Sanitation is The Solution to Malnutrition in India

Introduction

Historically the greatest advances in longevity and mortality reduction have come not from treatment of individual disease but from public health.  This includes modern drainage and sewerage systems (sewage treatment plants), drinking water systems that produce and deliver disease free water and solid waste disposal systems. The current position is illustrated by the low proportion of the population with access to improved sanitation facilities. The impact of this neglect is reflected in two well known facts; One, ‘Delhi belly’ is infamous throughout the World and the Delhi middle class has to use water filters to protect itself from tap water borne disease. Two, India is still home to communicable and vector borne diseases that have been eliminated in most countries outside sub-Saharan Africa.

Malnutrition Facts

According to the National sample survey of 2004-5, 1.9% of Indian households defined themselves as hungry for some part of the year.  Based on the same survey, the Planning Commission determined the proportion of poor according to the then prevailing national poverty line in 2004-5 was between 21.8% and 27.5%.  Malnutrition in children under 3 years of age as measured by the National Family health survey 2005-6 (NFHS 3) was much higher.  Stunted and Underweight children constituted 38.4% and 45.9% respectively of children under 3.  The cross State correlation between poverty rates and malnutrition rates was around 0.7 (using either MRP or URP based estimates).  At least 30% of this cross-State variation in nutritional status of children was therefore totally uncorrelated with the variation of poverty rates across States. 

The improvement in the nutrition status of children has also been disappointing. Over the seven years between 1998-9 and 2005-6 malnutrition has declined by only 1.1 per cent points while stunting has declined by 7.1 per cent points.  This compares with a 4.3 per cent point decline in the poverty rate between 1999-2000 and 2004-5 (MRP). Though stunting has declined at a marginally faster annual rate (1.0%) than poverty (0.9%), the decline in percentage of underweight children is minuscule.  The implication is drawn that existing policies and programs are not making a significant dent on malnutrition and need to be improved.  To do this, however, we need to first find out what are the important factors responsible for malnutrition.

Malnutrition: Potential Causes

Mixing up issues of Hunger, average availability of food/cereals (or Calorie deficiency), poverty and malnutrition, can lead to serious diagnostic errors and ineffective policies that make little dent on these problems. Das Gupta et al (2009)[i] argued that the fact that 25% of stunted Indian children were in the highest wealth quintile reflects the burden of morbidity even among the affluent. The WHO estimated that half of malnutrition is attributable to infections arising from poor sanitation, not lack of food.

    There are three broad aspects of malnutrition that must be kept in mind when devising strategies for dealing with it. One, the ability to access such food items.  This depends on household income or ability to sustain certain levels of consumption.  The rate of Poverty (Head count ratio) is the standard indicator.  Other possible indicators could include assets such as land and housing.

      Two, household/family knowledge and information about good nutrition.  This includes knowledge about the locally available foods that are good from the nutrition perspective.  This can be based on, (a) traditional age old knowledge (old wives tales). (b) Ability to read coupled with availability of appropriate reading material on nutrition. (c) Access to media such as newspapers, radio and TV, coupled with propagation of such information on the radio (d) Special programs that directly educate mothers about child rearing and nutrition such as ICDS.

       Three the state of health.  Even if the right kind of food and nutrition is available a child may not be able to consume and/or absorb it properly due to ill health or sickness.  For instance a child suffering from diarrhea much of the time is unlikely to be able to ingest much good and healthy food and absorb the nutrition, even if it is freely available and provided to the child by the mother/parents. Historically it has been demonstrated across many countries that public health measures like clean drinking water, sanitation, sewerage, control of communicable and epidemic diseases and public health education play an important role in reducing mortality rates at every age and across gender.  In the Indian environment access to water and toilets, breast feeding (to impart immunity in an unhealthy environment), access to sound health advice/treatment, prevalence of vaccination and availability of vitamin supplements are possible indicators.

