Slum Improvement in India: A Method to Monitor and Refocus Slum
Robert M. Buckley,
and Jerry Kalarickal
India’s 10th Five Year Plan
noted that the urban slum population is
growing despite sharp reductions in poverty and rising incomes. The
central and several state governments recognized the need for
intervention by initiating, or enlarging existing urban housing and
other slum subsidy programs. With this in mind, the Government of India
(GOI) has requested a loan from the World Bank to implement a more
effective strategy and delivery mechanism for the financing of urban
slum improvement and sanitation provision in underserved areas.
In order to
support the GOI to achieve the goals delineated in 10th Five-year
Development Plan concerning slum improvement and poverty alleviation in
urban areas, the Bank has agreed to consider a program that will focus
on (a) refining the national policy framework for the upgrading of urban
slums and sanitation in underserved areas in India; (b) working with the
states and various beneficiaries to establish a methodology which
measures program performance of both the GOI and the states, and
identifies concrete monitorable steps that can be taken to improve this
performance; (c) developing appropriate monitoring mechanisms to enable
the evaluation and modification or redesign of the programs which would
improve the transparency, efficiency, administrative simplicity, and
targeting of the assistance; and (d) developing funding schemes for slum
improvement and sanitation that could provide incentives so that
resources are used more effectively and the program reach expanded. In
doing so, the program will: (i) contribute to poverty alleviation in the
poorest urban areas in India; (ii) strengthen human capital in poor
neighborhoods by increasing community participation in planning,
delivery and maintenance of public works and services; (iii) improve the
efficacy of the use of more than $400 million of annual government
expenditures on these programs.
This paper is the
first joint GOI-World Bank attempt to examine the existing housing and
sanitation programs with a view to developing a framework for evaluating
them. Data was collected for four Housing Subsidy programs and two
Sanitation programs from a series of conversations with government
officials in concerned ministries at both the federal and the
state government levels and from Government of India documents.
The structure of the paper is as follows.
First, the caveats to the analysis are spelled out. The next section
presents the necessary background. Then section III briefly describes
the five programs evaluated. Section IV examines how each of these
programs measures up against the evaluative criteria. Section V
presents the conclusions while section VI outlines the way forward.
Caveats to the Analysis
Among the existing housing programs, three federal
programs and two state level programs were examined. Two of the
national programs – the Valmiki Ambedkar Awaaz Yojana (VAMBAY) and the
National Slum Dwellers Program (NSDP) – are run in conjunction with the
states and are primarily urban programs.
The third national program, the Indira Awaas Yojana, is a rural housing
program. The state level programs are Karnataka’s Urban Ashraya Housing
Program and Kerala’s Mythri Housing Scheme. Finally, a new program that
the Kerala government is considering- the Bhavanashree program- is also
appraised. This last program was included because its’ program design
addresses some of the concerns that the paper shares about existing
programs. However, since this program is still in its design phase, the
analysis of this program in this paper should only be considered as an
appraisal and should not be read as an evaluation.
Apart from the housing programs, a couple of
slum sanitation initiatives – the Pune Sanitation Project and the
national level Nirmal Bharat Abhiyan – are also examined. These
sanitation programs were included because they are integral to any slum
upgrading program. Furthermore, there are design elements in this
program that are worthy of emulation in all slum upgrading programs.
Since this is an informal study of a few
selected programs, a necessary caveat that there might be inaccuracies
in the specific details of the programs also has to be added. The paper
has tried to minimize these errors but a major part of it has focused on
ensuring that the general characteristics of these programs are as
accurate as can be. The inaccuracies that might have crept in also
point to the need for better data about the urban poor in India as well
as the housing subsidy programs, a case that the paper makes during the
course of this paper.
GOI’s policies on slums have undergone a
paradigm shift in recent years. In the 1970s and early
1980s, the government emphasized the notion
of ‘slum free cities’. What this often meant was forced or voluntary
resettlement of slums in central cities. However, over time, the
weaknesses of such a program became evident. Firstly, the slum dwellers
who were being resettled were fully integrated in the economies of the
cities. They were economic agents adding to crucial economic output.
Resettling them would have adverse economic consequences. Secondly,
removing slums from central cities and transportation nodes often meant
that the new settlements on the outskirts of the city were far from
jobs, thus further worsening the welfare of slum dwellers. With this
realization, the government started focusing on slum upgrading and
slum rehabilitation programs. In the initial years of slum upgrading,
the focus was on providing infrastructure to the slums through the NSDP.
Now there is increased stress on provision of shelter to urban slum
dwellers through VAMBAY.
India’s new focus
on economic liberalization and on decentralization has posed significant
additional challenges to urban development in the country over the last
decade. In particular, the country’s thrust on decentralization under
the 74th Constitutional Amendment Act has led to a new emphasis on
improved urban governance and management with a view to increasing
cities’ efficiency and reducing urban poverty. This is a major
challenge for a country with some 433 million people living on less than
US$1 a day, 36% of the total number of poor in the world. India also has
some 20% of the world's out-of-school children. Out of the 290 million
(28% of the population) that live in urban areas, 62 million live in
slums. This represents over 21% of the urban population in India.
These urban poor suffer disproportionately from adverse health impacts
linked to lack of proper shelter and basic services, in particular
sanitation. Conditions are particularly adverse in India's largest
cities, as the top mega-cities in India (Mumbai, Delhi, Kolkata,
Chennai, Bangalore, and Hyderabad) house 18% of the total slum
population in the country.
This emphasis on
improved urban governance takes a new dimension, as the urban sector
increasingly becomes an important driver of economic growth. Urban
centers contribute more than 60% of the country’s Gross Domestic Product
(GDP), which highlights their role in achieving national economic growth
targets. In this context, urban infrastructure has a prominent role in
the GOI’s Tenth Five-Year Development Plan (2002-07). It aims to
improve urban infrastructure as critical to growth and poverty
alleviation through decentralized urban local governments with
strengthened capacity to deliver services. The GOI has estimated that
the country needs to reach an economic growth rate of at least 8% in
order to significantly reduce the incidence of poverty. For the first
time, the Ministry of Urban Development and Poverty Alleviation (MUDPA)
has designed a comprehensive Urban Development Strategy focusing on
fiscal, financial, and institutional changes. As a cornerstone of the
urban strategy, the MUDPA has introduced the Urban Reform Incentive Fund
(URIF) in 2002. Through financial incentives from this centrally funded
scheme, GOI encourages systemic reforms at the State level.
Simultaneously, GOI has set up the City Challenge Fund (CCF) to promote
reforms in citywide governance and service delivery.
progress, the sheer volume of resources required to address the needs of
the urban poor threatens the sustainability of current efforts. Unless
a sustainable framework for financing urban slum improvement is
implemented, successful scaling up of these initiatives would be
difficult to undertake; and without successful large-scale poverty
reduction in India, it would be impossible to achieve the Millennium
Development Goals. This program is well suited to support the GOI in the
pursuit of large-scale poverty reduction in a sustainable manner.
