Reforming India's Institutions of Public Expenditure Governance

The poor quality and effectiveness of much of government expenditure in India makes it important to analyze ways of improving effectiveness through institutional reform. Improvements in outcomes include better targeting of redistributive measures and more efficient spending on productive projects. Four potential areas of institutional reform are: (1) improved functioning of individual ministries and departments, at the central and state levels; (2) better coordination across individual ministries and between the center and states, through reform of the Planning Commission; (3) reassignment of expenditure responsibilities across levels of government (center to state and/or state to local); and (4) reassignment of tax authorities to provide improved incentives for expenditure governance through electoral accountability. The paper will discuss each of these four areas of potential institutional reforms, their likely impacts, and possibilities for implementing change

Does Lack of Access to Formal Credit Constrain Agricultural Production? Evidence from the Land Tenancy Market in Rural India

While it is commonly believed that lack of access to government-subsidized “formal” credit underlies observed differences in farm productivity in rural India, there is little empirical evidence on this issue. In this paper I address this issue by examining whether households use the farm land rental market to equilibrate their access to formal credit, as they are known to do in the case of other imperfectly marketable inputs. This research reveals, however, that the advantage formal borrowers enjoy in the tenancy market does not reflect their access to formal credit per se, but their greater ownership of inputs such as irrigated land. Copyright 1997, Oxford University Press.

Parental Benefits from Intergenerational Coresidence: Empirical Evidence from Rural Pakistan

This paper explains the negative correlation between the days of work reported by fathers in rural Pakistani households and the incomes earned by their coresident adult sons, thereby contributing to research on the benefits from intergenerational coresidence. I find that the decline in fathers' days of work that accompanies increases in sons' incomes primarily results because such income is used to finance expenditures on household public goods, such as consumer durables and ceremonies. Empirical tests reject most alternative explanations of the benefits of coresidence, including the belief that sons contribute to fathers' wealth.

The Distributive Consequences of Social Banking: A Microempirical Analysis of the Indian Experience

The governments of many developing economies have actively promoted the expansion of banks in rural areas, believing that such investments are necessary to reduce poverty and existing levels of wealth inequality. There is little evidence on whether such “social banking” programs succeed in their objectives. This article uses the government of India's credit policies of the 1980s to test the effect of the two main components of the social-banking program on households, the spread of rural banks and required lending for agriculture. Government policies were stated in terms of district-level outcomes and monitored using a district-level database of banking statistics. I use this same database, merged with household data, for this analysis. The availability of the data that guided policy enables the use of policy rules as instruments to identify the effects of social banking. I find that social banking had a larger effect on nonpoor households relative to poor, defined in terms of wealth and land ownership. Of the two components of the program, it is bank access that matters. Policies requiring banks to lend for agricultural purposes did not significantly affect household per capita expenditures.

Credit Constraints and Land Tenancy Markets in Rural India

This paper provides an empirical investigation of the extent to which rural households in India are effectively constrained in the Government controlled or "formal" credit sectors by analyzing the impact of access to such credit on production decisions, in particular the decision to rent land. The linkage between land rental and credit markets is of particular interest because of its potential effect on the distribution of operated land and hence income inequality in agriculture. The extent to which access to credit affects the decision to lease land is estimated using an endogenous switching regression model which distinguishes between the leasing behavior of borrowers and nonborrowers, conditional on their credit status. The determinants of the leasing decision of borrowers is found to be significantly different from those of non-borrowers. However, there is no strong statistical support for the hypothesis that credit constraints affect leasing decision. This suggests that formal sector credit constraints are not effective, perhaps due to substitution possibilities between credit-financed capital and other inputs. This paper also finds that the increased demand for land by large farmers is primarily the result of their increased productivity and declining land size

The Effectiveness of India's Anti-Poverty Programmes

This paper critically evaluates the design of India's Anti-poverty programmes. In recent years, successive Indian Governments have sought to improve the performance of these programmes by decentralising their administration, vesting village governments with greater responsibility for their monitoring and oversight. An academic literature hypothesises that socioeconomic divisions within villages and the weak political strength of the poor reduces the effectiveness of decentralised programmes since, under these conditions, elites are able to 'capture' funds intended for the poor. This paper argues that the effect of administrative decentralisation of poverty programmes and local public goods on the magnitude of benefits to the poor depends not just on their political strength but also on the incentives the non-poor have to improve the welfare of the poor. The design of policy pays insufficient attention to such incentive issues. Empirical analysis provides support for this belief. The regression analysis of the paper reveals that welfare receipts affect the labour supply decisions of the poor and that the implementation of welfare programmes under control of village governments takes these effects into account.