Rural India Needs Corporate Investment

In recent years, there has been considerable talk about poverty and how to deal with it. The idea being promoted by supporters of the UN Millennium Project is that underdeveloped nations can be saved through more outside assistance and by expanding existing programs that are run mostly by governments. The emphasis is still on more funding for programs that have been in existence for many years. But there is very little evidence that foreign assistance has made much difference in overcoming poverty in any country.

Poverty levels in India

Before we can think of devising new approaches to poverty alleviation, the true extent of the problem must be understood. The World Bank has introduced two measures for poverty levels: $1 and $2 per day per individual. Instead of adhering to world standards, The Indian government chose to define caloric intake and its corresponding cost as the measures by which poverty is to be defined. The government assumes that only Rs. 327 ($7.25) per month is needed for an individual living in the rural area to buy enough food to meet the required calories. This works out to less than Rs.11 ($0.25) per day per person. By this measure, the official estimate of poverty is 26 percent of the country’s population.

The real story is much worse. According to respected economists and statisticians in India, in the year 2000, the monthly income needed for a rural individual to consume the required calories in a day as per government standards is not Rs. 327 ($7.25) but Rs. 567 ($12.60). At this income level, which amounts to $0.42 per day, probably over 50 percent of the rural population is poor.

The George Foundation’s own survey of 17 villages in Hosur Taluk in Tamil Nadu shows that over 80 percent of the population has family incomes of less than $1 per person, and over 90 percent of less than $2 per person. If this is any indication of actual poverty in rural India, there are far more poor people in the country than what is presented in government statistics.

The dismal state of rural education and healthcare

There is no doubt about a close linkage between illiteracy and poverty. As Amartya Sen, the Nobel laureate in economics, points out, the capacity to read and write deeply influences one's quality of life.

Official data on literacy is collected from household surveys during national population census. These estimates are based on information that are frequently inaccurate, with the result of significant over-count of the truly literate.


To validate published official records, The George Foundation recently completed a house-to-house survey of several thousand people in 17 villages in Hosur Taluk, Tamil Nadu. Those surveyed were asked to read and respond to a simple question written in their local language: How old are you? Less than 15 percent of the people among the “lower” social classes or “dalits” were able to read the question, while barely 40 percent of the “upper” classes responded correctly; the overall count of literate people was below 25 percent. If this survey is representative of most villages, it is hard to believe the government's claim of 65 percent adult literacy in all of India (when over 700 million people live in the rural sector).

Besides the absence of proper education, poor people in India lack access to anything resembling quality healthcare. Inadequate infrastructure, too few physicians, absence of drugs, and lack of accountability have turned government-run primary health centers into ineffective institutions. More than half the children in India under the age of four suffer from malnutrition, 30 percent of the newborns are significantly underweight, and 60 percent of women are anemic.

Why rural income is low

Billions of dollars have been expended over the past half a century by governments, international agencies, and donors to address the problem of unemployment. For example, in rural India, government programs focus on subsidies (for electricity, fertilizer, and other), food rations, price support, land allocation/distribution, job training, and financial assistance for initiatives in agriculture and small businesses. But the direct beneficiaries of these programs are the corrupt officials who manage/distribute the funds, and the landlords and powerbrokers in the villages who have the ability to extract the benefits.

Over 90 percent of the agricultural land is owned and cultivated by less than 10 percent of the rural population. The poor are unable to use their land (if they have any) for agriculture for lack of water resources, poor soil conditions, and unavailability of credit. Hence, they do not stand to gain directly from any of the government programs.

A small number of people, mostly village officials/leaders and their family members operate the few small businesses in the villages. The great majority of the poor — some 60-70 percent of the rural population — are uneducated and serve as labor for landowners and the few nearby businesses, when their services are needed. Hopefully, if and when these landlords and small businesses prosper, the rural poor may also benefit from its trickle down effects.

Most poverty eradication programs run by NGOs and supported by the government and/or donor funds do not directly target the bulk of the rural population who are seasonal laborers. For example, contrary to the widely held belief, the beneficiaries of micro-credit (loans of $100 or so) are not the poorest among the population. The socially deprived labor class — over 60 percent of the village population – is not even targeted by these projects for obvious reasons: they simply do not have the ability to run a business or payback the loan. Yet, many make the claim that more than 95 percent of the people who receive micro-credit are really poor, and that practically all of them succeed in new entrepreneurial activities which enable them to meet interest obligations at 26 percent or higher and repay the principal.

Corruption, political influence on credit, land allocations and other related decisions, diffused focus and priority, poor execution, shortage of rural infrastructure, social inequality and a host of other factors remain as impediments to poverty reduction. These are ultimately the result of failed governance. It is unrealistic to assume that governments can be made to run projects efficiently and honestly.

The limited role of NGOs

NGOs have gained considerable attention in recent years as they focus on micro-issues and provide grass-roots assistance. Many have taken up projects to improve the quality of education and healthcare, while focusing on specific critical areas such as HIV/AIDS, illiteracy, and women’s empowerment. Several are involved in income generation activities, offering assistance in areas such as water resource management and use of indigenous technology. These efforts usually complement those of governments in the implementation process.

Despite their positive contributions, NGOs have not been involved in major developmental undertakings intended to create large employment and wide income generation through sustainable businesses. This is attributable to their lacking good managerial skills and organizational structure to take up business ventures. Consequently, the role that NGOs are best suited to play is in support of projects funded by governments and international agencies, or those limited initiatives approved by private donors.

The crucial role of the corporate sector

Government’s role ought to be that of a catalyst for private economic activity. There should be no room for bribes. When private individuals and institutions find it worthwhile to take risks and invest in economically depressed areas, there will be sustainable development and poverty reduction. As incomes rise, there will be less need for government involvement in the delivery of many services currently provided.

In most developing countries there is no serious effort to involve private companies, though most rural areas are, in fact, ideally suited for industries in herbal products, food processing, alternate fuels, cement and tile, lumber and pulp, meat, dairy and poultry. Investments in these can create large numbers of sustainable jobs. By offering employment opportunities in villages, they would mitigate labor migration to cities.

Financial incentives like low-interest loans and tax breaks, and physical infrastructure improvements will motivate private companies to build factories in rural areas. Elimination of controls on the sale of agricultural products, and assistance in finding new markets will attract many businesses. These measures will in turn improve the demand for produce and boost commodity prices to levels that can financially sustain rural families.

Even in the delivery of basic services, such as education and healthcare, lack of affordability on the part of the rural population should not prohibit private sector participation. Private institutions can deliver services at reduced prices, but at a profit, within a competitive and independently monitored system where costs are subsidized or even fully paid for by the government. Such partnerships can work in a cost-effective fashion only with arrangements for independent audit and arbitration by credible third parties.

A new approach to poverty reduction

International agencies and donors must consider equity participation in companies instead of simply channeling funds through governments or offering grants. They should provide loans at low interest rates directly to businesses that are prepared to invest in rural areas. Instead of trying to create entrepreneurs out of poor illiterate adults, the emphasis ought to be in generating sustaining jobs in large numbers.

As long as significant poverty exists around the world, and disparity between the rich and the poor widens, private companies in developing countries need to make a contribution to solving the problem. A dialogue must begin between and among business leaders on devising rules for business conduct in deprived communities. The model must consider how poor people can be brought into the mainstream of consumers with sufficient purchasing power within a reasonable time period.

Those who work must earn enough to be able to come out of poverty. Minimum wages and benefits must be adequate to meet at least basic human needs, and farmers must be able to sell their crops at prices that assure a fair net gain. Economic success and social justice must go hand in hand.

There is serious concern in many circles, and rightly so, about whether the private sector can be trusted to operate fairly in communities that are poor. The fear is that free markets mean exploitation, citing what they call the “Wal-Mart Syndrome” of forcing suppliers, especially those from poor countries, to offer products at prices that leave little gain for workers.

Troubling issues like this one will always exist. But they can be addressed through effective enforcement of laws and regulations concerning minimum wages, worker safety and benefits, non-competitive practices, and environmental protection.

Companies must recognize that it is in their long term interest to win the support of communities where they operate. Repressive local norms in compensation and treatment of labor must be replaced with fair practices that assist the poor in adequately caring for their families. Market forces of supply and demand and competition for gaining a dedicated labor force and loyal consumers are powerful factors in motivating good behavior on the part of corporations.

India’s rural population is increasing by over 13 million annually. Urban prosperity will not trickle down fast enough to reduce rural poverty. Government-run projects are not capable of adding 600 million sustainable jobs. NGOs can at best lower the misery faced by the poor, but not much more. Only the private sector can produce the kind of vibrant economic activity that will generate sufficient employment and higher income for the rural population.

Handouts will not solve poverty. The poor want jobs and not benevolence. A market-based approach to poverty reduction will result in income and wealth creation, and lay the groundwork for the next generation to avail of a wider range of opportunities with enhanced resources.

Please visit us at www.tgfworld.org & www.indiauntouched.com

Copyright © Abraham M. George, 2006

The Fight Against Poverty

y the World Bank’s broad definition for poverty ($2.00 or less per day per person), there are more poor people in the world today than a quarter century ago. Nearly half the world’s population, over three billion people, lives in poverty. In India alone, two-thirds of its one billion plus population is poor. Yet, the strategy for alleviating poverty across practically every developing nation has remained essentially the same for the past several decades.

