Targeting Public Goods to the Poor in a Segregated Economy: An Empirical Analysis of Central Mandates in Rural India

1. Targeting Public Goods to the Poor in a Segregated Economy: An Empirical Analysis of Central Mandates in Rural India Anjini Kochar, Kesar Singh and Sukhwinder Singh

2. Decentralization Govts have embraced decentralized control over local public goods as a means of improving their quality Commonly maintained that this could adversely affect intra-village inequality Such fears may be misplaced � can introduce controls in the form of central mandates

3. Central mandates Can specify investment priorities, and so goods which favour the poor (schools, health) Additional opportunities in economies characterized by residential segregation, if this is along socio-econ and ethnic characteristics correlated with poverty Residential segregation ? �excludable� public goods, consumed only by the poor Allows targeting, even of public goods, towards the poor

4. Can central mandates be effective? If local elites can influence allocations of village govts, may also be able to �capture� central govt funds May be particularly true in decentralized economies, where village govts have administrative control over central funds Here, changes in the relative socio-econ status of village households may be immune to policy Little existing evidence on effectiveness of mandates, despite the fact that many govts are using these in conjunction with decentralization

5. This paper Provides such evidence, examining a program in India which provides funds to village govts for investment in public goods, the Sampoorna Grameen Rozgar Yojana (SGRY) Requires a certain % of funds provided to village govts to be spent exclusively on SC/ST Possible, because of the extent of residential segregation, by caste, in India

6. Main village, A.P.

7. Scheduled caste hamlet, A.P.

8. Scheduled caste hamlet, A.P.

9. Existing theoretical and empirical literature Use theoretical framework of Bardhan and Mookherjee (2000, 2006a), to assess effects of local capture in a decentralized economy Most closely related to empirical literatures which test for elite capture in public good investments and the effectiveness of targeting (Bardhan and Mookherjee 2006b, Galasso and Ravallion 2005). These papers assess effectiveness of targeting by examining prop of benefits poor receive, and whether this is affected by inequality, status of the poor (eg., see if more �unequal� villages invest less in the poor)

10. Literature provides only weak evidence on effectiveness of specific institutional mechanisms Eg. Centralized poverty program administered and monitored by local govt If shown to be effective in targeting, is this because of local govt involvement or central mandates? Similarly, studies which infer benefits of decentralization by examining a regime change Shift to decentralization still retains some element of centralization, so little evidence on which institutional features contribute to effective targeting

11. Approach of this paper Tests effectiveness of central mandates exploiting econ theory: if effective, centralized funds should affect investments, over and above their effect on village (local) income

12. Difficulties of empirical research on the effect of central mandates Need to disentangle effects of mandates from income effects Two main challenges to this research: Need local govts to have income sources other than centrally provided funds � not always the case in many developing economies Need to deal with the endogeneity of both own and centrally provided income. Particularly problematic for �own� (local) income Few appropriate instruments

13. This paper: exploit conditions in Punjab Extensive common property resources, in the form of Shamlat land � �inherited� by the village at the time of Independence and separation from Pakistan Punjab. Constitutes an exogenous source of income, uncorrelated with other village socio-economic factors, or other sources of income

14. Identifying effects of SGRY mandates Exploit two-stage rules which govern allocations of many govt programmes (Galasso and Ravallion 1999). Central govt first makes allocations to districts, on the basis of district indicators, uncorrelated with village socio-economic characteristics Funds then targeted to villages by specific characteristics suggests use of an interaction between specific district variables and village-level variables

15. Remainder of this presentation Briefly describe related theoretical and empirical literatures Describe Indian setting � extent of decentralization, central mandates, details of SGRY Theoretical Framework Survey data Empirical test of effectiveness of central mandates Main results Conclusion

16. 2. Indian setting: Very poor quality of public goods, sought to be remedied through decentralization 1992: 73rd Constitutional Amendment � three tier system of local govt (the Panchayati Raj Institutions) Administrative, political and fiscal decentralization; social programmes and local public goods devolved to village governments (Gram Panchayats) Extent of fiscal decentralization is weak Punjab Govt supposed to pass on tax revenues to PRIs, but not done. Taxes which can be collected by village govts are not

17. Village govts remain heavily dependent on income from Centrally Sponsored Schemes Excessive centralization, perhaps because of equity concerns Evident in recent introduction of mandates which target funds to the poor (Scheduled castes) But, costs: Central govt dictates use of these funds little room for local control or sensitivity to local need

18. SGRY (Sampoorna Grameen Rozgar Yojana) Initiated in Sept 2001 (merged three previous infrastructure and employment programmes � JRY, EAS, FFW) Largest programme implemented by the Ministry of Rural Development in the 10th Plan For 2002-2007, received a budget of Rs. 300 billion, more than � the Department�s expenditure Employment + infrastructure creation programme

19. 1999-2000 data on revenue of all Gram Panchayats 47% from CSSs (primarily SGRY and IAY) 0.58% from house tax (local tax) 9% transfers from State Finance Commission 4% from MPLADF 30% from Shamlat land Unique to Punjab, Haryana No restrictions on how it can be used

20. SGRY