Fix aid delivery to India's poor

Too much of the aid money intended for India's poor is getting absorbed by the wrong people. Would another system work?

By , Guest blogger

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    Women wash themselves outside their shanty in Dharavi, one of Asia's largest slums, in Mumbai March 23, 2011. Over 40 percent of India's almost 1.2 billion population live in poverty. Is there a better way to deliver aid to India's poor?
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This article summarizes a new World Bank study highlighting the challenges posed by corrupt officials and middle men in targeting poverty reduction aid to the poor in India. To quote the NY Times,

"The World Bank on Wednesday recommended a radical overhaul of India’s social programs. “Marginal changes alone may not deliver the kind of safety net which a changing India needs for its poor and for its economy,” Mr. Blomquist wrote.
One of the primary problems, the World Bank said, was “leakages” — an often-used term in development circles that refers to government administrators and middle men stealing money, food and benefits. The bank said that 59 percent of the grain allotted for public distribution to the poor does not reach those households."

The good news is 59% is lower than what many U.S charities grab in administrative fees!

So, how can the donor and the Indian poor "cut out the middlemen" and transact their transfer transaction? If the poor had direct deposits, then the donor could directly wire in the resources. I realize that the poor do not have bank accounts. An alternative would be if the Donor could "helicopter drop" the equivalent of "debit cards" that would have a fixed amount of $ on them and could be used for food purchases at any time. In both cases, improvements in technology allow the donor to connect with the poor without having to trust some government or middle man to distribute the food.

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There could also be more randomized field audits to test for corruption in India and those who are caught could be punished in a high profile setting. Such "shock and awe" examples might deter some corruption and thus help the poor.

It would interest me if the greatest "leakage" occurs with poor people who are farmers versus those who live in cities. By the definition of cities, they are densely populated and there is more likely to be more information and more "perfect competition" between sellers. In contrast, in the rural countryside --- the rural people may constantly face monopoly conditions where there is only one buyer of their product, it is costly for them to go to the city, and they lack information on several fronts.

In such a setting, India could delegate the redistribution task to a set of non-profit international agencies who are not profit maximizing but can pre-commit to be "do gooders". Such institutions, if they could develop trust, could become the new middle men distributing poverty $ to the poor. My logic here is to acknowledge that there is an asymmetric information problem here and to delegate the distribution of aid to groups who we know from the start (because they are idealistic do gooders) are more eager to redistribute than to pocket the aid. If the Gates Foundation played this role , it could even be asked to kick in an extra 20% of money for every $1 that India provides in poverty relief. This would provide the Gates Foundation with an incentive to monitor its own people.

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