of USA to take the initiative of bringing the service sector into trade negotiations. Thus the UR contained the mandate for negotiations in 15 areas. In Part I, 14 areas of negotiations on Trade in Goods were to be done:-

(1) Tariffs, (2) Non-tariff measures, (3) Tropical products, (4) Textiles and clothing, (5) Agriculture, (6) GATT articles, (7) Safeguards, (8) Natural resource-based products, (9) Multilateral Trade Negotiations, (10) Subsidies and Countervailing measures, (11) Dispute Settlement, (12) Trade Related Aspects of Intellectual Property Rights (TRIPs), (13) Trade Related Investment Measures (TRIMs), (14) Functioning of GATT Systems (FOGs).

Part II dealt with negotiations on Trade in Services.

The traditional GATT subjects between 1948 and 1986 were tariff and non-tariff barriers and improvement in GATT rules and disciplines on subsidies and countervailing measures, anti-dumping measures etc. New areas such as TRIPs, TRIMs and Trade in Services were introduced in the negotiations of the 8th round of GATT.

DUNKEL PROPOSALS – Final Act – WTO:

The 8th Round negotiations were to be concluded in 4 years. But differences between participating nations on areas like agriculture, textiles, TRIPs and anti-dumping measures prevented an agreement. So, Mr. Arthur Dunkel, Director General of GATT compiled a detailed document, popularly known as Dunkel Proposals as a compromise document for the member nations, which culminated into the Final Act on December 15, 1993 (Marrakesh). India signed the agreement along with 117 nations on April 15, 1994. One provision of the agreement entailed converting the GATT into the World Trade Organization (WTO). The WTO as contained in the Final Act was established on January 1, 1995 with headquarters in Geneva. India became its founder member by ratifying the WTO agreement on December 30, 1994. The strength of the member nations is 153. The present WTO Director General is Pascal Lamy.

Governance at WTO - Need for change:

The technical structure of the WTO is based on two documents, namely, the ‘General Agreement’ for ensuring non-discriminating trade in all goods and services and the ‘Specific Accords’ on trade issues, which are the outcome of the UR. At the WTO, each nation has a single vote and decisions are largely by consensus. But in practice, the U.S., Europe and Japan have dominated in the past. This apparently seems to be changing now.

Though the initial WTO conferences were marked by lack of unity among developing nations, these have gradually matured into tough negotiators. Through the Singapore (1996) to the recent Geneva (July 2008) Rounds, the developing nations have learnt not to be lured by the DCs. During the Doha Round (2001), the developing nations achieved some notable concessions by insisting that their concerns had to be heard if further rounds of trade negotiations were to be initiated in future. With China’s joining the WTO (November, 2001), the developing nations found a powerful voice on their side.

But the most basic change that is required is a change in governance within the WTO so as to ensure that it is not just the voices of the trade ministers (representing each nation) that are heard in the WTO.

WTO – Symbol of Global Inequalities and Hypocrisy of the DCs:

While the advanced industrial countries had preached and forced the opening up of the markets in the developing nations to their industrial products, they have continued to keep their markets closed to the products of the developing nations, such as textiles and agriculture. While they preached that developing nations should not subsidise their industries, they continue to provide billions in subsidies to their own farmers which under-cut their production costs, making it impossible for the farmers of the developing nations to compete. According to World Bank Report, European Union (EU) and USA together allow domestic support to their farm sector to the tune of $ 370 billion in a year. While they preached the virtues of competitive markets, the USA quickly pushed global cartels in steel and aluminium when its domestic industries seemed threatened by imports. The USA pushed for liberalization of information technology and financial services, but resisted liberalization of the service sectors in which the developing nations have strength, namely, maritime and construction services.

The trade agenda has been so unfair that not only have the poorer nations not received a fair share of the benefits, but the poorest region in the world, Sub-Saharan Africa was actually made worse-off. According to a World Bank calculation, its income fell by over 2 percent due to the trade agreement.