Malnutrition Across States

Virmani (2007)[ii] analysis showed that household access to toilets, breast feeding of infants and vaccination of children have a significant effect in reducing child malnutrition.  These variables explained 85% of the cross-State variation in malnutrition. Nutrition variables were either not significant or had the opposite of the expected effect, indicating problems with the programs.  Expenditure on the Integrated Child Development program (ICDS) appeared to have an uncertain effect, probably because it was effective in some states and not effective in others.

Virmani (2007)[iii] concluded that the most important determinant of the variation of malnutrition across India States was public health deficiencies as measured by access to improved  sanitation and drinking water.  That is, the weakening of the absorptive capacity of the stomach due to gastrointestinal diseases and germs played a much more significant role in malnutrition than the availability of cereals which are the focus of the PDS system and ‘right to food’ advocates.  The paper also suggested that basic public health information, nutritional knowledge and availability about nutritional foods may also play a role.

Dean Spears and Lamba (2013),[iv] village level study in India, showed the negative effect of open defecation on child stunting and wasting, thus confirming the importance of Household access to toilets on the nutrition status of children. Jeffery Hammer et al have carried out micro-experiments that confirm these findings for the high income city of Delhi.

Malnutrition: India In World

India is an outlier in terms of malnutrition in cross-country plots of malnutrition against per capita GDP.  Correspondingly India is way significantly worse than countries at its level of per capita GDP in terms of household access to toilets. It is however close to the trend line with respect to access to improved drinking water sources.  Inadequacy of public health measures, results in prevalence of gastro-intestinal infections (even if they do not manifest themselves in a visible disease or ill health), that inhibit the absorption and use of food in the body. Even if enough food is available, the child may not be able to ingest or absorb it properly, resulting in under-nutrition.

Virmani (2012)[v] analyzed cross-country variation in child malnutrition. The quality of public health, as measured by variables such as access to better sanitation and improved water sources, is an important factor in explaining cross-country variations in the prevalence of malnutrition and inter-state variations across India. It also confirms the importance of primary education, particularly of females, in helping spread information and knowledge about personal hygiene, sanitation and nutrition.  Much more could however be done through appropriate school curricula and media campaigns to promote public health education.

The analysis suggests that poverty is not an independent cause of malnutrition, but may provide an additional explanation only to the extent that it is over & above that of unsanitary living conditions.  The proportion of adults having primary education also tends to reduce malnutrition, probably by increasing understanding of the effect of unsanitary conditions.  The primary completion rates for females is however, more significant than for both male and female together, suggesting the relatively greater importance of female literacy. This is because females play a greater role in creating and maintaining a clean home environment than males.

Conclusion: Sanitation

A toilet is not just a room with a hole in it. The toilet has to be backed by or connected to, a system for collecting and hygienically disposing of human excretions, so that they don’t contaminate the water supply or the environment our children play and study in and we all live and work in.  Effective systems of sanitation in our urban and rural areas, by cleaning up the environment in which harmful germs and bacteria thrive, can have a major effect on malnutrition and disease.  Public education campaigns that increase understanding of this hidden menace (invisible to many) can accelerate the process. The improvement in cleanliness and sanitation as envisaged by the Government’s “Swach Bharat” program, can eliminate most of the difference in malnutrition (stunting, wasting) between India and the rest of the World and across Indian States. The increased subsidies envisaged under the Food Security Act would reduce malnutrition more effectively if spent on toilets, sewers, sewage disposal and garbage processing.

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[i]  Das Gupta, Monica, Rajendra Shukla, T.V. Somanathan, and K.K Datta, 2009. “How Might India’s Public Health Systems be Strengthened?”, Washington DC: The World Bank Policy Research Working Paper 5140.

[ii]  Virmani, Arvind, “The Sudoku of Growth, Poverty and Malnutrition: Lessons For Lagging States,” Working Paper No. 2/2007-PC, Planning Commission, July 2007.

 http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm

[iii] Op cit and “Causes of Child Malnutrition In India,” Working Paper No. WsWp 1/2007,  July 2007.   MalnutritionChild07July.docx at https://sites.google.com/site/drarvindvirmani/working-papers

[iv]  Spears, Dean and Sneh Lamba, “Effects of Early-Life Exposure to Sanitation on Childhood Cognitive Skills: Evidence from India’s Total Sanitation Campaign”, Policy research Working Paper, 6659, World Bank, October 2013.

