The Preference Bias in Sanitation: Explaining Failures in Public Provision

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  1. Rage

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    The Preference Bias in Sanitation: Explaining Failures in Public Provision


    Abstract: This paper explores the persistence of a “low-equilibrium trap” in the
    provision of public sanitation in the Indian subcontinent – characterized by a very low
    willingness to pay at the local level that is conjoined with a highly subsidized supply
    supported by soft-budget constraints at the state (federal) level. The resulting low level
    of cost-recovery is combined with endemic misuse of funds often with a complete
    breakdown of public services and frequent resort to private supply options.

    When considered jointly, these outcomes are symptomatic of a “tragedy of the commons”.
    Such failures in public provision at the local level may be traced, it is argued, to the
    persistence of a culturally evolved preference bias towards private, as opposed to public,
    consumption of hygiene. The ethically neutral outlook upheld by individuals towards
    public squalor alongside an emphasis on private cleanliness under the climatic
    conditions of the subcontinent is suggestive of a more general lack of an “existencevalue”
    for the common good within the individual utility function that, in turn, implies
    unwillingness on the part of individuals to sustain a positive demand for public goods over
    time.

    The administrative history of public sanitation in British India is used to illustrate the
    widespread occurrence of such a bias within the population. The resistance to sanitary
    reform and failures in public provision under both British India and post-independence
    suggests that a normal preference for the public good – local or state (federal) -- cannot
    be presumed for the Indian subcontinent. Without a change in the underlying preference
    structure, neither federal provision nor Tiebout-inspired reforms at decentralized
    provision ensure the desired outcome in terms of higher overall level of public sanitation.
    Finally, the decentralized provision of public goods post-independence is compared with
    the relatively centralized or “Imperial” administration of British India. Paradoxically, the
    latter appears to be the least conceited response to actual preference biases confronted
    by the state.


    By Nimai M. Mehta
    Professor of Economics
     
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  3. Rage

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    S.1. Introduction.


    The provision of public sanitation in India suffers from significant failures at
    both the micro and macro level. At the micro level these include highly distorted
    and subsidized pricing that is unrelated to actual costs of provision; poor
    collection efficiency – a result of both inability and unwillingness to collect arrears
    in taxes and charges; neglect of basic maintenance expenses that co-exists with
    disproportionate use of funds towards unproductive staffing and bureaucracy;
    misuse of public funds, and corruption; frequent breakdown in service supply and
    resort to private service options in the informal sector.


    At the macro level, the federal division of state and local responsibilities
    for finance and provision of basic services has created a fractured decision
    structure that is unable to respond effectively to failures in public provision.
    Though public sanitation is recognized in theory as a local public good, in
    practice its provision in India has been subject to an unstable and changing mix
    of central, state, and local responsibilities with attempts at both centralization and
    decentralization producing unsatisfactory results. In both cases provision
    continues to be effected under a soft budget constraint.


    Two, the above mentioned failures have persisted over an inordinately
    lengthy period of time and are reflected throughout the recorded administrative
    history of modern public sanitation in India, since its inception in the seventeenth
    century under British colonial rule. The persistence of failures in public provision
    over time seems to point to unchanged fundamentals rather than to any specific
    institutional failure per se. This paper, therefore, attempts to move beyond the
    conventional analysis of market and government failures to explore a relatively
    neglected piece of the public provision puzzle – the persistence of a widespread
    preference bias in individual utility functions towards private, as opposed to
    public, consumption of sanitation. The existence of a normal preference for public
    goods or “developmental goals” is more often than not taken for granted in the
    literature and by policy makers. And suggestions for reform while focused on
    institutional and pricing inefficiencies have taken insufficient note of underlying
    preferences or their evolution over time.


    Emergence of the modern preference for public health and sanitation in
    the developed world may be traced to the nineteenth century “sanitary reform
    movements” in the industrializing cities of Britain and Europe. The resistance to
    sanitary reform and the slow progress in public provision under both British India
    and post-independence, instead, suggests that a normal preference for public
    sanitation cannot be presumed for the Indian subcontinent. What is more, unlike
    the experience of the nineteenth century sanitary movement in Britain, the
    progress of modern scientific knowledge in the subcontinent has done little to
    alter the prevailing structure of preferences. On the contrary, the persistence of a
    preference bias towards private, as opposed to public, consumption of sanitation
    has helped fuel individual consumption of medical services while limiting the role
    of overall public health or sanitation.


    The evolution of a preference bias for sanitation within the Indian
    subcontinent and its cultural-geographic roots is briefly explored in Section 2.
    Section 3 reconsiders the demand for public provision in light of such a
    preference bias. The existence of such a bias implies unwillingness on part of
    individuals to sustain a positive demand for public sanitation over time. A simple
    individual equilibrium-choice framework is employed to explore the key
    implications of such a preference bias for public provision.