There is plenty of talk about ways to increase income, reduce illiteracy and ill-health, and empower women. The increased attention given to these issues and pledges of additional financial assistance by world leaders are not matched by new and effective national initiatives that can significantly reduce poverty. So far, none of the poor countries has been able to achieve any of its key developmental targets. The emphasis is still on more funding for programs that have been in existence for many years. Yet these programs have had only marginal effect, and have not kept up with population increases.

My personal experience on developmental projects is confined to India, but the broader lessons learned there are applicable to most developing countries. What follows explains what I consider are misconceptions in the current approaches, and how the attack on global poverty can be far more successful.

International development assistance hasn’t worked

The UN Millennium project argues that it is the poverty trap of poor health, poor education and poor infrastructure reinforcing each other rather than bad planning, corruption, and ineffective execution that is hindering development of poor countries. The idea is that underdeveloped nations can be saved through more outside assistance and by expanding existing programs that are run mostly by governments. Those who support this notion want the World Bank and other international agencies and donors to make increased contributions to supplement domestic government resources. But there is very little evidence that foreign assistance has made much difference in overcoming the poverty trap in any country2.

As a consequence of the financial assistance received from international agencies, national governments rely on strategies developed by planners at organizations such as the World Bank and the United Nations. There is no shortage of ideas, enthusiasm, and expectations at the planning level, but what is lacking is good execution.

Planners have no responsibility for ensuring that funded projects meet their goals in the field. Other than requiring periodic written reports and demonstration of individual cases where success has been prearranged, there is little feedback or accountability. Beneficiaries are not in a position to let their views be known, nor do they understand what is expected in the longer run.

Misuse of funds

Governments, international agencies, and donors have expended billions of dollars to address poverty. For example, in rural India, government spends significant funds on subsidies (for electricity, fertilizer, fuels, etc.), food rations, price supports, land allocation/distribution, job training, and financial assistance for initiatives in agriculture and small businesses. Loans from the World Bank and other international agencies and bilateral aid supplement domestic government resources. But who has benefited from all these programs and assistance?The beneficiaries are usually corrupt officials who manage and distribute funds, and landlords and powerbrokers who directly or indirectly extract benefits for themselves. In India, over 90 percent of the agricultural land is owned and partly cultivated by less than 10 percent of the rural population who are termed farmers; others are mostly laborers. Governments allocate land to the poor, but they are unable to utilize it because of limited water resources, or bad soil conditions, and/or inability to secure credit. Larger subsidies benefit bigger farmers, but the poor do not gain much directly from any government programs.The presumption that with more money, corrupt and inefficient governments and bureaucratic institutions will utilize funds efficiently and improve the deplorable conditions of the poor is an illusion. There are too many impediments to poverty reduction: bribery, political influence in the allocation of land and/or credit; diffused focus and priorities; poor execution; shortage of rural infrastructure; social inequality, among other factors. Supporters of the “more money” approach should be reminded of what the late Indian Prime Minister Rajiv Gandhi once admitted: less than 15 cents of each dollar in assistance intended for the poor finally gets to them3. That is not to say that assistance should not be increased. But the real focus should be on ensuring that the allocated resources reach the poor.

Corruption and misallocation of development funds are ultimately the result of failed governance. Why bad governance? Unethical and illegal practices flourish in countries without free and independent press to investigate wrongful practices. Where the press is not sufficiently strong, there is little chance of preventing the “opportunistic behavior” of individuals, businesses and officials. Corruption can be reduced by assuring press freedom and strengthening private social institutions (such as advocacy groups) that stay independent. (Surprisingly, a democracy like India does not permit private radio stations to broadcast daily news!)

If citizens cannot rely on an impartial judicial system, there is little hope for a just and fair society. Societies that do not protect property and person from predators cannot expect to create sufficient wealth for everyone. It is the erosion of press independence and the weakness of legal system that are most troubling.

The limited role of NGOs

There are several participants in the developmental arena: national and foreign governments, international agencies, private companies, and non-governmental organizations (NGOs). The role of NGOs has gained attention in recent years as they focus on micro-issues and provide grass-roots assistance. Many have taken up projects to improve the quality of education and healthcare, while focusing on specific critical areas such as HIV/AIDS, illiteracy, and women’s empowerment.

NGOs have been advocates for the poor, pointing out issues of concern and presenting ideas for improvement, often figuring out how to press through the corrupt and self-serving regulations faced by their beneficiaries. Several are involved in income generation activities, offering micro-credit or assisting with water resource management and use of indigenous technology. Some private companies have formed NGOs to attract grants from their governments and international agencies. These efforts usually complement those of governments in the implementation process.

Despite positive contributions, NGOs have not been involved in major developmental undertakings intended to create large employment and wide income generation through sustainable businesses. This is attributable to their lacking good managerial skills and organizational structure to take up business ventures. Further, donor funds are usually restricted to narrowly defined projects. Consequently, the role that NGOs are best suited to play is in support of projects funded by governments and international agencies, or those limited initiatives approved by private donors.

Unfortunately, those NGOs who actually carry out developmental work in the field are stuck within programs specified by planners in developmental agencies and donor institutions. New ideas that deviate from those already specified by planners seldom qualify for any funding. Thus project proposals are prepared to reflect the requirements set by these planners in terms of methodology and outcomes. There is little initiative from the ground up, and no real feedback. Demonstrating compliance on paper ends up more important than actually getting the job done effectively. As a result, recipients of developmental funds spend significant time preparing reports for the planners to qualify for continued funding, and less time worrying about what benefits the poor.

Micro-finance is not a panacea

The expression “social entrepreneurship” was coined to reflect corporate benevolence toward the poor. Mohamed Yunus who founded the Grameen Bank in Bangladesh in 1976 intended exactly that when he started giving poor people credit and assisting them in their local business ventures. Subsequently, many NGOs around the world started offering small loans to women who could otherwise not obtain credit from commercial banks. As different micro-credit programs sprung up in poor countries, governments, international agencies and private donors joined in with necessary capital. Several experts in these institutions termed micro-credit a revolutionary concept, and there is growing belief among many that it might be the way to solve poverty.

Today, some for-profit funds and supposedly not-for-profit organizations market micro-credit lending in developing countries, and even offer advertised returns on investment. One such micro-credit intermediary in India recently publicized that it has been charging 36 percent interest until recently when it dropped the rate to 26 percent for some borrowers by making the lending process more efficient4. After all, it argued, credit card companies charge as high as 28 percent interest for credit-risk customers.

The assumption is that poor people can be rescued quickly and easily with a modicum of money. (Micro-credit is intended mainly for starting or expanding small businesses run by borrowers.) The claim is that micro-credit (loans of around $100) has lifted tens of millions out of poverty in the developing world. Assertions that more than 90 percent of the people who receive micro-credit are poor5, that most of them succeed in businesses started with these loans, and that they repay the loans at 24 percent annual interest or higher, go unchallenged.

So far, there has not been any outcry on the high rate of interest. The poor do not have any voice in or understanding of financial markets. They are happy to get loans to meet personal emergencies (such as expenses toward surgery, marriage or dowry) or to pay off financial obligations to local money lenders who charge even higher rates. Micro-credit intermediaries claim that this is social entrepreneurship, and not living on the backs of the poor.

In my personal experience in rural India I have observed that a small number of people, mostly village leaders and their family members, operate the few shops and businesses. They are the only ones who have the support mechanisms, knowledge, and skills to make a business succeed. A great majority of the poor rural populations do not have the ability or experience to start or run businesses, with or without access to credit. To expect them to succeed in business is unrealistic. They are uneducated and labor for landowners and for the few nearby businesses. At best, they might benefit from the trickle down effect if landlords and small businesses prosper.

Our foundation6 has studied some 17 villages and over 50 micro-credit programs in South India. Data show that less than 5 percent of those receiving micro-loans start any business of their own. One preferred activity is buying and selling sheep, hopefully at a profit equal to the wages foregone. These types of activities are unsustainable in the long run. Consequently, less than 2 percent continue beyond the first three years, and very few succeed in any such “business” with small amounts of money and little or no support, training, or skills.

Micro-credit lenders are not concerned about what the borrowers do with their loans. Loans are usually made to individuals, but guaranteed by groups that can demonstrate their capacity to repay. Most borrowers of micro-credit repay loans from income received at regular jobs, or from grants provided by governments for self-help programs. Not surprisingly, it is the intermediaries – commercial banks and loan facilitators – that gain the most from the spread between the cost of funds for the intermediaries and the loan interest charged by them. Commercial banks in India, for example, receive funds for micro-credit programs from the government-run NABARD bank at 5-6 percent. They then lend at 10 to12 percent to a micro-credit intermediary which, in turn, lends at 24 to 36 percent to the final borrower.

The assurance of loan repayment makes micro-credit popular among lenders, in addition to the high interest charged. Borrowers are motivated to repay loans because of an expectation of future monetary benefits. If one borrows and repays twice (no need to start any business, but maintain good paperwork), then he/she becomes eligible for a grant for $100 or more from a separate government program (each state offers its own variation of this facility). The free money from the government can be used to repay the third micro-loan made to that beneficiary. The government is short the amount of the grant, but the borrower is debt free, and the micro-credit middle-man is assured of capital and high returns.