[v]  Virmani, Arvind, "Under-nurishment of Children: Causes of Cross-country Variation," Working paper  No.WsWp 4/2012, October 2012 [ Nutrition12oct.docx at  https://sites.google.com/site/drarvindvirmani/].

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      A version of this article appeared in The Hindu on July 28, 2014 under the banner, “Investing in Health Through Hygiene.”  http://www.thehindu.com/todays-paper/tp-opinion/investing-in-health-through-hygiene/article6255543.ece

New Development Bank (NDB): BRICS Bank

Introduction

    The leaders of the BRICS countries approved the formation of the BRICS Bank at their meeting in Brazil, on July 15, 2014. The idea of a BRICS Bank was floated by India in 2011-12 during its chairman ship of the grouping .  A study group was formed in 2012 to explore the idea further.  The leaders of the BRICs countries, approved the setting up of an inter-governmental group at their meeting  in S Africa in March 2013, to work out the modalities.  The unresolved issues have been resolved and final approval given by the leaders in their summit in Brazil.

BRICS

  Plurilateral discussions among the four largest non-OECD economies, China, Russia, Brazil and India started in late 2006 on the sidelines of the UN. They were given a strong impetus by the start of discussions in 2007 on the IMFs 12^th General Quota Review (GQR) slated to be completed by January 2008. It was feared that the Europeans and the US which controlled the management and equity of the IMF (and the World Bank) would continue to resist giving a greater share of equity to the BRICs and other developing countries. As a consequences the Executive directors of these four countries based at the IMF & World Bank, started meeting informally in Washington, to exchange views on the GQR and to co-ordinate their approaches to the extent approved by their “principles” in respective capitals.  The Governors of the IMF from these countries (three Finance Ministers and one Central Bank Governor) also started meeting on the sidelines of Bank-Fund annual and bi-annual meetings. The limited success achieved in the 12^th IMF GQR and the corresponding review of World Bank capital, led the BRICs to heighten their interaction. A full diplomatic meeting was held in Russia in May 2008.  The global financial crisis that erupted in 2008 in the developed countries, highlighted the need for BRIC countries to provide an alternative to the philosophy and economic thinking of the G7 and to work together to change governance structures at the IMF and the World Bank. This paved the way for the first formal summit of BRIC leaders in Russia in June 2009. There has been heightened co-operation between the BRICs countries from 2009 onwards, with respect  to the IMF and World Bank, even though the interests of individual countries sometimes differed from the rest.  Efforts were also initiated to expand the areas of collective action, of which the BRICS bank and the Reserve Fund are an outcome. South Africa was invited to the BRICs summit in China in 2010 and admitted to the group thereafter. 

Infrastructure Financing

      India, along with other developing countries in Sub-Saharan  Africa, faces an enormous challenge of finding the financing to upgrade its infrastructure.   Traditional funding sources are heavily constrained, both in the total funds available for development and for the financing that they are able or willing to allocate for development of new infrastructure projects.  At the same time China and oil-gas exporting countries have surplus funds, which are currently being recycled primarily through international financial markets in the Developed countries.  A New Development BRICS Bank has the potential to intermediate these savings from the surplus emerging economies to developing economies with a deficit of finance for infrastructure investment thus accelerate economic growth of developing and emerging economies.

   My friend (and former colleague in Washington), Amar Bhattacharya has estimated that the Developing and Emerging economies need for infrastructure funds will increase from the current $800 bi per year to about $2.4 trillion a year in the next two decades. Of this the about $1.2 trillion a year is for new greenfield projects, essential for accelerating and/or sustaining growth and improving the welfare of its people.  Besides networks of railways, highways, ports and airports, the surge in urbanization will put huge demands on both the quantity and quality of urban infrastructure. In many countries the rural areas still lack basic facilities like clean water, sanitation and sewage, which must be built. In addition, budgetary resources of many countries will be stretched just maintaining existing stocks of infrastructure at acceptable levels of quality.  Private investment through Public Private Investment (PPP) is another source of infrastructure investment but has its own limitations.