Selected Government of India Programs for the Urban and Rural Poor
allocations for 2001-02 in Rupees millions
Housing and Slum Improvement Programs
Ambedkar Awas Yojana
(VAMBAY), introduced in 2001, focuses on shelter for the urban
poor, with 20 percent of total allocation for community
sanitation facilities under the Nirmal Bharat Abhiyan (NBA)
launched in 1985 as sub-scheme of JRY, was made into an
independent scheme in 1996. It provides full grants to the
rural poor for construction of their houses.
Slum Development Program (NSDP), launched in 1996, provides funds for physical and community
infrastructure as well as shelter upgrading to. It uses the
community structures developed first under UBSP, and later under
Water Supply and Sanitation
Urban Water Supply Project
(AUWSP) is not strictly for the poor, but provides
funding for water related infrastructure in small towns with
less than 20,000 in population. GOI started this program in
Rural Water Supply Program
(ARWSP) provides finance for RWS schemes on a need basis.
Within ARWSP, 20 percent of the funds are reserved under the
Sector Reform Program (SRP) for those States that are willing to
adopt key sector reforms related to cost recovery and community
Cost Sanitation (LCS).
initiated this program in 1980 and it aims at liberation of
scavengers through subsidies for conversions of dry latrines
into low cost pour flush latrines.
Sanitation Campaign (TSC),
introduced in 1999, restructures the previous supply-driven
Community Rural sanitation program (CRSP). It puts greater
emphasis on demand generation and awareness with a significant
reduction in the subsidy.
Annual Report MUDPA, 2001-02, Annual Plan, Planning Commission, 2001-02
and Annual Report MRD 2001-02.
Adapted from World
Bank Urban Strategy for India, 2002.
Table 1 shows that rural
housing-related subsidy programs receive more than six times the public
resources devoted to similar urban programs even though the rural poor
outnumber their urban counterparts by less than three to one, 197 versus
67 million respectively. Consequently, on a per capita basis, the rural
poor receive almost twice as much housing assistance as the urban poor.
This difference in allocation does raise questions about how public
expenditures are determined.
Table 2 lays out the essential
characteristics of the five housing programs considered here. For a
detailed description of each program, please refer to Appendix 1.
Comparison of Housing and Slum Dweller Programs
For special category states, the
amount is given as 90% grant and 10% loan.
development of one slum in each city as a “model slum” in the
case of Karnataka
10% of NSDP funds can
be used for housing construction and/or upgradation (the rest
should be used for physical and social infrastructure).
Housing provided on
loan (Rs. 50,000); amenities free of cost
50% Central subsidy
50% matching funds
From GOI routed
80% of total amount
received from GOI spent on housing of which:
50% given as subsidy
50% as loan.
20% to be invested in
the provision of water supply and sanitation (toilets) within
the assisted slums
80% federal grant
20% state grant
Rs. 20000 in housing
grants (Rs. 22000 in hilly and difficult areas) for housing
The amount to be used
for construction of sanitation facilities and ‘clean’ cooking
Infrastructure to be
provided by the implementing agency.
GOK takes loans from
Housing loans ranging
from Rs. 25,000 to 40,000 provided per the size of city,
excluding Rs. 5,000 upfront deposit
Gov. of Kerala takes
loans from HUDCO
Total subsidy Rs.
28000 of which 19000 in loans at 5.5 % interest rates (HUDCO
interest rates of 13.5%) and cash grant of Rs. 9000.
contribution of Rs. 2000
From various financial
Loans between Rs.
30000/- to Rs. 40000/-
No subsidy in loan
interest rates (between 7% to 8% interest rates).
Sources: KSCB and RGRHCL,
Bangalore, March 2003 and KSHB and Kudumbhashree, Trivandrum, January
2004. Ministry of Rural Development website.
Evaluation of Subsidy Programs
Five criteria were used in the analysis of these programs: Targeting,
Efficiency, Transparency, Administrative Simplicity and Sustainability.
In the absence of highly specific data, the paper undertakes a
discursive analysis of the components of these programs. Rather than
viewing this discursive analysis as a weakness, it is in many respects a
strength. It is fully in the spirit of the way the World Bank
undertakes ex-post evaluations of its projects – assigning a level of
performance based as much as possible on quantitative measures.
It is also consistent with the approach taken by, for instance, the
European Bank for Reconstruction and Development in its evaluation of
the many dimensions of reform in the former socialist economies.
Moreover, this approach not only sheds light on the strengths and
weaknesses of these programs, but it also requires policy-makers to
consider explicitly how and why they believe a program performs against
a specific standard.
the programs are rated on the five criteria on a scale of 1
to 4 in increasing order of excellence. A program that rates poorly
gets a score of 1 while a program that satisfies all the concerns under
a specific criteria gets a score of four. While some of these programs
can be vastly improved by some small changes in the program structure,
other programs need wholesale reform in the way they are designed. A
detailed discussion on each of these measures is presented in Appendix 2.
shows that the four housing programs have an average rating between poor
and fair (an aggregate score of less than 10). In contrast, both the
sanitation programs examined are rated higher with scores of 12.5 and
13.5. For a full analysis of each rating given, please refer to
Rating of Housing and Sanitation Programs
*The targeting rating
is the average of the ratings each program got for each of the three
targeting components. See Table 2.
(Key: 4 – Excellent, 3 – Good, 2 –
Fair, 1 – Poor)
The twin sanitation programs rate better
than the low-income housing programs. The most notable improvement of
these sanitation programs are better targeting through greater community
participation and better efficiency through the institution of user
fees. However, there is much room for improvement in the sanitation
programs. The capital costs in both programs are either fully or very
heavily subsidized. Given the demand for sanitation facilities in
India, it might be more sustainable and more efficient to include a
beneficiary contribution element to the funding of capital costs. This
will necessitate that the local government work with CBOs in designing
and building these programs. Such collaboration will not only ensure
that these programs are more sustainable but also improve consumption
On the positive side, most of the programs
studied appear to favor cash grants and loans to in-kind subsidies.
This is a big improvement from the days when most developing countries
(and even some developed countries) had large and expensive public
housing programs. Cash grants increase consumption efficiency because
they are more likely than in-kind grants to be valued at the cost of the
However, the overall picture that emerges
when these program are examined is not an optimistic one. Figure 1
provides a visual perspective on how these programs rate and how far
they will have to travel if they are to become ‘excellent’ programs.
The five housing programs that are underway have an average rating
between poor and fair. Each of the five Indian housing programs that
were evaluated got an aggregate score of 10 or less than 10. In
contrast, both the sanitation programs examined here are rated higher
with scores of 12.5 and 13.5 because they had better targeting
mechanisms and greater community participation.
Rating of Various Subsidy Programs
(Key: 4 – Excellent, 3 – Good, 2 – Fair,
1 – Poor)
Each of the programs show room for better
design and implementation in each of the criteria that is used. In
order to continue developing a housing policy framework it is important
that existing programs are reassessed to understand the scope for better
targeting and more efficient, transparent, and “user friendly” programs
that the government can then scale up. Several points have emerged for
consideration and further validation:
Insufficient Resources: Current
government allocations for urban slum programs cannot achieve a
significant reduction in the numbers living in sub-standard housing
unless further contributions from beneficiaries, local governments or
the private sector can be mobilized. According to the Government of
India, current programs result in less than 100,000 new units a year.