Why this round about way to offer free money when there are several direct means to reduce the debt burden of the poor? The answer probably lies in the fact that this form of “hand-out” is invisible within “social entrepreneurships”. Moreover, major financial institutions have become embroiled in this commercial activity. A new breed of educated and well-trained loan sharks, with bank support, is now in the micro-credit business in India. Micro-credit has become a trendy cure-all. If poverty alleviation were a matter of lending, the world could eradicate poverty easily. It would cost about $300 billion at $100 per person – a small sum in comparison to the trillions of dollars already expended over the past half a century. The present form of micro-credit, as practiced in India, results in little or no sustainable development benefit for the poor.

Importance of private sector participation

In developing countries the government bears the primary responsibility for delivering basic services for the poor. It has traditionally been the agent for healthcare, education and job training, especially due to the inability of rural populations to pay for basic services. A significant portion of the costs associated with public services will continue to be borne by the state until rural incomes rise and/or until the private sector finds it attractive to be involved in such efforts.

Government-run institutions have, for the most part, failed to offer quality services because they are unable to motivate those who carry out the tasks in the field. Those who can afford to pay for quality services rely on private providers. Even those who work for government go to private clinics for their healthcare needs, and send their children to private schools. Quality will never improve unless service providers have the incentive to serve the poor. Until then, the “haves” have markets to choose from, while the “have-nots” have bureaucrats to dictate to them.

But, lack of affordability should not prohibit private sector participation. With NGOs as project facilitators, opportunities exist for public-private partnership. Private institutions can deliver services at reduced prices, but at a profit, within a competitive and independently monitored system where the costs are subsidized or even fully paid for by the government. Such partnerships can work in a cost-effective fashion only with arrangements for independent audit and arbitration by credible third parties.

In developing countries there is no serious effort to involve private companies, though most rural areas are, in fact, ideally suited for industries in herbal products, alternate fuels, cement and tile, lumber and pulp, meat, dairy and poultry. These private industries should function in a free market with sufficient checks and balances to ensure that they operate in a socially and environmentally responsible manner. By offering job opportunities in villages, they would alleviate migration to cities for employment.

Financial incentives like low-interest loans and tax breaks, and physical infrastructure improvements will motivate private companies to build factories in rural areas. Elimination of controls on the sale of agricultural products, and assistance in finding new markets will attract many businesses. These measures will in turn improve the demand for produce and boost commodity prices to levels that can financially sustain rural families. Further, international agencies and donors must consider equity participation in companies instead of simply channeling funds through governments or offering grants. They should provide loans at low interest rates directly to local entrepreneurs who can demonstrate an ability to run successful businesses7. In short, some of the available developmental funds must be used to support commercial activities in deprived communities. With more economic activity, the poor labor class can gain employment at better wages8.

Government’s role ought to be that of a catalyst. There should be no room for bribes. The focus should be to provide incentives for private (and community) participation. When private individuals and institutions find it worthwhile to take risks and invest in economically depressed areas, there will be sustainable development and poverty reduction. As incomes rise, there will be less need for government involvement in the delivery of many services currently provided.

It is not money alone but integrity and ideas that will make the real difference. A noted economist once asked me how I would go about improving the productivity of rural laborers on our farms. Creative thinking was my thought! We have instituted a program of de-worming drugs every six months, and daily iron tablets and protein-rich nutritional supplements prepared from locally available grains and nuts. Our workers wear wide hats protecting them from direct sunlight. These are simple, low cost measures, but they have contributed to a healthier and more productive labor force on our farms. For less than $10 per person a year, we have doubled their productivity!

A new model for corporate philanthropy

Contrary to the recognized activities of NGOs, our foundation has embarked on a path similar to those of private organizations: we build institutions, develop human resources and managerial skills, and undertake major commercial projects – for humanitarian reasons. One project currently underway is a 250-acre banana farm, the second largest in South India. My life-long experience in business, my convictions about free and open markets and the need to encourage an entrepreneurial spirit in the individual have helped me not to rely on donor funds alone. Instead, our foundation has invested in sustainable projects that generate “profits” as well as steady income for the poor.

Our decision to confine business activities to farming results from the fact that the rural adult population in India is generally illiterate and lacks industrial skills. It is farming that gives them opportunities to better their lives; it is what villagers have a natural affinity for; and it is an industry where large numbers can be employed.

With the goal of empowering poor women and elevating their income-generating capacity,
The George Foundation set up Baldev Farms, a “learn while you earn” program. The farm uses precision agricultural tools, organic fertilizers and superior technology in drip irrigation to conserve water. Apart from the farm workers’ daily wages, we set a portion of the profits generated from the sale of produce in a savings account to be used at the end of 5 years for the purchase of one third to one half acre of land for each family. Families will then cultivate their newly purchased land, sharing resources, such as wells and tractors. The foundation will remain a support organization to help address concerns and difficulties, while also offering know-how and access to markets.

Within three years of starting Baldev Farms, more than 150 villagers, mostly women, have found labor and supervisory employment in the field; hundreds of others have benefited indirectly. Most have already come out of poverty, paid off their debt, and freed themselves from bonded labor status. As the foundation expands its farming activity in high-value fruits and vegetables, it will soon generate sufficient cash flow to finance other humanitarian initiatives.

Though the final chapter on this program is not yet written, the concept of offering each poor family a piece of the land to cultivate profitable crops is proving to be sound. With the profit sharing plan in place, everyone in our farm is highly motivated, takes initiatives and works hard. It is becoming increasingly clear to us that good management and a dedicated work force are assuring profitability to empower the poor.

Admittedly, our “corporate” approach to philanthropy cannot be replicated by most NGOs. Only private for-profit companies have skill bases and resources to undertake such business ventures. But they must recognize that market opportunities can be tapped only when the purchasing power of consumers rises. Hence, for the foreseeable future, investment in the rural sector ought to be toward production as opposed to selling to the “bottom of the pyramid.” In the longer run, it is competitive markets and involvement of the community in sustainable development projects that will solve poverty.

As long as significant poverty exists around the world, and the disparity between the rich and the poor widens, private companies in developing countries need to make a contribution to solving the problem. It is not corporate benevolence, but fair and socially responsible business practices that are expected. A dialogue must begin between and among business leaders on devising rules for business conduct in deprived communities. The model must consider how poor people can be brought into the mainstream of consumers with sufficient purchasing power within a reasonable time period. Those who work must earn enough to be able to come out of poverty. Minimum wages and benefits must be adequate to meet at least basic human needs, and farmers must be able to sell their crops at prices that assure a fair net gain. Economic success and social justice must go hand in hand.

There is serious concern in many circles, and rightly so, about whether the private sector can be trusted to operate fairly in communities that are poor. The fear is that free markets mean exploitation, citing what they call the “Wal-Mart Syndrome” of forcing suppliers, especially those from poor countries, to offer products at prices that leave little gain for workers.

Troubling issues like this one will always exist. But they can be addressed through effective enforcement of laws and regulations concerning minimum wages, worker safety and benefits, non-competitive practices, and environmental protection. Private companies must resist the temptation to extract government funds for their business activities in the name of social entrepreneurship. They must recognize that it is in their long term interest to win the support of the communities where they operate. Repressive local norms in compensation and treatment of labor must be replaced with fair practices that assist the poor in adequately caring for their families. Market forces of supply and demand and competition for gaining a dedicated labor force and loyal consumers are powerful factors in motivating good behavior on the part of corporations.

Concluding remarks

There are no easy answers. Poverty, in large part, can be solved if the poor gain new skills and if more jobs will become available in the rural sector. For some, the solution lies in ownership of a permanent income generating asset: land. The poor need to have the opportunity to own and develop land, and grow profitable crops that can be sold in a competitive market.

More money is not a prerequisite for success; proper use of available funds is. There is no substitute for good planning, effective organization, and execution with accountability. Only those who bear financial risk can be expected to perform effectively.

Handouts will not solve poverty; neither will it be solved by grand government projects, or by piecemeal interventions of NGOs. Instead, poverty will be solved with vibrant economic activity driven mostly by the private sector. The hundreds of millions of new jobs that are needed each year will come mainly from corporate business ventures in rural areas. The developmental strategy to address poverty must embrace this reality.

A market-based approach to poverty reduction will result in income and wealth creation, and lay the groundwork for the next generation to avail of a wider range of opportunities with enhanced resources.

*Abraham George is the founder of The George Foundation, an NGO engaged in humanitarian work in India, and the author of “India Untouched: The Forgotten Face of Rural Poverty,” (http://www.indiauntouched.com/).

1. Investing in Development, UN Millennium Projects Reports, September 2000, commissioned by the UN Secretary-General and sponsored by the United Nations Development Programme on behalf of the UN Development Group. The report is an independent publication.

2. Considerable evidence on whether foreign aid has been effective in reducing poverty in poor countries is provided in The White Man’s Burden, William Easterly, The Penguin Press, New York, 2006.