World bank

    The multilateral institutions like the World Bank are struggling to maintain infrastructure funding at old levels, given new demands and lack of lending capacity.  The World Bank’s lending is reduced to half of what it was before the global financial crisis.  It is unable to increase its capital base for further lending, because of the fear of loss of traditional control of this institution by the developed countries. Private lending for infrastructure has shrunk to one-third of its pre-crisis level.  The BRICS bank is a small but significant step to fill this yawning gap in infrastructure funding.  Just the idea of a BRICS bank had energized the management of the World Bank to set up a special fund for infrastructure. It is likely that the actual setting up of the Bank will induce to bank to improve its own rules and procedures for infrastructure lending. However, given the large disparity in share capital, the BRICS Bank will not be a major threat to it in the next five-ten years.

Equity Shares & Power

     The New Development bank (NDB) will be $100 bi Bank with an initial subscribed share capital of $50bi with equal shareholding of all five BRICS countries (i.e. $10 bi each). Of this $10 bi will be put up in cash by the five countries in cash over seven years. The remaining $40bi will be in the form of guarantees.  Thus India will have to budget for cash infusion of about $300,000/year or Rs 1.8 crore per year for the next seven years. Any future expansion of the subscribed share capital to bring in new ones, will ensure that the BRICS continue to have a majority ( > 55%) shareholding.

  Our experience of the World Bank and IMF tells us that this is a necessary condition for an equal share in governance of new Bank. This also ensures that all five will have an equal voice in defining the philosophy, operational rules and procedures and governance of the bank.  The bank will have to raise debt capital on international capital markets, for lending to potential borrowers. The IMF and World Bank follow the conservative practice of a 1:1 Debt-equity ratio, and the NDB may also have to follow this practice to ensure a high safety rating.  Even if China is a major supplier of this debt capital, it will be at competitive rates, through open bidding and will therefore give no additional power to China as a bond holder (not anymore than it has over the US treasury/Govt. as a buyer of US Govt. bonds).  Its equity share and power over NDB lending decisions will be 1/5^th .

    On issues of vital national interest to any of the shareholders, a consensus of five countries is likely to favor status quo.  For instance it is likely that the BRICS bank will be unable to make loans to projects in parts of India like Arunachal Pradesh, expansively claimed by China, if India has already accepted such conditions in the ADB and World Bank.

Bank President

     The first President of the NDB, who will be an Indian with a six year term, will play a vital role in setting up the management philosophy, rules and procedures under which the Bank will operate. It will be very important to appoint a banking-financial expert, familiar with the latest instruments, practices and procedures of a competitive private bank,  who can develop a 21^st century development bank to compete with the 20^th century one like the World Bank.  One possibility is an eminent Indian who rose to the top of an international bank, but has retired from the job and thus had the time to reflect on broader issues.

   The Indian presidency will be followed by five year terms for Brazilian and Russian nominees. From this we can assume that the new president will have one extra year to complete all the formalities necessary to create a functioning organization.

Conclusion

  Some have bemoaned that Shanghai and not Delhi is the seat of this new Bank. For this we have no one to blame but ourselves: We have been talking about making Mumbai and international financial center for a decade or more and are no closer to it than when we started! Some analysts have raised the concern that China will have an inordinate influence on the functioning of the Bank. There is nothing in the agreed structure of the Bank that would justify these fears.  Others are concerned about India budgeting so much money for a plurilateral bank. Rationally this should be compared to our funding for World Bank, IMF and other multilateral and Regional Banks and the benefit-cost ratio of each.  In my judgement the benefit-cost ratio will not be any less and perhaps somewhat more.