Since there are approximately 12 million households dwelling in slums,
this funding covers less than 1 percent of the need for better shelter.
Leverage is essential if conditions in slums are to be measurably
improved. Given the relatively high cost of housing even for the poor,
there is ample evidence that contributions from beneficiaries can be a
part of this leverage. For example, in the Sanitation Program in Pune
and in the Nirmal Bharat Abhiyan, by moving the responsibility of
maintenance to the beneficiaries and by levying user charges, the fiscal
burden on the state is reduced drastically. In the long run, the
capital costs are only a small percentage of the total cost building and
maintaining better sanitation facilities. Beneficiary participation
makes such programs feasible and allows increasing the coverage of the
programs. Such a move will also have beneficiary effects on targeting
by reducing the probability of manipulation by interested parties as
well as increase efficiency by reducing the per-unit subsidies.
High per-unit subsidy rates: Subsidy
rates ranging between 80 to 90 percent of total cost of housing (see
Annex 4) are very high. It is very probable that the government can
achieve the same housing objectives with far less direct outlay. By
eliminating the unbudgeted subsidies embodied in free land and loan
defaults, the scope of slum programs might be increased three to
Increase Administrative Simplicity:
Reducing the subsidy element in central schemes offers scope for
administrative simplification, thus improving effective targeting to
poorer states with weak capacity to make use of these programs.
Reducing reliance on supply-driven design:
Such a move increases beneficiary satisfaction and increases
efficiency. This means that using the kind of self-help groups used by
the Kudumbhashree program in Kerala might be useful not only in
furthering the shelter solutions but also in other aspects of poverty
Mobilize alternative mechanisms for
beneficiary contributions: Many of the current programs try to
increase beneficiary contributions by having a loan component as part of
a housing subsidy program. Even when these loans are not heavily
subsidized through lower than market interest rates, the very poor
repayment performance functions as a hidden subsidy. This has
undesirable side effects on the viability of state finances and central
funding agencies. Therefore, alternatives for mobilizing beneficiary
contributions are urgently needed.
Prioritised and Demand-driven Programs:
In all slum related schemes, specific projects will have to be
identified by municipalities in consultation with slum dwellers and
given priority. This will ensure that only viable projects are taken up
and that community participation is forthcoming. As argued earlier,
community participation often optimizes resource use. Furthermore, it
might be important to prioritize various projects on set criteria due to
the constraint on resources.
Land Monitoring and Control: Very
often, slums develop on public land. The governmental
regulatory/enforcement mechanism that governs these lands has to be
strengthened. For instance, as a policy, the concerned department (on
whose land the slum has come up) should have to take stock of the land
afresh and take care of rehabilitation of the slum dwellers on their own
because it was the poor enforcement mechanisms of the department that
resulted in the slum. This would trigger a debate on the issues such as
land management, land-holdings as per requirements, inventory costs and
more importantly, exploring the possibilities for allocating some land
for rehabilitation of slum dwellers. Moreover, it might force the
department to retrieve parts of the unused land which could then be
commercially exploited to finance the slum rehabilitation programs.
The paper recommends further exploration of
these issues, re-examination of state and central programs in light of
these tentative findings, and consideration of alternative approaches
being used in India and in other developing countries. Governments can
increase the number of urban poor substantially helped by these programs
at the current level of expenditure—if reforms of these programs are
The Way Forward
This paper provides a basis for discussions
between the World Bank and the Government of India regarding future
World Bank assistance and policy work in this sector, and demonstrates
the losses likely to be sustained by the sector in the absence of
reforms. The Bank stands ready to support the GOI’s efforts
to improve the lives of the poor and proposes
to immediately start the studies above in preparation of the World Bank
funded Urban Upgrading and National Sanitation Program.
a series of studies and preparatory activities for slum improvement
strategies. To do this, a methodology similar to the one
described in this paper should be agreed upon in consultation with the
MoUDPA and the state government to evaluate the various slum upgrading
programs. Furthermore, concrete monitorable steps should also be agreed
upon to improve the performance of these projects.
appropriate monitoring mechanisms that allow concerned parties to
evaluate, modify and/or redesign these programs to improve efficiency,
transparency, targeting and administrative simplicity.
funding schemes for slum improvement and sanitation that provide
incentives to use resources more effectively as well as to expand the
reach and coverage of these programs.
the national resource Cell at the MoUDPA so that it can assume its role
as repository of information for policy making. This cell should be
supported by a research cells at the national and state levels.
GIS based urban planning systems for slum identification and management
as well as develop a database of slum dwellers, squatting areas, land
policy regulating the area, and ownership status in order to prioritize
projects. A mechanism for developing and updating this database will
have to be worked out with state and local government bodies.
mechanisms for involving public or private sector financial institutions
to enlarge the resource base for taking up various slum development
The National Slum Development Program (NSDP)
was launched in 1996. Annually, the program provides about Rs. 400
crores (Rs $ 4 billion) in assistance. The objective of the program is
slum upgrading through the provision of physical amenities, community
infrastructure, health care and social amenities. Up to 10% of the
funds can be used for housing construction/upgradation. The Planning
Commission allocates funds annually, in proportion to the share of the
national slum population in each State or Union Territories (UT). Then
the Ministry of Finance releases the funds to the States or the UT.
MOUD&PA is the Nodal Ministry responsible for monitoring and for the
implementation guidelines. Neighborhood Committees and Community
Development Societies should implement the NSDP at the local level.
Slum Development Committees, including elected representatives from ULBs,
NGOs and community-based organizations, should oversee them. The
program has both loan and subsidy components. For the larger States,
loans constitute 70% and subsidies 30% of total allocated funds. For
the smaller States, the loan component is only 10% and the subsidy 90%.
All construction is undertaken by contractors.
Valmiki Ambedkar Awas Yojana (VAMBAY),
initiated in 2001, was designed to address housing
deficits for the urban poor. It provides about Rs. 300 crores (Rs 3
billion) of annual assistance to designated state agencies who then
determine beneficiaries and monitor the implementation. The state
government must provide the beneficiaries with a title and/or land as a
pre-condition for the loan or subsidy. Its goal is to achieve ‘Cities
without Slums’ by providing or upgrading shelter for people living below
the poverty line in urban slums including members of Economically Weaker
Sections (EWS) who do not possess adequate shelter. The scheme also
addresses the lack of rudimentary toilet facilities with a National City
Sanitation Project, “Nirmal Bharat Abhiyan”. GOI mandates State
governments to use twenty percent of the total allocation under VAMBAY
for the National Sanitation Project. The rest of the scheme funding
provides matching subsidies and HUDCO loans to title holding
beneficiaries to build or upgrade a house. Funds from VAMBAY can only
be used in notified slums.
In addition, GOI does not release the funds to the state government
until they receive the States’ 50% matching fund. Very often, the state
government provides land on which to build the house. All construction
is undertaken by contractors.