3. Unscrupulous politicians and bureaucrats in developing countries have perfected schemes for siphoning off funds allocated for poverty eradication in their national and state budgets. It is not uncommon that additional funds are assigned by governments for projects that have already failed, with the assertion that more money will solve the problems.

4. “Entrepreneur Gets Big Banks to Back Very Small Loans,” Wall Street Journal, May 15, 2006.

5. The question on who are the beneficiaries is answered by a recent study of one of the largest micro-finance intermediary in India that has shown that most borrowers use the funds to finance the purchase of a new motorbike, pay the family doctor, and/or to meet other needs that are way above what poor people can afford. Tyler Cowen, “Micro-loans May Work, but There Is Dispute in India Over Who Will Make Them”, New York Times, August 13, 2006.

6. The George Foundation is engaged in several poverty alleviation projects in rural Tamil Nadu, India, focusing on income generation activities, education, healthcare, and community development (see http://www.tgfworld.org/).

7. Examples of equity participation in and loans to small businesses to promote development can be seen in projects funded by the International Finance Corporation (an agency of the World Bank) and Acumen Funds. However, currently such allocations of funds by international agencies and donors are very limited.

8. The argument that villagers can lift themselves out of poverty much faster by getting a job in a successful business enterprise, instead of trying to start businesses of their own, is beginning to gain some attention. “Shopping for a Nobel,” op-ed, New York Times, New York, October 17, 2006.

Copyright © October 2006, Abraham M. George

Please visit us at www.tgfworld.org and www.indiauntouched.com

Social Entrepreneurship as Poverty Solution

Laxmama lives alone with her three children in the tiny village of Sidhanalli in the southern Indian state of Tamil Nadu, and just recently she was faced with a personal family crisis. Her 17-year old unmarried daughter underwent a botched partial abortion in the hands of a village “doctor.” Bleeding profusely, Laxmama took her daughter to a nearby private hospital where the physician reluctantly agreed to complete the abortion for a discounted charge of Rs. 4,000 (nearly $100). With little savings of her own, Laxmama turned to her local money-lender who immediately advanced her the funds at terms acceptable to her – Rs. 200 in interest and Rs. 200 in principal each month over 20 months. The loan was arranged in less than two hours, confirming the terms with her thumb impression on a two line promissory note. The surgery went off well, and her daughter has recovered since then.

The high interest charged by her money-lender would result in Laxmama repaying double the amount of the loan, but she feels that no one else would have provided the funds in such a short time to save her daughter’s life. She doesn’t know about today’s so-called social entrepreneurs who might have been willing to advance her a micro-loan at a relatively much lower interest rate. Even if she had known, she couldn’t have waited to go through the loan approval process.

Micro-credit is touted often these days as one good example of “social entrepreneurship,” especially since Dr. Yunus received the Nobel Prize last month. Yet there has been very little effort to define and distinguish it in practical terms. The assumption is that social entrepreneurship is “business for benevolence.” Some associate it with doing business in a deprived area, especially in a rural environment. Just as business entrepreneurs create and transform whole industries, social entrepreneurs are presumed to apply entrepreneurial principles and act as agents of change for society, seizing opportunities to advance sustainable solutions that create social value.

The question then is whether all entrepreneurial activities involving the poor can be termed social entrepreneurship.

The term "social activist" has been in existence without much ambiguity for quite a long time. Anyone who is engaged in bringing about social change is deemed to be a social activist. Many organizations are engaged in advocacy for causes such as fair labor laws and practices, women and minority rights, environmental protection, and others. Some of these organizations, for example, offer consultancy services to other institutions in ensuring compliance with regulatory requirements. None of these businesses are considered social entrepreneurs, even though their work might lead to social good. What makes them any different from today's self-proclaimed social entrepreneurs?

An entrepreneur is one who usually takes on personal financial risk to create value, with the expectation of generating profit; the real test for an entrepreneur is its success in mobilizing resources or generating income. Social entrepreneurship is more about creating social value from proper/innovative allocation and application of available resources than about conducting any business. But as it is understood today, social entrepreneurship implies some sort of business-like activity (preferably sustainable and self-supporting) that benefits the poor. The real distinction between entrepreneurship and social entrepreneurship is the main intent and purpose. A business or business-like activity that is intended mainly (or solely) for social good is social entrepreneurship. He/she is expected to run the entrepreneurial activity in a sustaining way, and preferably at a profit, so that he/she may be able expand the work and do more good for the poor. For the sake of clarity, let us examine a few cases.

No one doubts that Wal-Mart is a successful business, generating considerable profit for its shareholders. It is also one of the world's largest private employers, providing jobs to people from every segment of the society. Its purchase of innumerable products for subsequent sale is instrumental for the success of thousands of supplier firms. These suppliers/manufacturers employ millions of people, many of whom might have been previously unemployed or living in deprived areas around the world. Does the fact that Wal-Mart's entrepreneurial activities benefit many poor people qualify it to be called a social entrepreneur?

Let us take the case of a non-governmental organization running a rural hospital and carrying out several innovative outreach programs. It charges a small fee for its services, while most expenses are met by donor funds. This NGO is engaged solely in socially beneficial activities by conducting a "business" that is consistent with the financial ability of its customers. Does it qualify as a social entrepreneur?

Many people associate micro-finance activity to social entrepreneurship. There is no doubt that the borrowers of micro-credit are better off even at 36 percent annual rate of interest than being obliged to local money-lenders who might charge over 100 percent interest. But the lenders, usually called micro-finance institutions (MFIs), are seldom concerned about how the funds are used by their borrowers; their sole aim is to collect both interest and principal on the loans as per their lending terms. This form of credit is usually a profitable business for a variety of reasons that have little to do with any entrepreneurial activity among the borrowers. Does the fact that the borrower is able to obtain loans at interest rates lower than what a money-lender would charge qualify the lending organization as a social entrepreneur?


In my opinion, none of these cases fall within the true meaning of social entrepreneurship. As for Wal-Mart, it is engaged in a business activity to maximize profits for its shareholders, and not necessarily to benefit the poor. In fact, many accuse Wal-Mart of "squeezing" its suppliers who in turn might exploit their workers to keep costs low. Even though the consequential result of its business activity is job creation for many poor people who might not otherwise have comparable employment, the intent and purpose is not social good.

The NGO that conducts a quasi-business activity is certainly involved in doing social good. But it is not an entrepreneur that takes financial risk of its own and carries out a self-supporting activity. When donor funds dry up, its human services might also stop.

Despite the life-saving help, no one will argue that Laxmama’s money-lender is a social entrepreneur. However, the fact that MFIs charge interest at relatively lower rates than money-lenders does not necessarily qualify them as social entrepreneurs either. MFIs exist to make profits for their owners, and are least concerned about whether borrowers use the funds for worthwhile purposes.

Unlike local money-lenders who offer credit for the specific needs of borrowers (such as crop loans given prior to planting seeds and repaid after harvest, and loans to cover expenses toward medical emergencies like surgery), MFIs do not earmark their loans. Many borrowers utilize the loan to pay dowry for their daughters, cover expenses for festivals, and for other reasons that have little to do with income generation. The absence of any direct involvement on the part of MFIs to help the poor use the loans properly, and the mechanisms through which its financial risk is offset by government grants and obligations of groups (instead of the borrower alone) make this form of lending simply a commercial activity. In any other section of the society, their collection practices might be questionable, both legally and ethically. While MFIs also add value to their customers (in this case, for the relatively poor people), their primary intent and activities are not necessarily aimed at doing social good.

Everyone who does business in a rural or deprived area is not a social entrepreneur. In fact, many businesses are springing up these days with the financial support of governments to sell products to the "bottom of the pyramid". These forms of business activities are far from social entrepreneurships.

So, who is then a social entrepreneur? It is hard to find many individuals or institutions that meet the true test. Those who take on financial risk by engaging in a business or business-like activity designed mainly to benefit the poor are certainly social entrepreneurs. Hopefully, the entrepreneur who fits this definition is able to generate enough income to at least cover the expenses so that the business is sustainable.

What we really need are every day entrepreneurs who are prepared to invest in rural and other deprived communities. They would generate employment and income for many poor people. Only through vibrant business activity can the needed 2 to 3 billion new jobs be added in developing countries.

Businesses who conduct themselves in a socially and environmentally correct manner (by paying fair wages, ensuring worker safety, and adhering to environmental standards) are meeting their community responsibilities. Instead of searching for social entrepreneurs, it is time to raise the bar for our expectations of anyone who does business, especially in the rural sector.

Abraham George is the founder of The George Foundation (www.tgfworld.org), an NGO engaged in humanitarian work in India, and the author of “India Untouched: The Forgotten Face of Rural Poverty.

Please visit us at www.tgfworld.org and www.indiauntouched.com

Poverty Alleviation Strategy:Three Fundamental Flaws

According to the World Bank, by the broader international definition of poverty ($2.00 or less per day per person), there are more poor people in the world today than there were a quarter century ago. Yet, during the same period, the strategy for alleviating poverty across practically every developing nation has remained essentially the same.

The assumptions that underlie the present approach to combating poverty are flawed on at least three counts. First, there is the idea that underdeveloped nations can be saved through more outside assistance and by expanding existing programs that are run mostly by governments. Accordingly, those who support this notion want the World Bank and other international agencies and donors to make increased contributions to supplement domestic government resources.