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A version of this article appeared in the Economic Times of 17 July 2014 under the banner, “BRICS Bank will help fund infrastructure projects in Emerging Economies” http://economictimes.indiatimes.com/opinion/guest-writer/brics-bank-will-help-fund-infrastructure-projects-in-emerging-economies/articleshow/38504229.cms

Maiden Budget of FM Arun Jaitley

Introduction

     During the tenure of the UPA II government, the emphasis of socio-economic policy had shifted heavily towards entitlement and legal rights and away from actual outcomes in terms of endowments (e.g. ability to read and write) and employment.  As a result, Indian Agricultural inflation averaged an unprecedented  11% per year during the last five years, and economic growth has declined since the bubble year of 2010-11 to an incredible 4.6% average during last two years. The budget had to break out of this stagflation.  

    The BJP’s PM candidate’s campaign speeches and the BJP had clearly indicated a desire to restore the balance, by focusing much more on economic development and improved governance!  First the BJP manifesto and then the President’s speech to the new Parliament spelt out the sectors and industries which the government would focus on. The Railway budget applied this approach to one sector of the economy, by trying to shift the focus from railway’s social role to its development role and by spelling out its approach to improving railway governance (E-governance) for improving the quality of service provided to passengers and other clients.  The national budget translates into hard budget allocations the government’s approach to economic development and fleshes out how tax administration and to some extent expenditure management is to be changed to provide better service.

Budget Expectations

    An analysis of PM Modi’s record as CM of Gujrat had led me to write after the election results came out, that his government would be pragmatic and goal oriented, without bothering much about ideological dos and don’ts that had hobbled earlier governments.  In other words they would focus on finding out and implementing whatever had a greater probability of achieving the desired results rather than worrying about certificates of purity from global development community.  I therefore declared on TV, before the start of FM Jaitly’s speech, that I expected a good budget but not a revolutionary one or one that would stand out as contender for the top three such.  The budget has confirmed this forecast.

Budget

   The budget is very much along lines one would expect from a first time FM who has been in office for only 45 days (not enough time to plumb the depths of revenue bureaucracy) and who has no Chief Economic Advisor (to give a broader perspective to his speech or provide non-bureaucratic perspective on macro-economic & tax policy issues) or eminent economist as “Advisor to FM”(to ferret out information & raise searching questions for FM to seek answers to)  Among the noteworthy feature of the budget are the fiscal balance, expenditure allocation, tax administration, financial and other promised reforms.

Fiscal Situation

      The FM decided not to shift from cash accounting (with its non-transparent rollover of expenditure allocations) to accrual accounting.  This allowed him to retain the fiscal and revenue deficit (RD) estimates for  2013-14- 4.5% and 3.2% of GDP respectively. The FM has signaled his determination to restore fiscal stability by sticking to the 4.1% fiscal deficit (FD) target for 2014-15 and 3% for 2016-17. The projected 0.4% point reduction in fiscal deficit is accompanied by a projected 0.3% point reduction in the revenue deficit.  The FM’s speech gives an indication that FRBM will be restored in letter and spirit. This is essential for breaking out of the stagflation of the last two years and ensuring stability in capital flows over the next five. Are the 4.1% FD and 2.9% RD targets realistic? The revenue targets, though lower, are still ambitious.  On the other hand the disinvestment targets (60,000 cr), though higher are easier to attain given capital inflows and the rise in stock markets.  There also higher cash balances that can be drawn on. The fact that an FM cannot start missing targets, from the first year of his tenure as FM, means that they are likely to be met.

Expenditure Allocation

        It was necessary for the Finance Minister to show the governments seriousness of purpose, by translating the objectives of the Modi led government and the sectoral thrust areas that it had identified for achieving these objectives, into budgetary allocations.  The expenditure allocations reflect a realistic mix of what can be achieved during the rest of the year by accelerating ongoing programs of interest and therefore merit higher allocations and what needs time to study, plan and implement and therefore merits token allocations. Though some commentators have criticized the large number of small new programs, I think it is wise for a new, relatively inexperienced council of ministers, to take some time to get a realistic picture of the capabilities and limitations of a Central Government.  When viewed from an overall perspective the expenditure objectives signal the government’s resolve to achieve its economic development objectives along the lines indicated in the President’s speech and the BJP manifesto. Thus allocations to Tourism, Highways and other labor intensive sectors and to skill development ("Skill India": integrated national multi-skilling mission, teacher training) assure that the job creation objective will be seriously addressed. In my view the much greater importance given to creating a “digital” India” (e-governance, 'virtual classrooms'), and a “Swach Bharat” (clean water, sanitation & sewerage) hold revolutionary promise for overcoming the challenge of pervasive corruption in government and child “malnutrition”(stunting, wasting) respectively.  At the same time the budget has signaled pragmatism, by making only small exploratory allocations for some of the more expensive/ambitious schemes like bullet trains. The one noticeable gap is in recognition of the revolutionary possibilities of using e-medicine/e health to deliver better health in rural areas

