Wednesday, 24 February 2010

Financial Inclusion: Please Do Not Forget Our Urban Poor!

Premila Nazareth Satyanand

Respected Pranab da,
While the nation lauds the Government’s single-minded drive to take banking to rural doorsteps, the Finance Ministry and the RBI are sadly neglecting a key constituency: the impoverished millions on the doorsteps of urban banks, denied access for lack of ‘papers’. Despite the Government’s clarion call to financial inclusion, my friends and I continue to find it difficult - if not impossible - to open accounts for our cooks, maids, drivers and gardeners.

Breaking the Gordian knot of identity and address documents
Partly responsible are the Reserve Bank of India’s 2002 ‘Know Your Customer’ rules which require banks to check the background of prospective applicants to guard against money laundering and terrorism financing. Applicants must prove both identity and residence through one of six documents. Passport, PAN card, voter’s card, driving license, identity card, or letter from a recognised public authority/ public servant in the first case; and telephone or electricity bill, ration card, bank account statement, or letter from employer/recognised public authority in the second.

Predominantly rural migrants, most of our urban poor do not have the correct combination of identity and address documents necessary to open accounts. The key sticking point is ‘local address’. This I learnt when I tried to open an account for Mahesh, the young Uttaranchali who lives and works in my house. He has a high-school I.D., a ration card, and a voter’s card (three KYC- approved identity documents), but these were insufficient to prove his bona fide. For, they display an Uttaranchal, not a Delhi address. Sona, our Maharashtrian ayah has no documentation at all, so hers was a ‘shut-before-opening’ case.

Recognising this Gordian knot, the RBI relaxed the documentary requirements for small deposit (or ‘no frills’) accounts with a total balance of Rs 50,000. In its Master ‘Know Your Customer’ Circular of July 2009, it ruled that a written introduction/certification from an account holder was sufficient to open such accounts, provided the account was “over six months old and showed satisfactory transactions.”

Continuing violations by urban banks
Yet, eight months later, in direct contravention of this ruling, banks across the country continue to refuse to honour letters of introduction from account-holders/employers as sufficient evidence of identity and address. Bank branches have either not been properly briefed about the July 2009 relaxations, or they are using the 2002 KYC obligations as a convenient smoke-screen to duck opening un-remunerative accounts for the poor. No surprise then that just 2% of our over 33 million ‘no frills’ accounts are urban, as the Skoch Institute estimates. In real terms, this is just 66,000 accounts. Minuscule in the context of India’s urban poor population of between 80 million to 190 million. We could immediately bring much of this population into the formal banking system, merely by pressuring the banks to adhere to the RBI’s July 2009 relaxations. The national drive to financially empower the poor must thus strategically invest in tracking and pushing inclusion in urban areas.

It is essential we start immediately. UNDP’s ‘Indian Urban Poverty Report 2009’ shows India’s urban population doubling from 286 million to 575 million by 2030. More worryingly, it projects continued growth in our urban poor population, due to expanding rural in-migration and lack of public services. Continuing exclusion from formal banking services will only aggravate this unfortunate trend. Bringing the poor into the banks is also essential to establishing their identity within other formal skills and livelihood systems.

The banks’ need for caution is understandable. But our system’s dogged insistence on ‘local address’ is misplaced, given an expanding ATM network and growing geographic mobility. In any case, most small depositors use their accounts primarily to store and save money. Thus, should they vanish with all their money, it is theirs and nobody else’s. Moreover, small deposits do not easily lend themselves to the kinds of scam seen on stock markets.

Domestic workers: the low-hanging fruit
India’s 95-100 million domestic workers present the lowest-hanging fruit in the urban financial inclusion campaign. For, they all have close, organic links to households already within the banking system, significantly reducing the risk for banks. Since 90% of these workers are women, the implications for social empowerment are significant.

This category of worker is also likely to make larger and more regular deposits than most urban and rural poor counterparts. In bigger cities, average domestic worker salaries range from 3,500 to Rs 5,000 and average monthly savings from Rs 500-Rs 1,000. Employers would be happy to pay salaries via recurring monthly deposits. Account holders are likely to make one or two withdrawals a month. Urban ‘no frills’ accounts are thus likely to be continually active, cutting to the heart of the banks’ complaint that only 11% of the nearly 33 million rural accounts are.

The Government must thus do some quick and clever thinking on how to incentivise our banks to, first, admit and, then, effectively serve our urban poor. To quote S.S.Tarapore, “No individual should be denied the right to open an account.” Some ‘carrot’ and some ‘stick’ might be required. But, judging from India’s telecom experience, energetic attention to enforcing banks’ urban ‘universal service obligation’ is more likely to trigger a low-cost system of ‘mass banking’, than crores of Budget spending on technology platforms and rural banking infrastructure.

Premila Nazareth Satyanand is an independent policy analyst.