The presumption is that with more money, corrupt and inefficient governments and bureaucratic institutions will somehow deliver the goods. Supporters of this “more money” approach should be reminded of what the late Indian Prime Minister Rajiv Gandhi once admitted: less than 15 cents of each dollar in assistance intended for the poor finally gets to the beneficiaries.

Corruption, political influence on credit, land allocations and other related decisions, diffused focus and priority, poor execution, shortage of rural infrastructure, social inequality and a host of other factors remain as impediments to poverty reduction. Sure, more money – even if it is only 15 cents on the dollar -- would help. But what is far more important is the national will to tackle these and other obstacles.

The second erroneous assumption is that governments are the best agents for delivering basic services, such as health care, education and job training, especially in rural areas (which is where the majority of the population in most developing nations lives). This misconception has arisen due to the inability of rural populations to pay for basic services. Until rural incomes rise, a significant portion of the costs associated with public services must be borne by the state. The private sector, on the other hand, has not yet found it financially attractive to be directly involved in such efforts.

But lack of affordability alone should not prohibit private sector participation. Opportunities exist for public-private partnership; private institutions could deliver services at reduced prices, still at a profit, within a competitive and independently monitored system. This would require that the costs be subsidized or even fully paid for by the government.

In most developing countries, poverty-eradication programs are also mainly government funded and managed initiatives. In rural areas, they take the form of land allocations, as well as subsidies and grants to farmers. But there is no serious effort to involve private companies; the rural sector is generally viewed as the bread basket for the country, with employment confined to farming and cheap labor for urban businesses.

Most rural areas are, in fact, ideally suited for industries such as herbal products, cement and tile, lumber and pulp, meat, dairy and poultry. Financial incentives, in the form of low-interest loans and tax breaks, and infrastructure improvements, can motivate private companies to build factories in rural areas. These businesses could offer job opportunities for people in villages who would otherwise migrate to cities for employment.

Government-run programs and handouts will not solve poverty. The government’s role ought to be that of a catalyst, rather than an implementer or manager of change. Only when private individuals and institutions find it worthwhile to take risks and invest in economically depressed areas will there be sustainable development and poverty reduction.

The third incorrect assumption is that every poor person can be rescued from poverty fairly quickly and easily with a modicum of money. For example, many make the claim that the micro-credit facility (loans of around $100 to each impoverished person) has elevated tens of millions of people out of poverty in the developing world. Moreover, assertions that more than 90 percent of the people who receive micro-credit are genuinely poor, that most of them succeed in businesses started with these loans, and that they repay the loans at 15 percent annual interest or higher, go essentially unchallenged.

In my social work in rural South India, I have witnessed how micro-credit can help reduce the debt burden faced by the poor at the hands of money lenders who charge exorbitant interest rates. But only a few among the poor can expect to succeed as entrepreneurs with such small amounts of money and with little other support, training, or skills.

The truth is that most beneficiaries of micro-credit repay the loan from income received from their regular jobs and from grants provided by governments for self-help programs. Not surprisingly, it is the intermediaries – commercial banks and loan facilitators – that stand to gain the most from the spread between the cost of funds and loan interest rates.

There are no easy answers. For the most part, poverty will be solved when the poor gain new skills and when more jobs become available in the rural sector. For many, the real solution lies in the ownership and use of a permanent income generating asset: land. The poor must be given the opportunity to own and develop land, and to grow profitable crops that can be sold in a competitive market. This will lay the groundwork for the next generation which, through enhanced resources and better education, will have access to a wider range of opportunities.

Please visit us at http://www.tgfworld.org/ and http://www.indiauntouched.com/

Children's Loss of Global Proportions

Almost one year ago (December 23, 2005) we tried to clear customs at Chennai port for a container full of donated items I had collected from my neighbors and the community for the children of Shanti Bhavan school. One of the items was one dozen small Globes donated by a crippled young lady I have known for years, and who is always thinking of our children at the school.

Well, the customs officer confiscated the Globe, saying that it doesn’t clearly show Indian and Pakistan controlled Kashmir. Well, India itself is hardly 2 inches in size on this small children’s educational globe my friend had purchased from a local school supply shop. There isn’t much space for such details, and after all, this is not about geo-politics. The officer tells us that he has been instructed to check all maps and globes shipped from abroad!

Are we a paranoid nation that doesn’t trust our own people’s judgment? To what extend do we go in such matters?

By the way, the items for which customs duty is charged include used children’s bikes, used classroom chairs, rejected paint in cans (when paint shops make mistakes when adding color, and customers reject), etc.

There is no use explaining that these used/donated items are for children from among the poorest families in the world. I guess the government (current and all past) has good reasons for these regressive policies. There are many crooks among us!

Further, we are a proud nation now to receive donations. Why can’t you buy them in India?

Please visit us at www.tgfworld.org and www.indiauntouched.com

Indian Media in Transition

On December 13, as I was listening at my New Jersey home in the U.S. to an NPR (National Public Radio) program on investigative journalism in India, I could not help thinking about the motivation behind my decision nearly six years ago to enter the field of journalism, a decision that led to the creation of the Indian Institute of Journalism & New Media in Bangalore. It was during the Kargil war in May 1999 that I had come to the inevitable conclusion about India’s democratic system. I was dismayed by the absence of honest reporting on the mistakes made by our politicians, the hasty and costly strategies undertaken by our military commanders, and the undercount of our casualties. Indian reporters failed to pursue anything resembling investigative and independent journalism, and the media was generally prepared to go along with the government’s view of things.

Coupled with my frustration with the widespread corruption in both the government and private sector and the cynicism on the part of almost everyone towards the possibility of any positive change, I had felt then, as I do today, that a free and independent media in India is the country’s best hope. Until the Indian media is prepared to uncover and report on the corruption and misuse of power by politicians, government officials, and private companies, the country will not be able to achieve its full developmental potential in an equal and fair society. Without transparency in governance, it would be difficult, if not impossible, to formulate sound policies.

Listening to the NPR segment today on India, I feel somewhat vindicated. IIJNM was founded with one ideal in mind – to improve the quality of the Indian press. It was my conviction then, as it is today, that it is our journalism students – the idealists among us -- who will bring about the necessary change that the country is longing for -- an open and far less corrupt system.

Today, television media has more or less taken the lead. Among the most popular programs in India, as I understand, are those reporting on corruption and misdeeds of politicians and government officials. “Candid camera,” as it is called here in the US, has taken hold in India. It reports with hidden camera the many true stories of the day -- the bribe that the police inspector extracts from the victim of a crime before agreeing to investigate, the “fee” that the government officer charges for his giving the order to make an electric connection, and the “contribution” that a company pays a member of the parliament before bringing up a legislative concern in the Lok Sabha. These stories are now part of the family entertainment offered by many TV stations, and believe it or not, those in power are a lot more careful today.

As many new TV channels enter the market, there is even greater competition for viewers. These stations will have to offer something better and more informative than the ordinary. With foreign media joining forces with Indian operators, these stations have the financial backing to produce better programs. Sure, there will be some weeds, but overall the flowers will brighten up the garden. The nation will benefit immensely.

Unfortunately, the print media, especially the daily newspapers, are still monopolized by a few proprietors. Foreign media is not allowed to have more than 26% of the total ownership. Consequently, many papers do not have the financial strength to take on today’s major players in the market. When this last bastion of power in the media is removed from the few proprietors, we can expect vigorous competition in search of truth. The power of the pen shall prevail. Neither the politician nor the judiciary will be able to deny the people’s right to information – the truth about ourselves and our rulers.

The author is the Dean of the Indian Institute of Journalism & New media, Bangalore (www.iijnm.org), and the author of “India Untouched: The forgotten face of rural poverty.”


Please visit us at www.tgfworld.org and www.indiauntouched.com

Rural Poverty on the Rise

Of the 6 billion people presently living on our plant, over 60% or 3.5-4 billion are in rural areas. In India alone, nearly 700 million people live in the villages. The rural population is increasing at a faster pace than their urban counterpart, mostly as a result of illiteracy, lack of access to birth control measures, and poverty. The pace of overall development in most countries does not keep up with the needs of this increasing population. The result is that there are more poor people in the world today than 50 years ago, and most live in rural areas.

According to the U.N. and the World Bank, nearly 35% of the world population subsists on less than $1 in daily income. Over 50% live under $2 per day. Depending on which of these two yardsticks is used for measuring poverty, there are 2-3 billion poor people in the world – a staggering number by any account. Poverty in India closely reflects these world statistics.

Billions of dollars have been expended over the past half a century by governments, international agencies, and donors to address the problem of poverty. For example, in rural India, government programs focus on subsidies (for electricity, fertilizer, and so on), food rations, price support, land allocation/distribution, job training, and financial assistance for initiatives in agriculture and small business. Loans from the World Bank and other international agencies, bilateral assistance, and donor funds supplement domestic government resources. But who has really benefited from all these programs and assistance?