Indira Awaas Yojana (IAY) was
initiated in 1986 as a part of the Rural Landless Employment Guarantee
Program after which it became part of the Jawahar Rozgar Yojana in
1989. In 1996, it took effect as an independent scheme to provide
grants for housing construction to rural residents who are below the
poverty line. A minimum of sixty percent of funds are reserved for
Scheduled Caste/Tribe (SC/ST) households. The beneficiaries are
selected by the Village Panchayats based on the list of those households
in the target area who are below the poverty line. Rs. 20000 is
provided to selected beneficiaries to build a new home or Rs. 10000 is
provided for upgrading existing houses. Selection of construction
technology, design of houses, and purchase of construction material is
left to the beneficiaries. The dwelling units are required to be in
the name of the female member of beneficiary household. The
beneficiaries are strongly encouraged to build sanitation facilities as
part of the dwelling unit. Cooking facilities (chimneys) that are
fuel-efficient and smoke-free are also required in the dwelling
facilities. For the purpose of guidance and monitoring of construction,
voluntary agencies with a good track record are encouraged to be active
in the implementation of the IAY. The Center allocates funds to the
states on the basis of the proportion of rural poor in the state to the
total rural poor in the country. Within the states, the same formula
is used to distribute funds between districts. Eighty percent of the
total funds come from the central government and twenty percent from the
Urban Ashraya Housing
Program is part of a Government of Karnataka
scheme that provides housing to those who are homeless. The scheme aims
to provide 300,000 urban units and 800,000 rural units to households
living below the poverty line. The state grants 15-year loans of Rs.
40,000 to beneficiaries in larger cities and Rs. 25,000 for those in
smaller cities. In addition, beneficiaries must make a minimum
contribution of Rs. 5,000. Since the inception of this scheme, 80,879
houses have been built in urban areas under the supervision of the Rajiv
Gandhi Rural Housing Corporation Limited (RGRHCL). The program does not
specify the design or construction of the house and beneficiaries are
given the option of building the houses themselves. The Government of
Karnataka selects beneficiaries based on a 1995 survey of
“siteless/houseless persons” and “those who has their own site but were
houseless” which is periodically updated by the municipality. Here
again, the state government provides land on which to build the house.
Mythri Housing Scheme
was the primary Government of Kerala housing scheme from 1996 to 2002.
In this period, the Kerala State Housing Board implemented the scheme
and financed over 270,000 homes under this scheme. Beneficiaries who
qualified for the program could get Rs 9000/- in capital subsidies (cash
grants) and Rs 19000/- in loans at 5.5% interest rates. The
beneficiaries had to own 1.6 cents (approximately 64 square meters) and
had to make a minimum contribution of Rs 2500/- to use the program. The
program does not specify the design or construction of the house. The
Government of Kerala selected the beneficiaries based on whether they
fit four of the nine criteria that identifies Below Poverty Line
a poverty eradication program implemented by the Kerala government,
undertook the targeting for this program.
Bhavanashree Housing Program, a new
program that is designed to be subsidy free, comes under the
highly successful Kudumbhashree program undertaken by the Kerala state
government. Under this program, ten to fifteen years loans ranging
between Rs 30000/- and Rs 40000/- are allocated to needy households.
For this purpose, the Community Development Societies have negotiated
bulk loans from financial institutions. The program gives the
beneficiaries a choice in the duration and the amount of the loan. The
interest rates range between 7% and 7.5%. The Kerala Government calls
the program a subsidy free program because of the absence of explicit
subsidies and subsidy-free interest rates (the negotiated interest rates
with Housing Financial Institutions are 7% or less). The beneficiaries
are those identified to be below the poverty line and who are members of
the CDS. Like the Mythri program, the beneficiaries have to own 1.6
cents (approximately 64 square meters) of land to qualify for the
Pune Municipality Sanitation Project:
Over the last fifty years, the Government of India has funded various
sanitation initiatives around the country. Most of these were haphazard
efforts at constructing public use toilets that over time became
dysfunctional due to poor mechanisms that oversaw maintenance and
design. Nevertheless, more recently, there have been some signs of
success. In Pune, a major sanitation initiative resulted in the
construction of 475 sanitation units, with each unit ranging between 10
to 60 seats. In total 10,000 toilet seats were provided. For a city
with a slum population of 600,000, this is a major initiative. What
makes this initiative worth closer study is the fact that while the
capital costs of Rs 40 crores (Rs 400 million) were covered by the Pune
Municipal Corporation, community based organizations (CBOs) have agreed
to be responsible for the maintenance. This addresses one of the main
causes of the failures of earlier programs. Furthermore, under this
program, a slum family is required to contribute a nominal monthly
amount for the use of the facilities. This contributes to making this
program more efficient and sustainable.
Nirmal Bharat Abhiyan: A new
National City Sanitation Project under the title of “Nirmal Bharat
Abhiyan” is an integral sub component of VAMBAY. Twenty percent
of the total allocation under VAMBAY is dedicated to the construction of
community sanitation facilities. Of this 20%, fifty percent will be in
the form of a subsidy and fifty percent as an HUDCO loan. The State
Governments/Local Bodies will be free to supplement this amount with
their own grant or subsidy as the case may be. Each toilet
block will be maintained by a group from among the slum dwellers who
will make a monthly contribution of about Rs.20 or so per family and
obtain a monthly pass or family card.
Appendix 2: Criteria for
Evaluating Subsidy Programs
Targeting: Targeting is traditionally
measured in three ways:
much of a transfer actually goes to beneficiaries, in this case poor
urban slum dwellers, as opposed to those for whom the subsidies were not
intended? In other words, how much of the expenditure can be viewed as
“leakage” from its intended target. The higher the leakage of resources
to, for instance, higher income families, the lower is the effectiveness
of targeting on this scale;
how much of the intended
audience, in this case all poor urban slum dwellers, receives a
transfer? That is, how much “coverage” of the intended audience is
allowable with the resources available; and
how much of the resources
given to the intended beneficiaries actually goes to housing
improvements? When a subsidy is for a specific and expensive good, such
as housing, the subsidy per beneficiary must be sufficient to achieve a
reasonable improvement in their housing conditions or at least enough to
leverage other resources, which together bring about a significant
change in housing consumption.
Moreover, there are many levels at which
targeting can be examined. At the national level, how are the funds
disbursed to the various states? At the state level, what criteria are
used for disbursing funds to the local governments? And finally, at the
local government level, how are the beneficiaries identified and how
much of their needs are addressed by the programs? Hence, the paper
measures how each program fares on the three levels: national, state and
local. Then it gets an average score for targeting based on the scores
for each level of targeting. Though there is a degree of subjectivity
in the scores given to the programs, the paper argues that such an
ordinal rating of programs is possible based on program design and
implementation and that such a rating sheds light on program strengths
Efficiency: All subsidy
programs should be evaluated on how well they improve the welfare of the
beneficiaries. For instance, there are four possible outcomes from a
housing subsidy program: they could increase or decrease the quantity of
housing consumed by the beneficiary; and they could increase or decrease
the cost of housing services as experienced by the beneficiary.