Tuesday, 16 February 2010

AI Budget Briefs Series 2010

The Accountability Initiative, Centre for Policy Research is pleased to launch its Budget Briefs Series 2010. The 8 briefs in this series examine trends in social sector allocations and expenditures in the Sarva Shiksha Abhiyan, Mid-day Meal Scheme, National Rural Health Mission, Mahatma Gandhi National Rural Employment Guarantee Act, Water and Sanitation, Food Subsidy, Jawaharlal Nehru National Urban Renewal Mission and the Pradhan Mantri Gram Sadak Yojna.

Thursday, 11 February 2010

Finding a Voice: Community Television Initiative

Sruti Bandyopadhyay

Some people used to argue that elections are THE best instruments of accountability. But events have overtaken the idea and now there are many who are focusing on the limitations of election, mainly, if you have an uninformed citizenry.

There is another dimension to it. While in democracies, elections provide an incentive for politicians to perform, governments are not likely to respond as enthusiastically to those who are unlikely or marginalized voters, no matter whether their plight has been well covered or not. So how do you turn uninformed citizenry or marginalized voters into active citizens?...In short, by providing evidence based information.

On the face of it, getting critical news and information out to citizens should be an easier and easier task in today’s digitalized, networked and hand-held world. But most media—across regions and on any platform: print, radio, TV or online—aren’t interested in serving the public good, because there is no finance to that public-good role.

This then presents an opportunity for the development community. To get information out to the public, to educate the public about who to trust and how to evaluate information sources, research organization needs to use newer tools. But, where is the tool?

Community Television initiative can be considered as one such dynamic tool. Access to television in remote Indian villages has changed substantially in the past few years. And, community television will have many advantages over print media. Programmes, nearly always in the local languages would deal with local issues involving ordinary people so that villagers (even illiterate ones) and town people understand what they are about. The volunteer appointed by a civil society can organize a debate once in a week on localize issues, which in turn would become topics for programmes on the community television. For example, Byrraju Foundation in collaboration with UNESCO has set up one such initiative -Ankuram community TV.

This innovation combines a TV studio and the existing wifi network with a local cable TV facility enabling people to access the services and programmes right in their homes. This technological and social innovation is being piloted in three villages (Cherukumilli, Juvvalapalem & I-Bhimavaram) in West Godavari district, Andhra Pradesh and the local programmes reach about 69 villages across the district through the cable network.

If community TV network gains momentum in India, then rural India should perhaps call the TV the Empowerment Box instead of the Idiot Box.

Sruti Bandyopadhyay is a Researcher at Accountability Initiative

AI Budget Series: Rural Sanitation and Drinking Water

In the last of a 4 - part series on social sector spending in India, the Accountability Initiative in collaboration with Live Mint, looks at expenditure on rural drinking water and sanitation . For a ready reckoner (image) click here. For a detailed analysis see the article -Rural Sanitation and Drinking Water:Mere Infrastructure Won't Solve Problems

Wednesday, 10 February 2010

AI Budget Series: National Rural Health Mission (NRHM)

In the third of a 4 - part series on social sector spending in India, the Accountability Initiative in collaboration with Live Mint, looks at expenditure under the National Rural Health Mission (NRHM). For a ready reckoner (image) click here. For a detailed analysis see the article - Health Economics: Weak Implementation Ailing Health Care Plans

Tuesday, 9 February 2010

AI Budget Series: Sarva Shiksha Abhiyan (SSA)

In the second of a 4 - part series on social sector spending in India, the Accountability Initiative in collaboration with Live Mint, looks at expenditure under the Sarva Shiksha Abhiyan (SSA). For a ready reckoner (image) click here. For a detailed analysis see the article - Education Economics:Need to relearn lessons on SSA fund flows.

AI Budget Series: Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS)

In the first of a 4 - part series on social sector spending in India, the Accountability Initiative in collaboration with Live Mint, looks at expenditure under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). For a ready reckoner (image) click here. For a detailed analysis see the article - Rural Economics: How taxpayers' money is (or isn't) being spent.

Sunday, 7 February 2010

Food Subsidy and the Budget: Where did your money go?

Is the food subsidy helping the poor in India? How much money has been allocated, how much is being spent? and are these allocations efficient? Accountability Initiative's data on food subsidy shows where your money is going.

Hindol Sengupta, Bloomberg UTV news discusses food subsidy and the budget with with Dr Swaminathan and others on "Everybody's Business: Where Did Your Money Go?".

The Right to Information - Open to Interpretation

Mandakini Devasher Surie

Whether it is the debate over access to judges’ assets or individual income tax returns, the Right to Information Act (RTI Act) gets people talking. As a developing area of legislation with few legal precedents, the RTI is open to interpretation. I discovered this first hand a few weeks ago at the Central Information Commission (CIC). Colleagues and I were representing an RTI applicant in a string of second appeal hearings. The applicant had filed an information request with the Delhi Police to get access to statistical information on the number of applications and appeals received by them, as well as copies of RTI applications and appeals from October 2005 – April 2008. The data was being collected as part of the all-India study on the RTI Act being carried out by the Right to Information Assessment and Analysis Group (RaaG). While most of the departments had responded with some statistical information, they were unwilling to part with copies of RTI applications and appeals. The PIOs stated that copies could not be given because i) the information requested would have to be compiled and would divert the resources of the department [Sec 7(9)], and ii) RTI applications and appeals contained sensitive information the disclosure of which would likely to endanger the life and physical safety of a person [Sec 8(1)(g)], impede the process of investigation [8(1)(h)] and invade the privacy of the individual [8(1) (j)].