In a country like India, the direct beneficiaries of these programs are the corrupt officials who manage/distribute the funds, and the landlords and powerbrokers in the villages who have the ability to extract the benefits. Over 90% of the agricultural land is owned and cultivated by less than 5% of the rural population. In most villages, almost all the cultivable land is owned by a handful of people, and the remaining land is owned by the government and by the poor. The poor are unable to use their land for agriculture for lack of water resources, poor soil conditions, and unavailability of credit. Hence, they do not stand to gain directly from any of the government programs.

A small number of people, mostly the village officials/leaders and their family members, operate the few small businesses in the villages. They are the only ones in the village who have the necessary support mechanism, knowledge, and skills to make a business succeed. The great majority of the poor – some 60-70% of the rural population – do not have the ability to start or own businesses. They are uneducated and serve as labor for landowners and the few nearby businesses nearby, when their services are needed. Hopefully, if and when these landlords and small businesses prosper, the rural poor may also benefit from its trickle down effects.

Most poverty eradication programs run by NGOs and supported by the government and/or donor funds do not target the poorest and socially deprived segment of the society. For example, contrary to the widely held belief, the beneficiaries of micro-credit (loans of $100 or so to each entrepreneur) are not those at the bottom of the society. Most of those who are assisted by micro-credit use the funds to pay off exorbitantly high interest loans from money-lenders and for personal needs. Only a small segment of the recipients start any entrepreneurial activities.

Similarly, many of the projects funded by private donors do not directly impact the rural poor. This is not to say that these projects are worthless or ineffective. For example, assistance in channeling river/canal water for irrigation, rain water harvesting, preparation of compost and bio-gas, and similar initiatives help a small number of landowners and businesses to improve their productivity. But those in the poor labor class can only hope that they will somehow benefit when the landlords succeed.

There is no doubt that better rural infrastructure, elimination of controls on the sale of agricultural produce, and assistance in finding new markets will attract many businesses to the rural sector and help create new employment opportunities. These measures will also improve the demand for produce and help farmers enjoy higher prices. With more economic activity, the poor labor class might gain employment at better wages. But none of these actions will be sufficient (or happen fast enough) to alleviate poverty.

There are no easy answers. The real solution lies in the ownership and use of a permanent income generating asset by the poor: land. The poor people must be given the opportunity to own and develop land and gain the skills and capabilities necessary for cultivating high-value crops. They must learn modern farming techniques, and to package and market their produce. Handouts won’t do either; training and handholding will. Imagine a country like India’s export potential for agricultural produce, processed and packaged properly, for world markets!

Please visit us at www.indiauntouched.com and www.tgfworld.org

A Dollar a Day Doesn't Keep Hunger Away

There is plenty of confusion about how the poverty level should be defined so that the percentage of people who are poor can be determined. The World Bank has introduced two measures: $1 and $2 per day per individual (though these are based on some earlier year’s purchasing power parity). By these definitions, 35 percent of the world population lives on less than $1 per day, and more than 50 percent on less than $2 per day. While these poverty definitions have been suggested by international agencies, they do not correspond with the definitions that individual governments might follow.

For example, at the higher end, the U.S. Census Bureau has set the poverty line for an individual at $9,500 per annum (which works out to $26 per day). For a family of four (with children below 16 years of age), the poverty line is set at $18,800 or $51 per day. At the other end of the spectrum, the Indian government chose to define caloric intake and its corresponding cost as the measures by which poverty is to be defined. It has adopted the ICMR (Indian Council of Medical Research) specification of 2,400 K-calories per day for an individual living in rural area, and 2,100 K-calories for an urban individual.

The problem with the Indian government’s approach is in the determination of the income needed to purchase food. The government assumes that only Rs. 327 ($7.25) per month is needed for an individual living in the rural area to buy enough food to meet the required calories. This works out to less than Rs.11 ($0.25) per day per person. (Note that the Indian official poverty level is only one-quarter of the World Banks’ lower standard of $1 per day.)

Anxious to prove that the economic liberalization measures that have been introduced since 1991 have produced good results, India’s Planning Commission estimated that only 18 percent of the population was poor in 1999. Faced with challenges and ridicule from the international community about the accuracy of this figure, the Indian government arbitrarily increased its estimate to 35 percent. It is not very clear how the discrepancy between the two figures was reconciled. Official estimates of this kind only undermine the public’s confidence in government’s pronouncements, as they reflect an effort to hide bad news from the world.

The real story is even worse. According to respected economists and statisticians in India, in the year 2000, the monthly income needed for a rural individual to consume 2,400 K-calories per day is not Rs. 327 ($7.25) but Rs. 567 ($12.60). At this income level, which amounts to $0.42 or less per day, nearly 75 percent of the rural population is poor. One can only imagine what percentage of the rural population is below the World Bank’s broader definition of $2 per day: probably more than 75 percent.

I can speak from my own experience of working with the people in the 17 villages around Baliganapalli in Tamil Nadu, a relatively prosperous state in India. We recently completed a house-to-house survey of the entire population in these villages. It shows that nearly 90 percent of the families (counted as at least 4 members on the average) earn less than Rs. 100 ($2.20) per day, or Rs. 25 ($0.55) per individual per day.

By any reasonable measures, at least 75 percent of India’s rural population is poor. Moreover, none of the poverty definitions take into account the cost of adequate housing, clothing, education, healthcare, and entertainment. Though some of these are provided for free by the government, the quality of life in rural areas remains deplorable. We need to offer definitions of poverty that are honest, reflecting the cost of adequate food intake and other basic necessities of life.

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Literacy Programs Are Not Helping the Poor

Policy makers around the world have decided that literacy is what the poor need. That's simply doing a disservice to them. Literacy hasn't brought any real benefit or change in the lives of the social underclass.

There is no doubt about a close linkage between illiteracy and poverty. Illiterate people find it difficult to get out of poverty. Without being sufficiently literate, one can't fully enjoy social or cultural life. As Amartya Sen, the Nobel laureate in economics, points out, the capacity to read and write deeply influences one's quality of life.The trouble is that while societies increasingly emphasize information, knowledge and communication as essential ingredients of education, poor people are offered a much lower standard to achieve. A person is considered literate if he can read, write and understand a simple sentence relating to his everyday life. Using this definition, there are still nearly 1 billion adults who are illiterate, according to the United Nations. In addition, more than 100 million children don't attend primary schools today.Even among the so-called literate, especially the poor, there are those who have attended only a few primary grades in rural schools that offer little by way of education.

Data on literacy is usually collected from household surveys during a national population census. There are problems with such surveys, because the very poor are proud to label themselves as literate even if they have had a grade or two of schooling. And those doing the surveys are just as eager to count the respondents as literate to please government officials who want to publicize any progress. The net result is a significant overcount of the truly literate.

To validate published official records, The George Foundation (a nongovernmental organization carrying out poverty eradication programs in the rural areas of Tamil Nadu state in India - visit www.tgfworld.org) recently completed a house-to-house survey of several thousand people in 17 villages. Those surveyed were asked to read and respond to a simple question written in their local language: How old are you? Less than 15 percent of the people among the "lower'' social class or "dalits'' were able to read the question, while barely 40 percent of the "upper'' classes responded correctly. If this survey is any indication of actual rural literacy, it is hard to believe the government's claim of 65 percent adult literacy in all of India, when 700 million people live in the rural sector.

To make matters worse, even senior officials in government and international agencies often make wild claims about the progress being made in the fight against illiteracy.For example, UN Secretary General Kofi Annan, in his address at the launch of the UN Literacy Decade in February 2003, pointed out that as a result of concerted effort wherein women teachers traveled on bicycles to remote areas, an entire district in Tamil Nadu (usually consisting of 2 million or more people) "was declared fully literate.'' The fact is that only one small district claims to have close to 90 percent literacy rate, while the overall literacy rate for the entire state is below 75 percent.

A UN General Assembly resolution adopted in 2003 on the ``International Plan of Action for the Decade'' called for policy changes at national levels to link literacy promotion with strategies for poverty reduction, health care and other important social goals. It also emphasized the need for flexible programs, capacity building, research, community participation and monitoring. While all these are essential ingredients for success in the fight against illiteracy, it isn't clear how the new policy will be implemented.

The starting point for any realistic program is a clear understanding of the present state of affairs. With nearly two- thirds of the people in the world living in rural areas, it is rural schools that are most important in the literacy effort. Unfortunately, most rural schools in practically every developing country are of substandard quality.

Quality education is hardly ever associated with the poor; it is only for those who can afford it. Bright, motivated children are lost by their early years of schooling in an unchallenging environment. Yet they will be the literate adults of tomorrow.In a country like India, most rural schools are government- run, and only a few offer anything resembling quality education. On any given day, many primary schools are short teachers, and students from a couple of grades are combined into a single room for classes. Most teachers aren't properly trained and have very little motivation or commitment to the profession. Illiterate families in rural communities aren't involved in the education of their children, and only a minority of parents send their children to middle school. The education children receive in rural primary schools hardly prepares them for further study, employment, or effective community participation. Yet, they are classified as literate.

To compound the problems caused by a scarcity of good teachers, there are many other difficulties to overcome.Children from poor families go to school hungry; a majority of them suffer from malnutrition. A significant number are regularly sick. They don't receive periodic vision or hearing checkups. Many schools don't have toilets that offer sufficient privacy, discouraging girls from attending classes for the entire day. Most classrooms are unventilated and overcrowded, roofs leak on rainy days, books and paper are in short supply, and blackboards are nonexistent or worn out.