The global protests over these inequities began at the Seattle Round of negotiations (1999). Since then, the movement has grown stronger and the fury has spread. These inequities have increasingly been recognized, and that, combined with the resolve of the developing nations, resulted in the Doha “development” Round of negotiations (November 2001). This Round put on its agenda the redressing of some of these past imbalances. But it proved to be a ‘nothing’ Round, as have been the meetings in subsequent years.

Main Areas of the WTO Agreement and their Implications for India:

1) Reduction in Basic Duty and Export Subsidies: Under the WTO regime, quantitative restrictions have to be phased out. India accordingly brought down basic duties. These tariff reductions were also a part of the economic reforms undertaken in India. The Agreement also stipulates anti-dumping proceedings as well as prohibition of export subsidies.
2) TRIPs: Under TRIPs, patents shall be available for any invention, whether product or process, in all fields of industrial technologies. Patent protection will be extended to micro organisms, non-biological and micro-biological processes and plant varieties. This implies that the patent holder would resort not only to manufacturing monopoly, but also import monopoly and the concerned national government would not be able to exercise price control on the imported products. The Doha Round particularly stressed on Intellectual Property Rights (IPRs). Importance of IPRs cannot be denied. But these rights need not balance out the rights and interests of producers with those of the users. These rights may in effect result in denial of life-saving medicines to the poor (prices being too high due to the patent regime), slow-down of research studies and even bio-piracy (international companies patenting traditional foods and medicines). There have been a number of bio-piracy cases of India’s herbal wealth (Haldi, neem, basmati rice).
3) TRIMs: TRIMs were initiated by the USA in 1980s since it was losing ground in competition in goods to Japan and other newly industrialized nations of East Asia and it intended to recover its lost ground through trade in services. The main motive was to benefit Multi National Companies (MNCs) so that they could undertake investment in financial services, telecommunications, marketing etc. Already under New Economic Policy (1991), India has been over bending to woo foreign direct investment and so, several structural changes have been undertaken in the Indian economy.
4) Textiles and Clothing: The WTO Agreement has made certain proposals for liberalizing trade of textiles and clothing. Textiles exports constitute the single most important item of export of developing nations. Ironically, the developed nations, claiming to be great champions of free trade, imposed the most comprehensive quota restrictions under the multi-fibre agreement (MFA).


Thus, whenever newly industrialized nations have challenged the competitive strength of the DCs, they have retaliated by imposing both tariff and non-tariff barriers. These barriers have been enlarged in the form of TRIPs and TRIMs. The innovation of the Social Clause (to levy a countervailing duty on imports from developing nations to offset low labour costs there) was also conceived with the same intention of blunting competitive advantage of developing nations.

This game of DCs will continue. Reforming the WTO will require further thrust on more balance trade agenda – more balanced treatment of developing nations’ interests, more balanced treatment of concerns like environmental issues and such issues beyond trade. The EU has conceded to some steps (except subsidies) in that direction. The challenge is to get the USA and Japan to participate towards that end. In the meantime, the developing nations should take advantage of the multilateral trade organization and show their combined strength by being united.

Geneva Round (July 2008):
In the latest Round of talks in Geneva the U.S. proposed that our agricultural market be opened up to the extent of 40 percent surge if India wanted to enhance tariff on import of farm produce by 15 percent for checking farm produce import from foreign nations. Our Commerce Minister retaliated rightly that food and livelihood is not a trade related issue. India and China jointly put forth the proposal that developing nations be allowed to impose extra 25 percent duty on import of farm products if import exceeds by 15 percent. The USA did not agree to this proposal.

Even though developing nations have been persistently opposing the issue of opening of the agricultural market, the latest Geneva Round has made it clear that sooner or later, DCs will get through their proposals by some means or the other in subsequent WTO negotiations. India should be prepared to meet such an eventuality well ahead by strengthening its agricultural sector.