Early on the hearings, it became evident that none of the PIOs had actually thought about the exemptions they had used. This was particularly evident in the use of privacy and danger to life and physical safety exemptions to deny access to copies of RTI applications and appeals. Bear in mind that RTI applications and appeals only contain the name and addresses of applicants and therefore cannot be considered to contain “personal” information. Moreover copies of these can be downloaded easily from the Delhi Government and the CIC websites. One PIO hilariously argued that providing access to copies of RTIs constituted an infringement of copyright [Sec 8(1) (e)]! A decision on our appeal is still pending, but to my mind the hearings brought to light a lot of interesting questions. For instance, what constitutes a “voluminous” request for information – is it the number of questions or the number of pages? Who decides? Similarly, how do we define a “disproportionate diversion” of resources? Can it be measured? And are RTI applications and appeals personal? What exactly is “personal information?

These are questions that PIOs, Appellate Authorities and Information Commissioners grapple with every day with little guidance. There are broader issues as well – of ensuring that citizens make responsible use of the law, that departments have the human capacity to process and handle information requests and lastly that the pressure for information disclosure is not entirely at the cost of the discretion of officials or vice versa. The balance is a fine one.

Thus, even as CIC issues landmark decisions it also needs to bold decisions on the everyday but often more “tricky” points of the law. Failure to develop clear and concrete guidelines on how to interpret the law or fence sitting on the application of exemptions or on the interpretation of other clauses of the law, will not help. In the absence of clear guidance, the law is likely to become an unholy mess of awry interpretations. The CIC would do well to follow the example of the UK Information Commissioner’s Office which offers detailed guidance on interpreting different clauses of the UK Freedom of Information Act.

Mandakini Devasher Surie is a Research Associate with the Accountability Initiative.

Friday, 5 February 2010

Budget 2010 - Great Expectations

Anit Mukherjee

It is the Budget season again. Every year, the nation looks forward to the two-hour speech of the Finance Minister where he lays out the government’s housekeeping statement – revenues collected, expenditures incurred and the plan for the next year. The budget means different things to different people. Some focus on the tax rates on income, goods and services, while others look at how much the government is spending and on what. But the bigger question is: what does the budget signify for the nation?

Every budget has a context and a theme. Budget 2009 was in the backdrop of the financial crisis, the general elections and the post-election policy direction. The theme was crisis-management - how to pull the economy out of the downturn trumped the concerns over the fiscal deficit which was pegged at 6.8 percent of GDP, the highest since 2003-04. The bold decisions were put off until later.

It is in this backdrop that Budget 2010 will be presented. The economy has come out of the downturn pretty much unscathed compared to other countries in the developed world. So the theme this year would be about reigning in the deficit, rationalizing expenditure and focusing on priority sectors. This is exactly what any family would do after a year of profligacy to get its finances in order.

So what can we expect from the Finance Minister this year? First of all, it would be a difficult balancing act – the need to raise more resources through higher taxes vis-à-vis derailing the growth rebound. The second is to ensure sustained and increased financing for core sectors – education, health, rural and urban infrastructure. Third, the budget needs to take into account the recommendations of the Thirteenth Finance Commission which will be tabled in this session of the Parliament.

The most significant talking point may be the allocation for education. The operationalization of the Right to Education (RTE) means that substantially more allocation would be needed in the Centre’s budget. At the same time, the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) would pick up steam, and allocation for higher education will continue to increase. On the other hand, this budget is expected to maintain the status quo on NRHM, NREGS and Bharat Nirman.

There is one thing that certainly this budget would not do – talk about how to improve the efficiency and accountability of expenditure. Everyone in government loves to spend, nobody likes to be asked “What exactly did you do with the money”? The great expectations of transparency, accountability and independent monitoring outlined in the President’s address last year seems to have been conveniently forgotten, and the government seems to spend the people’s money as it likes. This needs to change – the sooner, the better.

Anit Mukherjee is with the National Institute of Public Finance Policy (NIPFP).

Thursday, 4 February 2010

Where did your money go? Budget 2010 and Education

Madhav Chavan, Founder, Pratham and Anit Mukherjee, National Institute of Public Finance Policy talk to Bloomberg UTV news about the upcoming budget and the need for the government to spend more on education.

Wednesday, 3 February 2010

Accountability and the budget: Tracking where your money goes

Yamini Aiyar, Director, Accountability Initiative talks to Mint about the upcoming budget and how taxpayers money is (or isn’t) being spent, how budget allocations are made, and how public sector expenditure can ultimately be put to better use. To read the interview click here.