It is hard to see how even a good teacher can be motivated under these circumstances. Every rural school can perform well if it has committed teachers and at least the minimum in facilities. For quality education, the investment priority should be for trained teachers, not in pushing expensive high-tech tools on rural institutions in the name of bridging the "digital divide.''

All the gadgetry in the world can't equal the impact that a skilled and dedicated teacher has on a child, even in the most rural setting. Until the policy focus turns to attracting college graduates to the teaching and to rural government schools, we can't expect a real improvement in children's education.

Significant reduction in illiteracy, as currently defined, may be possible within the next decade or two. But the real question to be answered is this: Is literacy an adequate goal for the poor?The goal should be to ensure that all children receive a good education -- from grade school until high school -- in a motivating environment. Without proper education, as opposed to literacy, today's children may not have a future in an increasingly competitive global market.

Visit us at www.indiauntouched.com and www.tgfworld.org

Land Equation: Breaking the Cycle of Poverty

Of the 6 billion people presently living on our plant, over 60 percent or 3.5 to 4 billion are in rural areas. In India alone, nearly 700 million people live in the villages. The rural population is increasing at a faster pace than their urban counterpart, mostly as a result of illiteracy, lack of access to birth control measures, and poverty. The pace of overall development in most countries does not keep up with the needs of this increasing population. The result is that there are more poor people in the world today than 50 years ago, and most live in rural areas.

According to the U.N. and the World Bank, nearly 35 percent of the world population subsists on less than $1 in daily income. Over 50 percent live under $2 per day. Depending on which of these two yardsticks is used for measuring poverty, there are 2 to 3 billion poor people in the world — a staggering number by any account. Poverty in India closely reflects these world statistics.

Billions of dollars have been expended over the past half a century by governments, international agencies, and donors to address the problem of poverty. For example, in rural India, government programs focus on subsidies (for electricity, fertilizer, and so on), food rations, price support, land allocation/distribution, job training, and financial assistance for initiatives in agriculture and small business. Loans from the World Bank and other international agencies, bilateral assistance, and donor funds supplement domestic government resources. But who has really benefited from all these programs and assistance?

In a country like India, the direct beneficiaries of these programs are the corrupt officials who manage/distribute the funds, and the landlords and powerbrokers in the villages who have the ability to extract the benefits. Over 90 percent of the agricultural land is owned and cultivated by less than 5 percent of the rural population. In most villages, almost all the cultivable land is owned by a handful of people, and the remaining land is owned by the government and by the poor. The poor are unable to use their land for agriculture for lack of water resources, poor soil conditions, and unavailability of credit. Hence, they do not stand to gain directly from any of the government programs.

A small number of people, mostly the village officials/leaders and their family members, operate the few small businesses in the villages. They are the only ones in the village who have the necessary support mechanism, knowledge, and skills to make a business succeed. The great majority of the poor — some 60-70 percent of the rural population — do not have the ability to start or own businesses. They are uneducated and serve as labor for landowners and the few nearby businesses, when their services are needed. Hopefully, if and when these landlords and small businesses prosper, the rural poor may also benefit from its trickle down effects.

Most poverty eradication programs run by NGOs and supported by the government and/or donor funds do not directly target the rural poor. For example, contrary to the widely held belief, the beneficiaries of micro-credit (loans of $100 or so to each entrepreneur) are not the poorest among the population. The rural poor — over 50 percent of the village population – are not even targeted by these projects for obvious reasons: they simply do not have the ability to run a business. Yet, many make the claim that more than 90 percent of the people who receive micro-credit are really poor, that they succeed in their businesses, and that they repay the loan at 15 percent annual interest or higher. If that were the case, micro-credit funding would be a better investment than those in any of the world financial markets!

Similarly, many of the projects funded by private donors do not directly impact the rural poor. This is not to say that these projects are worthless or ineffective. For example, assistance in channeling river/canal water for irrigation, rain water harvesting, preparation of compost and bio-gas, and similar initiatives help a small number of landowners and businesses to improve their productivity. But those in the poor labor class can only hope that they will somehow benefit when the landlords succeed.

There is no doubt that better rural infrastructure, elimination of controls on the sale of agricultural produce, and assistance in finding new markets will attract many businesses to the rural sector and help create new employment opportunities. These measures will also improve the demand for produce and help farmers enjoy higher prices. With more economic activity, the poor labor class might gain employment at better wages. But none of these actions will be sufficient (or happen fast enough) to alleviate poverty.

There are no easy answers. The real solution lies in the ownership and use of a permanent income generating asset by the poor: land. The poor people must be given the opportunity to own and develop land and gain the skills and capabilities necessary for cultivating high-value crops. They must learn modern farming techniques, and to package and market their produce. Handouts won’t do either; training and handholding will. Imagine a country like India’s export potential for agricultural produce, processed and packaged properly, for world markets!

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End of Poverty in Developing Countries

In Time magazine's cover story last March entitled "The End of Poverty,'' Professor Jeffrey Sachs of Columbia University in New York describes eloquently his vision of how to eradicate poverty, hunger and disease.

Sachs, a key adviser to the United Nations and the World Bank, suggests that the use of appropriate technologies and efforts to boost agriculture and investments in education, health care and electricity could dramatically reduce poverty in a short time.

The thrust of his argument is that with more money, poverty can be alleviated. The international donor community, urges Sachs, should invest in rural areas of poor nations. Farmers in those countries must get a helping hand to improve their crop output, and medical facilities must be stocked with vaccines and antibiotics to fight epidemics, he says. The costs of action for donors are a tiny fraction of the costs of inaction, Sachs says, and these tasks must be carried out even in the face of global inertia, war, prejudice and skepticism around the world about money wasted in the past.

No doubt these are very worthwhile goals. Unfortunately, Sachs's prescription doesn't deal with the central problem. The important questions are, who will get the job done, and how?
Sachs argues that poor governance isn't a major reason for poverty. The presumption is that with more money, corrupt and inefficient governments and bureaucratic institutions will somehow deliver the goods.

Maybe he should be reminded of what the late prime minister of India, Rajiv Gandhi, once admitted: Less than 15 cents of every dollar in assistance to the poor finally gets to the intended beneficiaries.

Sure, more money would help. Yet with population increasing in developing countries at an annual rate of more than 2 percent, much of the additional funds that might become available will barely meet the increasing need.

With over two-thirds of the world's population living in villages, rural poverty is of paramount concern. Many of the rural poor are from socially deprived communities; they are illiterate and untrained. Without sufficient skills, social status and economic power, most of the poor are unable to do any business on their own, even with financial assistance.

It is farming that can give the rural poor an opportunity to better their lives. Farming is what villagers have a natural affinity for, and it is an industry where large numbers of people can be employed. The goal should be to help them acquire land that can be developed and irrigated, grow high-value crops, and sell their produce in a competitive market.

With financial incentives such as low-interest loans and tax breaks, private companies can be motivated to build factories in rural areas, especially for food processing and packaging, thereby assuring a steady demand for the produce as well as generating additional employment. Rural areas are ideally suited for other industries, such as herbal products, cement and tile, lumber and pulp, meat, dairy and poultry. These businesses offer job opportunities for those in villages who would otherwise migrate to cities for employment.

There is no shortage of ideas to solve poverty. What is lacking is good planning and execution. Poor governance has blocked honest efforts to improve the lives of the poor. Corruption, political influence on credit, land allocations and other related decisions, diffused focus and priority, poor execution, shortage of rural infrastructure, social inequality and a host of other factors are impediments to a successful outcome.

My own experience of working in the villages of Tamil Nadu and Karnataka states in India for the last 10 years has made me conscious of the obstacles to change. The issue isn't simply one of badly executed government projects; participating with government on projects is no easy task. After many years of trying to get officials to fix a seven- kilometer (4.3-mile) stretch of public road leading to our projects that had become unnavigable, our foundation (visit www.tgfworld.org) recently decided to contribute 25 percent of the cost of improving it if the government would come up with the balance.

Though there was an explicit understanding with the government that we would manage the project, the process of dispersing the money allowed the officials to insist that funds be set aside for government "supervision.'' The result was that, even with our objections, nearly a third of the overall budgeted expenditure for construction was used in bribes.

Nevertheless, we were comforted by knowing that usually at least a half of construction funds are wasted in illegal payments. We were able to build a superior road that has now lasted more than three years without any serious deterioration.

In most developing countries, poverty-eradication programs are government funded and managed initiatives. International organizations, such as the World Bank and the UN, channel practically all their aid through governments. Non-governmental organizations rely on government and donor funding, and hence, they must remain within set developmental models prescribed to them.

The private sector, on the other hand, hasn't yet found it financially attractive to be directly involved in such efforts, except for selling their products and services through the government. The outcome of this approach has been far from adequate. How do we then solve the problem? There is no simple answer.

To start with, there must be a genuine recognition that many of the present development models that have been in place for several decades won't produce the required results. New and innovative approaches must be tried.

Part of the answer may lie in the unchallenged assumption about government's rightful role in poverty eradication. As long as governments control the flow of developmental funds and manage projects, it won't be possible to achieve the desired outcome.

