What is the best way of reducing poverty? The UPA government has highlighted its rural employment guarantee scheme (NERGA). It has allotted huge sums to Sarva Shiksha Abhiyan (education for all) and irrigation. It has increased spending on rural electrification and health. And it ordains subsidies worth tens of thousands of crores for fertilisers, electricity and rural credit.
But are these the best ways to reduce poverty and stimulate growth in rural areas? I have long argued that rural areas need, above all, connectivity. The cities have been connected to the global economy and have taken off. Do the same for rural areas, and they will take off too. Today, alas, many villages are not even connected by road or telecom to the closest town, let alone the world.
Roads are not, of course, the only things that matter – other rural projects and policies matter a great deal too. But connectivity enhances the value of every other rural investment, since it empowers people through improved mobility and access. People can more easily buy agricultural inputs and sell their produce. Children can go more easily to schools, cattle can more easily get veterinary help, and the sick can get to health centres. Remote areas have, by definition, the worst connectivity. They are among the poorest and slowest-growing, but accelerate when given connectivity.
Roads can incubate a thousand small businesses, and can convert villages into towns. Government staff are much more willing to be posted to places with good connectivity, so roads improve administration. Rural productivity cannot be high without roads, but can be very high with them.
This was first demonstrated in India in Punjab and Haryana, which historically had the most dynamic rural economies and lowest poverty rates. Economist Ashok Gulati relates a conversation with M S Gill, who was agriculture secretary in New Delhi and development commissioner in Punjab before becoming election commissioner. Gill said that in developing Punjab, he concentrated on a one-point agenda: build all-weather ( pucca ) roads, and the people will take care of the rest. This approach succeeded. The green revolution in Punjab hinged not only on R&D but roads too. Indeed, the returns to road investment were even higher then than today.
Gulati says that studies by IFPRI (International Food Policy Research Institute) in China, Vietnam and some African countries point to the same conclusion – rural roads do more for growth and poverty mitigation than virtually anything else.
A recent IFPRI paper by Fan, Gulati and Thorat estimated the impact of different government programmes on rural growth and poverty reduction in recent decades. The poverty-reduction data for the 1990s are given in the accompanying table. Road investment gave the biggest bang for buck, followed by agricultural R&D, with education lagging some way behind. Subsidies on fertiliser, credit and power achieved rather little.
For every million rupees spent, roads raised 335 people above the poverty line, and R&D 323. Every million rupees spent on education reduced poverty by 109 people, and on irrigation by 67 people. The lowest returns came from subsidies that are the most popular with politicians – subsidies on credit (42 people), power (27 people) and fertilisers (24 people).
Exactly the same picture emerged when the researchers estimated the agricultural growth impact of these factors. Roads and agricultural R&D contributed by far the most to growth. Lower down came investment in education and irrigation. At the bottom came subsidies for credit, power and fertilisers.
The IFPRI research paper did not estimate the impact of telecom, which had very little rural penetration in the 1990s. But rural telecom is now booming and has become a major force in increasing connectivity. I am sure it will have a huge impact.
For decades, rural roads in India were neglected by most states. Besides, rural employment schemes, starting with Maharashtra’s Employment Gurantee Scheme in the 1970s, created the illusion that durable rural roads could be built with labour-intensive techniques. In practice labour-intensive roads proved not durable at all, and those built in the dry season vanished in the monsoons.
This finally changed with the Pradhan Mantri Gram Sadak Yojana (PMGSY) launched in 2000. This, for the first time, ordained mechanised techniques to provide high-quality, all-weather roads to 1.6 lakh rural habitations without pucca roads. It also upgraded roads that had collapsed. Panchayats were made responsible for maintenance. Conversations with experts suggest that this is one of the best-functioning programmes in rural development.
In 2004, the UPA government launched Bharat Nirman, an ambitious infrastructure programme for rural areas. It aims to provide connectivity by having a pucca road, electricity, telecom and drinking water in every village of over 1,000 people. This overlapped with the PMGSY. Progress on Bharat Nirman has been spotty. But rural connectivity has at last become a high government priority, and this bodes well for the future.
Let me conclude by recalling what economist Robert Chambers said back in the 1970s. “If I had money, I would use it to build roads. If I had more money, I would build more roads. If I had still more money, I would build still more roads.”