When economists talk about efficiency of
subsidies, they have in mind two kinds of efficiencies. Consumption
efficiency measures whether the valuation the beneficiary places on the
subsidy is equal to the cost of providing the subsidy. Production
efficiency measures how the market value of the subsidy compares to the
cost of providing the efficiency. Taking both these efficiencies in
aggregate gives us the program efficiency. Needless to say, to even get
a summary measure of these inefficiencies one needs data on the real
cost of the subsidy as well as the market price of the subsidy and the
valuation that the beneficiary places on the subsidy. It is therefore,
very hard to pin down the program efficiency in developing country
subsidy programs. However, it is relatively straightforward to make
some preliminary judgments about the efficiency of these programs.
The paper does this by looking at the per
unit subsidy: the percentage of the total cost of housing that is
provided by the subsidy. This approach is a useful first approximation
because what is known as the deadweight loss of a subsidy is directly
linked to the size of the per unit subsidy. The deadweight loss
represents the loss in resources involved with the distribution of a
subsidy or imposition of a tax. In general, it is equal to half the
subsidy rate times the responsiveness of the market participants. The
paper assumes that the price elasticity of demand for housing services
is equal to one, as found in the literature. Furthermore, it can be
assumed that the greater the participation of the beneficiaries in the
design and the implementation of the subsidy program, the higher the
probability that the beneficiary values the subsidy closer to its real
cost and lower the efficiency loss. Hence, for this measure the paper
has an imperfect but directly quantifiable measure by which these
programs can be compared.
Transparency: Transparency in this
case refers to the visibility of all costs of the subsidy in the
budget. Transparency is only possible if the actual costs of subsidies
are known. Therefore, in order to measure transparency, the real cost
of a subsidy must be first determined and how these costs are listed in
the government’s budget must be examined. The higher the share of the
subsidy budgeted, the more transparent it is. Improving the
transparency of these programs would have significant benefits, among
them better understanding of the full economic cost of providing
housing assistance, better targeting in practice and eventually less
corruption. Again, there is a direct quantitative measure of this
standard: when all subsidy costs are on public budgets, transparency
equals 100 percent and when none are, it equals zero. Of course, the
paper often has to estimate how large the unbudgeted costs are so that
the measure remains imperfect. Nevertheless, the use of such a measure
allows us to ordinally rate programs and allows for the possibility of
discussing the precise sources of these measures.
All other things being equal, subsidy design should minimize the
government’s administrative cost. For instance, targeting subsidies
carefully can reduce the need for a complicated administrative rationing
system. Similarly, incentives that align participants’ and private
sector partners’ behavior with policy objectives can reduce the need for
monitoring and enforcement costs. For instance, when subsidies are not
as deep, there are fewer payoffs for those wishing to make improper use
of the program. When programs reach a larger share of the intended
beneficiaries, there is less competition for the subsidies; and since
competition often excludes those most in need, this would be a positive
outcome. When beneficiaries are involved in the project design and
execution, they can often take a role in supervision and management of
resources, as well as proper maintenance once the project is completed.
Here this measure is based on project design. If the programs
minimizes the opportunity for interpretation and hence, manipulation by
various interested parties then it gets a lower rating than if it is
clear and succinct and provides little incentive for manipulation and
encourages beneficiary participation. Once again, the programs are
scored based on an interpretation of the strengths and weaknesses of the
program but when exact measures are impossible, such ordinal ratings are
a good starting point in program comparison and evaluation.
Sustainability: Any definition of
sustainability runs the risk of being taking out of context. Thus in
defining sustainability, it must be clear what the objective of the
definition is, and conclude what it means in a particular context. In
this particular context, sustainability refers to whether the government
can scale up the housing subsidy program (and continued) to effectively
address all the intended beneficiaries. In addition, more often than
not, sustainability will mean financial sustainability. There might be
programs that make a real difference in the housing consumption patterns
of the beneficiaries. However, if these programs provide per unit
subsidies far in excess of the financial wherewithal of the state, then
such programs would rank low on this sustainability index.
Appendix 3: Rating of
Housing and Sanitation Programs
Targeting refers to the extent to which the
programs reach the intended beneficiary as well as to scope and scale of
such benefits. Here the paper examines the success of each program at
three levels: national, state and local targeting.
National Targeting: For national
targeting, the paper rated national programs (VAMBAY, NSDP and IAY)
on their ability to target the right state according to need. GOI
program funding is based on a perceived measure of need in each state.
For both the urban programs, GOI allocated funds based on the number of
slum dwellers in a particular state. The IAY allocates funds based on
the proportion of the rural poor in each state. The design of the
programs, therefore, appears to be well targeted in terms of avoiding
leakage of benefits. However, until the latest census, the measurement
of the number of slum dwellers was often left to the state governments
who therefore had an incentive to manipulate their numbers. Moreover,
given the total number of slum dwellers/rural poor relative to the level
of resources, this targeting spreads funds very thinly, and only a
relatively small portion of those in need can be served effectively. In
effect, the targeting goal of maximum coverage conflicts with the
targeting goal of meaningful assistance to beneficiaries.
Perhaps the best illustration of this
conflict is a comparison between the use of VAMBAY resources by Kerala,
with 45,000 urban slum dwellers, and Bihar, with more than 500,000 urban
slum dwellers. In 2002, Bihar received no assistance under this program
whereas Kerala gets $113 (Rs. 5,672) per slum dweller—the highest
transfer per capita in the country. If the State, ULBs or slum dwellers
in Kerala were required to contribute to demonstrate their commitment
and to leverage GOI resources, this distribution might be appropriate.
That, however, is not the case. What has occurred is that the
administration in Bihar is so weak or uninterested that it does not take
advantage of available assistance.
A straightforward means of addressing this
conflict is to take into account the willingness of the state and local
governments as well as beneficiaries to contribute by channeling
resources to those who are prepared to shoulder a larger share of the
costs. VAMBAY does this to an extent by only disbursing funds after GOI
receives the states’ 50% matching funds and this is why the paper rates
VAMBAY higher than NSDP in national targeting. Such an approach allows
the targeting system to discriminate more effectively between those who
place a high value on assistance and those who do not. It would allow
the subsidies to leverage the resources of those who want to address
their housing concerns and were willing to share the costs. It would
also help counter the pressures to target assistance to “vote banks”
rather than to those who are most willing to sacrifice in order to
receive assistance, see the Ramanathan Foundation Report (2002). In
short, both programs could benefit from involving a wider range of
contributors from the beginning.
Realistically speaking, public resources by
themselves, and particularly at the national level, cannot hope to
address the problem directly. Consequently, their best use is as
leverage for other resources. Thus, while GOI targets both national
programs in such a way that leakage to the non-poor is minimized, the
small amounts of resources involved and the lack of incentives given to
other contributors, their score on scale and coverage is relatively
weak. The VAMBAY program and the IAY rates marginally better than the
NSDP program because of the aforementioned ‘matching funds’
requirement. (See Table 2 for the rating of the programs.)