The time has come to test a new model wherein the government's role is that of being a catalyst for change, instead of being the manager or implementer of change. There should be less room for bribes and more incentives for private participation in developmental projects that directly impact the poor. Only those who assume risks are likely to perform well.

The solution doesn't lie in more money spent by governments at will. Those who still believe that government is the only effective agent to care for the poor are urged to spend real time with those outside the government working for the poor. Only with a fundamental change in approach can we begin to expect an end to poverty, as Sachs would like us to believe is possible.
Until the world embraces a new model to tackle poverty, today's corrupt governments and inefficient bureaucracies offer no real hope.

Visit our web site www.indiauntouched.com and www.tgfworld.org

Coping With Health Care in Developing Countries

Dec. 20 (Bloomberg News) -- With all the attention focused on deadly infectious diseases, a far bigger challenge in developing nations is posed by a lack of basic health care.

The World Health Organization (WHO) lists the top 10 preventable health risks as childhood and maternal underweight; unsafe sex; high blood pressure; tobacco; alcohol; unsafe water; sanitation and hygiene; high cholesterol; indoor smoke from solid fuels; iron deficiency and obesity.

These risks account for about 40 percent of the 56 million preventable deaths that occur worldwide annually, accordingly to WHO. In most developing countries, the number of new cases related to many of these health risks has increased over time, partly due to rising populations.

Beyond infectious diseases, the main cause of ill health is malnutrition. Poverty, hunger and malnutrition are interrelated silent realities for a majority of people in developing countries.
In India alone, more than half the children under the age of four suffer from malnutrition, 30 percent of the newborns are significantly underweight, and 60 percent of women are anemic. A recent World Bank report shows that malnutrition costs India at least $10 billion annually in terms of lost productivity, illness and death and is seriously retarding improvements in human development. Similar situations prevail in many other Asian countries and most of Africa.

Reasons for Apathy

In the face of these appalling statistics, why hasn't there been a major outcry among health authorities and the public in general? Part of the answer probably lies in the fact that primary health care, and in particular public health, is viewed as a complicated and ``non-glamorous'' area that requires sustaining efforts but does not offer sufficient visibility. Further, most of the common ailments are perceived to be local and not likely to cross borders.

The task of dealing with common illnesses and ill health, especially among the poor in rural areas where a majority of people live, is left entirely to governments. Unfortunately, successive governments in most developing countries have failed to do an effective job.

Huge Bureaucracy

For example, during the past half a century India has built up a vast infrastructure of public health services, managed by a huge bureaucracy with little oversight. But the government spends hardly 1 percent of gross domestic product on health services, and its Primary Health Centers (PHCs) are expected to serve the 700 million or so people living in rural areas.

Inadequate infrastructure, too few physicians, absence of drugs, and lack of accountability have turned PHCs into ineffective institutions. International organizations that provide much of the external funding believe that a targeted approach to addressing some of the top health concerns can be successful, without worrying much about the institutions that actually deliver primary health care.

Solutions

What can be done to significantly improve the health conditions of a majority of people in the world who cannot afford quality private health care? The simple answer is to improve the primary health-care system in poor countries.

Primary health-care institutions are the backbone of the health system in the villages and where patients initially come for their health needs. It is the first, and sometimes only, line of intervention against frequent health problems such as viral infections, gastrointestinal disorders, and contagious diseases. It is also where early detection of almost all infectious diseases is possible.

But most government-run primary health institutions are poorly managed in practically every developing country, and they usually do not maintain proper records of patients' health history. Patient records are all the more important when dealing with an uneducated rural population that does not have a good understanding of health risks.

Recognizing this need, our foundation runs a rural hospital in south India that keeps up-to-date computerized health records of practically the entire population of 17 villages served by its outreach programs. Armed with proper information, our health workers are able to intervene effectively without wasting unnecessary time and effort.

We have found that quality health-care delivery is possible at reasonable costs with good information and effective management. Governments also need to recognize that major improvements in rural health delivery are possible without substantial increases in public fund allocations, but only if they would embrace major changes.

Public-Private Partnership

While the private sector is relied upon for economic development, the delivery of basic services, such as education and health care for the poor, still remains a monopoly of the government. This has been the case because rural populations in developing countries are unable to pay for the services. Until rural incomes rise, a significant portion of health-care costs must be borne by the state from public funds.

But lack of affordability alone should not prohibit the involvement of the private sector. Opportunities exist for public-private partnership in a competitive environment. Private institutions may deliver their services at a profit but at reduced prices, subsidized or even fully paid for by the government. Similarly, the government may make available products, such as drugs, for free or at significantly low costs to private providers who serve the poor.

There is no shortage of ideas to improve the quality of health-care delivery, while ensuring access for everyone regardless of income. But only with a global commitment to improving primary health care can the present health crisis faced by developing countries be effectively addressed.

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India in Search of its New Identity

A few months back (September 2005), I participated in a one-hour debate in Delhi over BBC radio on "Who runs your world?" This debate was more notable for what it was not than for what it was. I had expected the panelists to discuss the evolving roles of various institutions, including the government, in a global economy, and how they affect our lives. Instead, from the very start, the debate turned mostly to India's emerging power in the world, and predictions about what can be expected in the coming years.

In the interest of not offending anyone personally, let me indicate only the official positions held by the other panelists: a cabinet minister in the central government, a president of a major industry association, a co-founder of a pharmaceutical company, a head of a government-run cultural organization, and a prominent academician associated with an economic research institute (funded by government).

The discussion started with the president of the industry association claiming that the next decade is India's, and that the question is not whether India will be a superpower, but how soon. He cited many national statistics, including the rate of growth in GDP, and talked about India's thrust in research and innovation that has led to the recent "discovery of two molecules" by Indian scientists. The economist dismissed corruption in India as not worthy of discussion, as almost every developing country has varying degrees of poor governance. The head of the cultural institute trumpeted India's democratic system as an example for the rest of the world, and highlighted its importance in India’s emerging position as a superpower.

The union cabinet minister opened his remarks with politically correct statements, and expressed his concern for the rural sector that depends mostly on agriculture. He assured everyone that the government was allocating large funds to rural areas through employment schemes. When a member of the audience in the debate hall (an NRI residing in the U.S.) expressed her unhappiness with the difficulties faced by the public because of poor governance, the minister retaliated by pointing out that she was probably not a good “ambassador” for India abroad. The minister went on to praise the country’s ancient culture and traditions, and pointed out that neither the British rule nor the "free" foreign press in India, led by Rupert Murdoch of Star TV and the BBC, was able to impact it. Judging from the applause of the audience, most attendees were very pleased at those remarks.

It is probably understandable that the nation is hungering for success after several decades of poor economic performance. Indians want to be respected for their recent achievements, and look forward to being recognized as a leading economic and military power. The tone of this BBC debate and the numerous articles with similar viewpoints authored by Indians that now appear almost daily in the media confirm my suspicion that all this talk is leading the debate in the wrong direction.

A well known Indian journalist recently argued in his opinion column that the U.S. is in a decline, and India will soon gain its rightful role on the world stage. He even cited the increasing non-white population in America as a reason for a likely future tilt in public opinion in America in favor of India.

It appears that the participants in the so-called "national debate" are mostly the beneficiaries of the recent economic expansion--those who work in the information technology sector and the major industries operating in urban areas. Many of them seem to be unaware or unconcerned about the predicament of the great majority of the nation's population, especially the 700 million people who live in the villages. The country has no less than 600 million people whose daily income is less than $1 per person, the international definition for poverty level. The assumption is that the poor will one day benefit from the trickle-down effects of a growing urban economy. Therefore, those in power--both financially and politically--feel no need to address their plight directly.

What is equally disturbing is the apparent arrogance among many who elevate themselves by talking down other nations. The argument about the decline of the West is such an example. Instead of trying to learn what has made America, Europe and Japan succeed in the last century, the Indian media is busy playing to the national pride.

I don't share these narrow views. For example, the demographic argument that non-whites will have greater influence and loyalty to India is misguided. America has always been multi-ethnic and multi-cultural, and while color has been a cause of discrimination in the past, it is still ideas, innovation and risk-taking that have assured the country’s progress. Individual freedom has enabled the country to correct itself, even when national leaders have swayed the pendulum too much in one direction or the other. America's strength lies in its diversity and the tolerance for new ideas, and it will be a mistake to underestimate that power.

The danger India faces is one that arises from overestimating the impact of its recent economic success, which is, by the way, demand driven from the West. A little bit of humility and a realistic understanding of the power of ideas that makes the world what it is not only today, but in the future, would help a great deal. All this talk about India's culture and traditions as superior to those of other nations gets a little stale. What really counts is what we are today as a people, the values we share with others, and what we leave behind for our children and grandchildren.

Instead of talking down to others and trying to elevate oneself, why don't we focus our attention to improving the lives of all our people, in a fair and just society, with equal opportunity for everyone? We need to think beyond our own self-–nationally and internationally--and learn to work in a global economy where other nations have their strengths and weaknesses. Let us not rejoice at their failures and at our small successes.

There is already too much talk of India becoming a "superpower." What kind of superpower? What happens then?

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