Better Governance

     The taxation parts of FM’s speech have focused heavily on legislative and administrative reform, reducing tax arbitrariness, and moving to e-governance. This is another application of the belief that better governance is essential for improving the quality of service which government provides to its citizens, and specifically to tax payers. Given the deeply entrenched “Inspector raj” mentality of the tax departments, the FM will have to drill much deeper to achieve significant change. A good place to start would be the report of the committee on reform of tax administration chaired by Dr Partha Shome. 
    A similar philosophy is operating on the expenditure side, though here concrete action on better targeting of subsidies, improving the efficiency of government programs and reducing corruption will have to await the report of a committee. There are similar references to management of government owned financial institutions. However, my experience of 20 years of reforms in India is that very upright and determined leaders can improve governance during their own tenures, but such improvement is not sustained unless backed by policy and institutional reform that changes the incentives under which the political bosses, administrative managers, officers and staff operate.

Financial Reforms

     The rise of investment limits in FDI in Defense, Insurance and low cost housing, t allowing “pass through” for Real Estate Investment Trusts (REITs), the idea of Infrastructure Investment trusts(IITs), the attempt to learn from past shortcomings of PPP agreements so as to devise, improved,  more resilient models, can help in supporting investment revival.
    The required re-capitalization of Public Sector Banks is to be done only partly through retail sale of government shares, as the earlier government's policy of majority (51%) government ownership of Public sector banks (PSBs) has not yet been dropped. I am also saddened that industry associations managed to keep Defense FDI from being raised to 51%, which is the minimum needed by a defense company (in US) to set up an Indian subsidiary and transfer technology to it, without it being treated as sale of technology to a foreign company.
     There are also references in the FMs speech to a “single identity number” and specialized “payment banks.”  These can transform the lives of the Aam Aurat if, “mobile payments” from cell phones and genuine “mobile banking” is allowed and encouraged.

Other reforms

       It is encouraging that FM expects to bring in legislation for implementing GST within the current financial year.  However, changes made in this budget in direct and indirect taxes do not suggest a return to the successful tax reform policies of the 1990s & early 2000s, to simplify them by eliminating deductions-exemptions and reducing tax rates (in a tax neutral way), to enhance voluntary compliance. They still appear to reflect the approach of the 2010s, that was partly responsible for the collapse of corparate investment and FDI. Fortunately there is enough time before the next budget to bring in both tax policy expertise, and legal-administrative expertise to devise a more comprehensive reorganization of tax policy and administration. 
        The promise of a reform of the Apprenticeship Act can be seen as part of the effort to improve skills or as a first step in labor reform. The hint of creating a competitive, all India market in food and agricultural holds tantalizing possibilities, but needs further elaboration/action.

Conclusion

    The measures taken in the budget will be sufficient to increase growth by about 1 per cent point over the last year’s 4.7% to 5.7% (though down side risk from monsoon failure and oil shock remains). Actualization of some of the measures indicated in the budget will however be necessary to raise growth to the 6.5 to 7% range in 2015-16.  Raising growth to 8% and sustaining it at that level will require further policy reforms during the next 18 months. Similarly, fiscal consolidation (on the projected path), will need to be supplemented by more comprehensive reform of policies affecting the entire food supply chain if agro inflation is to be brought down and sustained below 6%.

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     A version of this article appeared in The Hindu, July 11, 2014 under the banner, “Pragmatism and Revolutionary Promise”:  http://www.thehindu.com/opinion/op-ed/pragmatism-and-revolutionary-promise/article6198610.ece .