State Targeting: For state targeting,
the paper rates all the programs on their ability to target the most
needy local bodies. It needs to mentioned here that the authors would
need more specific case studies on how exactly fund-disbursements work
in practice before a more accurate assessment can be made. However,
based on the program design some tentative conclusions can be made. The
five housing programs each have different criteria for allocating funds
at the State level. The Urban Ashraya program attempts to target the
most needy households by using a fixed poverty line from a 1995 survey,
while VAMBAY targets only “notified slums” in Class I cities. While
both approaches again score well in attempting to avoid leakage, they do
not appear to be specific enough to allocate funds in an effective
manner. The NSDP appears to have a more targeted method. It selects
only one slum from each city as a “model slum.” The slum is selected
because it has the highest proportion of homeless residents. This
approach may ignore a majority of slum dwellers, but it provides
sufficient resources for those in the selected area. IAY disburses
funds to the districts based on the proportion of the rural poor in the
district to the rural poor in the state. The various Kerala programs
also disburse funds to the districts based on the number of urban poor
in each of the districts.
The Kerala programs rate well on this
criterion because the implementing agency allocates funds to households
assessed as being below the poverty line. Since the assessment takes
place through the aforementioned Kudumbhashree program, there is little
opportunity for political interference. However, the Kudumbhashree does
not cover all needy households in urban areas. There are unofficial
slums in some urban areas that have no organized self-help groups or
community development societies. Therefore, these programs might ignore
a certain section of intended beneficiaries.
Based on the above discussion, the paper
ranks the programs on the ordinal scale described earlier. The twin
Kerala programs are designed better than the other programs because it
takes advantage of local self-help groups in identifying needing
neighborhoods and local government agencies. These self-help groups
have a proven record on targeting the most needy in other poverty
eradication programs of the Kerala government.
Local Targeting: For local targeting,
the paper examined the mechanism by which the beneficiaries are selected
(is it free from political interference), the scope of the program (what
percentage of the needy are covered), and the scale (what percentage of
the housing needs are accounted for by the program). In terms of
implementation, it appears that NSDP, VAMBAY and Urban Ashraya programs
are rife with political interference, which results in programs that
neither reach the most needy residents nor provide what beneficiaries
want most. In guidelines for both NSDP and VAMBAY, there are specific
procedures for targeting the most needy, but in practice, they do not
achieve the desired targeting. For instance, the NSDP’s official
criterion for ‘a model slum’ in a Class-I city is the proportion of
households without a home, yet in practice the terms are inadequate to
clearly determine the beneficiaries. When the Karnataka Slum Clearance
Board (KSCB) divisional offices attempt to select ‘a model slum’, they
must use other criteria because 100 percent of the residents have no
home in several slums. Thus, in the end, guidelines based on need alone
are inadequate to the task of allocating such scarce resources, and
ultimately the pressure to revert to political allocation criteria is
Similarly, under VAMBAY, notified slums are selected
based on a survey conducted by the Assistant Executive Engineer in each
of the KSCB divisions within the cities. The objective of the survey is
to assess the willingness of a beneficiary to agree to (1) construct the
house if selected, and (2) repay the loan. Although, the government of
Karnataka conducts a survey, its credibility is problematic because
there appears to be political pressure in the selection of
The selection of beneficiaries for the IAY is undertaken
by the village panchayat based on the list of households below the
poverty line. Given that the number of households below the poverty
line exceeds the number of households which can benefit from the
program, a clear criterion for selection of households has been laid
is clear from the criteria listed, there is still room for political
influence and corruption in the selection of particular beneficiaries.
However, to some extent this influence is minimized by the stringent
transparency requirements of the IAY. At the village level,
information including the list of households below the poverty line, the
list of beneficiaries for the current and past year, allocations made to
the village under IAY, the guidelines for selection are made public.
Similar transparency requirements are made at the block and the district
level, thus minimizing the scope for corruption.
The state-level Urban Ashraya scheme also
appears to have a coherent procedure for targeting, but not a great deal
of follow-through in practice. There are, for instance, Urban Shelter
Committees for all cities/towns in Karnataka headed by the locally
elected Member of (the State-level) Legislative Assembly (MLA). In
addition, the ULBs prepared lists of eligible households (i.e. those
living below the poverty line), which they then update from time to
time. In principle, these Committees select beneficiaries from the
ULB’s lists. However, the membership of elected representatives on
these Committees leaves considerable scope for political considerations
in the selection process.
The two programs in Kerala appear much more
successful at the local level because they take advantage of an existing
and well-established woman-run micro-enterprise/thrift network to target
individual households. This mechanism effectively rules out political
interference from this important level of targeting. The Bhavanashree
program is rated higher because (potentially, since this program is just
in project design phase) it allows the beneficiary to borrow an amount
between Rs 30000/- and Rs 40000/- according the needs of the household.
This provides a degree of flexibility and a potentially greater scale in
covering the housing expenditures. However, the land requirement for
qualifying for both the Kerala programs also effectively make these
programs discriminate against the landless poor. However, though the
Kerala Government does not tie these programs explicitly to land grants,
there are other Kerala government programs do grant land to NGOs, which
then distribute them to the poor. Furthermore, there are also
cooperative banks that help the poor save specifically for acquiring
land. As shown in Table 2, the paper ranks the Bhavanashree program
very highly due to its flexibility and its ability to leverage
beneficiary participation (through the land requirement). The Mythri
program is not far behind because it used the same targeting mechanism
that the Bhavanashree program intends to use.
Among the sanitation programs, the Pune
Sanitation program got three out of a maximum 4 in the targeting
criteria. Unlike the housing programs, this was primarily a local
initiative. In many senses, the nature of the sanitation program
ensures that targeting is done accurately. Unlike a housing subsidy
program wherein there are incentives for manipulation to take advantage
of cash grants, a community toilet is hardly an attractive good for the
urban non-poor. Furthermore, the closer the local government works with
CBOs the better the targeting is going to be. The Pune municipality, in
working with the CBOs and NGOs ensured that the spatial distribution of
the community toilets was done equitably. Dense urban slums tended to
have larger units with higher seat capacities. However, 10,000 toilets
for five hundred thousand slum dwellers meant that on average 60 slum
dwellers had to share a single toilet seat. This is still a high
average and there is room for further improvement in sanitation
facilities for Pune’s urban poor.
The Nirmal Bharat Abhiyan borrows its design
from the Pune program and it is also implemented at the local level
though funds are disbursed from the center at the national level through
the VAMBAY program. States that take advantage of the federal funds for
the sanitation project may work with NGOs and CBOs in the construction
and design phase. This means that from the perspective of targeting, it
is likely that the most in need will benefit from such programs. It is
however not clear what the scale of these programs are and what part of
the target population will be served by the program. This might, in
fact, vary from state to state. However, tentatively, the paper gives
the national program the same rating as the Pune program.
Table 4 provides the ratings for the
different programs under the different levels of targeting. The last
column provides the average targeting rating.
Targeting Ratings for Housing Subsidy Programs
Pune Sanitation Project
Nirmal Bharat Abhiyan
For rating the transparency of the programs
the paper looked at how much of the costs of the program the Government
accounts for in the budget. If most of the subsidies are implicit and
absent in the budgeting then the program gets a poor rating. If
however, most of the subsidies are explicit, then the program is rated
higher on this ordinal rating system. For example, if the government
provides land for a low-cost housing development, as it does in three of
the programs in Karnataka (VAMBAY, NSDP, Urban Ashraya), the cost of the
subsidy should include the current market value of the land. In fact,
this is not the case. (Annex 5 for the results of a partial survey in
Karnataka that the Bank undertook to get a sense of these unaccounted
for cost components.) In the Kerala programs, the beneficiary had to
provide proof that they owned at least 1.6 cents (approximately 64
square meters) of land to qualify for the loans, thus ensuring that the
land component was not a subsidy.
The IAY program was relatively more
transparent than the others because of the aforementioned transparency
requirements at the village, the block and the district level. The
mandatory publication of fund allocation information ensures appropriate
usage of funds while improving targeting. Secondly, since IAY is
completely grant oriented, the direct expenses are budgeted for clearly.
Similarly, all these programs have implicit
guarantees for HUDCO loans, the opportunity costs and risks of the
subsidy should be made explicit e.g., cost of non-payment of government
loans and the impact this has on state government finances in both the
short and the long term. Furthermore, in the case of the Mythri
program, the loans were heavily subsidized. HUDCO had lent the money to
the State government at interest rates of 13.5 percent while the State
lent it to the beneficiaries at interest rates of 5.5 percent.
Finally, the administrative costs of the
programs are rarely budgeted for. Even though, the Bhavanashree program
is a program that is designed to be ‘subsidy’ free, to the extent that
there are unaccounted-for administrative costs for the program, it can
never really be subsidy free. The rating of the housing programs
reflects the paper’s valuation that all the programs fare poorly on
these criteria. (See Table 3).
The Pune program is relatively transparent
because the costs are budgeted for by the municipality. The capital
cost of the community toilets in Pune was Rs 40 crores (Rs 400 million)
and this was fully accounted for. The maintenance costs are the
responsibility of the CBOs and slum communities. The Pune program gets
a high score of 3.5. However, in the case of the Nirmal Bharat Abhiyan,
transparency is reduced by the fact that 50% of the funding comes via
subsidized loans. Furthermore, the funds are disbursed by the central
government to the state governments that then disburse it to local
governments and CBOs. In each of these transfers, unless stringent
accounting standards are kept, the flow of funds can be opaque. Without
a specific case study, it is therefore hard to rate the Nirmal Bharat
Abhiyan on this criterion. The paper gives this program a score of 2.
Efficiency is a measure of net benefits
relative to effective costs. The closer costs are to benefits, the more
efficient a program is. There are several steps to analyzing
First, the real cost of the subsidy must
be determined by including the stated cost, any indirect costs, and
the administrative costs of implementing and monitoring the
intervention. The indirect costs can be very substantial, including
losses on any loans insured by the State and losses due to
distortions introduced in the housing or land markets.
Second, beneficiary valuation of
benefits achieved need to be assessed in relation to the determined
real cost. For example, publicly provided
housing often results in providing more housing than the beneficiary
wants to consume. In these cases, the state could have met their
housing needs with fewer resources.
Third, the programs should be assessed
to determine the extent to which they subsidize investments or
expenditures the recipient would have made without assistance.
this point, the paper cannot provide a conclusive analysis of program
efficiency. However, none of the housing programs is purely in-kind
transfers. Most of them are made up of cash grants and loans. To this
extent, these programs, at least in design, are more efficient than
public housing programs that were the primary means of providing
low-income housing in many developing countries in previous decades.
Nevertheless, this preliminary analysis indicates that all programs are
highly inefficient. They confer subsidies far in excess of intended
benefits for a number of reasons. These mismatch may be, in turn, a
cause of the low rate of loan repayment.
It is also possible to calculate the dead weight loss from the programs
based on the per unit subsidy rate. Furthermore, the extent of
beneficiary involvement is a good measure of how much the beneficiary
might value the subsidy. The greater the beneficiary involvement, the
closer the beneficiary valuation is to the subsidy.
In Karnataka, for instance, the large overall per unit
subsidy rate of the IAY (100%) NSDP (90%) and VAMBAY (80%) – see Annex 4
for calculations - is roughly three times the subsidy rate used in
For developing countries, Mayo and Gross show the housing subsidy rates
in seven countries averaged about 50 percent, considerably below the
rates in both NSDP and VAMBAY. These
rates are clearly excessive given the scarcity of GOI resources
for these programs and the lack of attention given to leveraging
beneficiary resources. As a result, the “deadweight losses” are
multiplicatively higher for these programs than for housing subsidy
programs in market economies where subsidy rates are 25 to 35 percent.
For example, when the subsidy rate increases from 25
percent of the cost of a good to the 80 percent or more that
characterizes the Government of India programs, the loss in resources
due to the size of the subsidy – that is, the complete wastage of
resources per rupee of transfer -- increases from about 12 paisa per
rupee of transfer to about 40 paisa per rupee.
Therefore, instead of wasting about
one-eighth of the transfer on the incentives created by the transfer,
the loss increases to almost half of the amount of the transfer.
Consequently, in India, even if program implementation were
completely effective, the transfers provided would be considerably less
effective than the smaller subsidy rate either in market economies or in
developing economies. These very high subsidy rates create little
accountability for the program beneficiaries and reduce the number the
program assists. Certainly, investment in housing by the community is
minimal so that very few sustainable changes are implemented.
To the extent that Urban Ashraya and the
Mythri Programs have significant loan components to their subsidies,
they are potentially more efficient. These two programs, at least at
first sight, appear to have lower per unit subsidies than the national
programs. However, the loan guarantees to HUDCO and low repayment rates
increase the per-unit subsidy for the Urban Ashraya and the Mythri
Programs. The land grant element of the Urban Ashraya programs makes
the per-unit subsidy rates even higher. The Mythri Program has a 70%
loan component but these loans are highly subsidized. This also
increases the per unit subsidy. Therefore, the paper rates both these
programs poorly, though they appear marginally better than the
nationally run programs.
The Bhavanashree program is 100% loan at
unsubsidized rates. Therefore, this program is most efficient from this
perspective. This programs also has a built in beneficiary contribution
in the form of the land pre-requisite that makes the per unit subsidy
lower than the other programs. Finally, administrative costs of this
program are lower than other programs because the Government of Kerala
implements this program through the existing network of Kudumbhashree
self-help groups. This program therefore appears the most efficient of
the five programs.
Both the sanitation programs rate poorly
under the efficiency scale. The capital costs of the Pune program are
completely subsidized by the Pune Municipality and to this extent, the
program is inefficient. However, by putting the responsibility of
maintenance on CBOs and by levying a monthly fee, the project builds an
ownership stake in the community toilets. This design element ensures
some degree of consumption efficiency.
The Nirmal Bharat Abhiyan program, on the
other hand, proposes to fund only 50% of the capital costs as subsidy.
The rest of the funding comes from HUDCO loans. But very often, these
HUDCO loans are heavily subsidized by the central government.
Furthermore, though the states borrow from HUDCO on subsidized interest
rates, very often the funds are provided to beneficiaries as 100%
subsidy with no expectation of repayment. This program, therefore,
performs only marginally better than the Pune program.
reviewed here are not administratively simple. This is underlined by
the fact that in recent years both the NSDP and VAMBAY programs are only
able to disburse about 70 percent of their allocated funds.
Each year the funds budgeted for the programs are not fully drawn down.
Alhough comparable figures for the IAY were not available, it is not
clear that this program is simpler in implementation than the other
national programs. In addition, there are significant delays in the
release of funds to implementing authorities. The state level programs
of Urban Ashraya and Mythri appear marginally simpler, if only because
they are at the state level. The Bhavanashree program appears
administratively the least complex in comparison because it takes
advantage of the existing network of self-help groups to target and
select beneficiaries. The success of the Kudumbhashree program in other
areas like thrift and micro enterprise programs allow potential
beneficiaries to use existing channels of information distribution to
take advantage of these programs.
The Nirmal Bharat
Abhiyan rates poorly on administrative simplicity. As its parent
program, VAMBAY, some states often do not take advantage of central
government funds available for housing construction or sanitation
projects. This under usage of funds earmarked for a crucial
developmental objective is a symptom of administrative complexity. The
paper gives this program a score of 2.
The Pune Sanitation Project was, in
comparison, simpler from an administrative perspective. Since it was a
local initiative, it was easier to disperse program information and to
invite interested community organizations to take advantage of the
program. Furthermore, by decentralizing maintenance responsibility of
individual toilet units, the municipality saves on the complex
maintenance costs that have condemned similar projects in the past.
This program gets a score of 3 under administrative simplicity.
All the six housing
programs rate very poorly on this front. For the national level
programs, the fact that these programs have very high per unit subsidies
(through both cash grants and subsidized loans) make them unsustainable
if they are to be scaled up to meet the enormous problem of housing all
the urban poor. The ‘free’ land grant elements to the national programs
as well as to the Urban Ashraya program make them more unsustainable.
The fact that the Kerala programs had a land pre-requisite made them
slightly better designed from this perspective. However, the Mythri
program had large loan subsidies as part of the program. By effectively
subsidizing the loan component and by further having Rs 9000 cash
subsidy, the program most dramatically proved itself unsustainable. The
Kerala Government suspended the program in 2002 in the face of serious
fiscal troubles for the State budget.
program created in response to the failure of the Mythri program, at
first examination, looks the most sustainable among the five programs.
The Government of Kerala designed it as a 'subsidy free' program.
However, the government makes an implicit loan guarantee to the
participating financial institutions. However, to the extent that these
loans are disbursed through self-help groups, the repayment rates are
expected to be higher. Nevertheless, there is a more subtle danger to
these programs. Current economic conditions in India allow the
government to borrow at 7% interest rates from financial institutions.
However, there is no guarantee that such rates will last. If the rates
go higher, the Bhavanashree program will have to either suspend the
program or have to effectively subsidize the loans.
Both the sanitation programs also rate
poorly on sustainability. The Pune project subsidized 100% of the
capital costs of the community sanitation units. Most cities will not
be able to afford such a large outlay of funds. Therefore, from the
perspective of scaling up, the financing of the capital costs in the
Pune project is a poor model to emulate. The National program,
similarly, has high unit subsidy costs. Such large-scale subsidies
might be untenable to provide for India’s large slum population
especially when there are equally compelling development needs across
the country. Both programs get a score of 2, which might have been
lower but for the user-fee instituted under both the programs. This
user fee is a welcome change from previous programs. This means that
once the capital costs are accounted for, these units have a better
probability of sustenance due to community participation in
maintenance. By building an ownership stake in the unit through the
user-fee, the projects ensure that the users will contribute to upkeep
and maintenance. The problem of the commons can be, thus, minimized.
Appendix 4: Illustration of
the Impact of Loan Repayment Performance on the Effective Subsidy
in Slum Programs: A Comparison of the NSDP and VAMBAY Programs in
The following calculation illustrates some
(1) Given the high rate of default on
the loan component of these programs, the loan element may mask a
substantial additional subsidy, and even distort the comparison of two
different programs. In the case of the NSDP program, the “default”
subsidy is about double the grant component of the program, thus making
it more heavily subsidized than the nominally less concessional NSDP
program. A program that is 100 percent loan, but with only an 80%
default rate appears to have no direct subsidy, but the actual subsidy
is higher than the nominal subsidy rate of both of these programs;
(2) Improving repayment rates frees up
considerable additional resources;
(3) Both programs are very deeply
subsidized, once the effect of loan defaults are taken into account.
% of Total Project Cost
Loan Element (A)
Loan Default Rate (B)
Effective Grant Due to Default
(C)=(A) X (B)
Total Effective Grant 1-(A) +(C)
Appendix 5: Partial Survey of Implicit Subsidies through Land Grants in
To understand the
likely significance of this phenomenon, the paper sought to examine the
value of land provided in relation to the housing units constructed.
There is little data, throughout India, on the cost of land, the extent
of vacant lands or the amount of land occupied by slum-dwellers. In
Karnataka, a partial survey was undertaken to get a sense of these
unaccounted-for cost components. Computations of the real value of the
subsidies, based on the results of the survey, are presented in Table
5. They show that, in relation to housing costs, the value of land
accounts for a very high proportion of the subsidy, often around 75
percent of total costs. In well-functioning markets land costs rarely
exceed 35 percent of the property value.
While this initial
survey does not provide conclusive evidence, it nonetheless suggests
first, that implicit land subsidies may be worth multiples of the
budgeted housing subsidy (in these cases the average is over three and
one half times). Thus, if Table 5 were representative of all programs,
and, if even only half of the land provided as an unbudgeted subsidy
could instead be converted into cash, the current direct subsidy program
could be increased to more than two and one half times its current size.
Hidden Subsidy on Land in Bangalore Slum Assisted by VAMBAY, NSDP and
Urban Shelter Programs
Second, when the
underlying value of the land in the programs is high, beneficiaries
“cash out” because they prefer to consume less land and housing, and
more of other things. This is not to argue that the slum dwellers
should not be entitled to land and secure tenure, but rather that
building low cost housing on high-value sites is likely to be an
inefficient means of providing a housing subsidy to the poor.
Measures such as beneficiary relocation, as was used in the MUTE in
Mumbai, are worthy of further consideration
as alternatives for providing an equivalent housing subsidy.
an Urban Housing Adviser at the World Bank, and a member of the Advisory
Board of Global Urban Development. He has worked on numerous urban and
housing finance projects for the World Bank over the past 20 years, and
is the author or co-author of many books, articles, and reports,
including Housing Finance in Developing Countries,
Thirty Years of
Shelter Lending, and Shelter Strategies for the Urban Poor.
works for the Planning Commission of the Government of India.
is a consultant for the World Bank and co-author with Robert Buckley of
Thirty Years Shelter Lending and Shelter
Strategies for the Urban Poor.
urban poverty line of about $120 a year for 1999/2000 (converted
at Rs. 45 per dollar; World Bank, Poverty in India: The
Challenge of Uttar Pradesh, May 08, 2002. Annex Tables A1.1)
this level of assistance amounts to about 2.5 percent of the
income of those at the poverty line. This level of assistance
cannot improve much on what the poor are spending already.
India. 2002. India’s Tenth Five-Year Plan. http://planningcommission.nic.in/plans/planrel/fiveyr/welcome.html
Urban Poverty Alleviation in India 2002.
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