    Where the level and type of investment by the state in public facilities is
    set by exogenously determined technical standards -- or by “developmental
    goals” far beyond what is warranted by the prevailing preference for sanitation --
    expectations of a soft-budget constraint are inescapably built into its operation
    and maintenance by local agencies. Thus, post-independence, local sanitation
    boards and municipal corporations in both urban and rural districts have rarely, if
    at all, sought, let alone achieved, financial self-sufficiency in the provision of
    basic sanitation services. This is reflected in available data on cost recovery
    efforts by local public agencies in various cities subsequent to decentralization
    measures undertaken by the state – recently, through the 73rd and 74th
    Amendments (1992) to the Indian Constitution. The fiscal performance data for
    urban services is reviewed in Section 5.


    Suggestions for urban reform have focused on greater efficiency in pricing
    and administration, including greater decentralization. However, these are bound
    to have limited impact where the level and type of provision is far beyond what is
    warranted by prevailing preferences. Here, the mid-nineteenth century “imperial
    response” by the British to perceived sanitation problems in the subcontinent
    proves to be instructive. Though centralized, the tax and public goods
    administration under the imperial state appears to the least conceited response
    when confronted with underlying preference biases amongst the local population.
    The Indian state, in contrast, has effected a significant reversal of the more
    measured “imperial response” with predictable effects. Section 4 discusses the
    efforts by the British state to further sanitary reform in India. Conclusions are
    provided in Section 6.
     
  4. Rage

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    S.2. The Preference Bias in Sanitation


    The preference bias in sanitation may be traced to the cultural-geographic
    evolution of norms of personal cleanliness that are ritualistically upheld by
    individuals in the Indian subcontinent alongside an ethically neutral outlook
    towards external or public squalor. The harsh geographic-climatic conditions of
    the subcontinent gave rise, some two millennia earlier, to an acute awareness of
    personal hygiene without which individual survival would have been threatened.
    Survival in the temperate climatic zones, in contrast, demands far less in the form
    of personal hygiene. Furthermore, the culturally evolved toolbox employed by
    the Hindus within the subcontinent came to include a stoic-like acceptance of the
    pervasive dirt, squalor and disease wrought by an unyielding and oppressive
    physical environment. The unique nature of this response is described in some
    detail by Nirad C. Chaudhuri (1966), one of the most astute commentators on
    Hindu civilization and society:

    These cultural responses evolved by residents of the subcontinent over
    two millennia have coalesced into a preference bias that cuts across income
    groups. Innumerable ethnographic and administrative records reveal the
    existence of a long standing and widespread preference bias for private as
    opposed to public consumption of hygiene within the general Hindu population.
    The following observation is obtained from the one of the earliest comprehensive
    accounts on Hindu customs and manners left behind by the French missionary
    and scholar, Abbe J.A. Dubois, who visited and lived in India between 1792 and
    1823. The Abbe noted the Hindu obsession with private cleanliness conjoined
    with their indifference to unsanitary conditions outside their homes:

    The implications of such a bias for the demand and supply of public
    provision is considered next.
     
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    S.3. The Demand for Public (Goods) Sanitation Reconsidered


    The admission of a preference bias within the individual utility function
    suggests that the “optimal supply of public goods” may be determined by cultural-
    geographic boundaries. The resulting implications for public provision may be
    explored with the help of a simple equilibrium choice model, and key results that
    correspond to the experience of public sanitation in the subcontinent are
    highlighted here. The demand for public goods is considered here for two
    contrasting cases: the so-called “progressive” case that illustrates a normal
    preference for public sanitation; versus the “weak” case that illustrates a biased
    preference for private, as opposed to public, sanitation:


    Let U1(pv1, pu1, puN) be the utility function for individual 1.
    Where, pv1 is the level of consumption realized by individual 1 with private
    goods;
    pu1, the level of private consumption realized by individual 1 that may be
    partly or entirely fulfilled through use of the common good, puN, once
    provided;
    puN, the common good available to all N members of the community,
    including individual 1.



    While pv1 and pu1 are only different forms of private consumption, the
    separation made here both serves a descriptive purpose and helps clarify
    outcomes in public provision observed for the subcontinent. The separation
    between puN and pu1 in the utility function is meant to denote an “existence
    value” that the individual may attribute to the common good, over and beyond the
    utility derived from his own utilization of the common good. That is, the individual
    derives positive utility from the mere knowledge of the good’s existence, even
    though it is possible he may never have an occasion to actually use the good.
    Demand for public goods may be argued to require attribution of a positive
    existence-value to the common good within an individual’s utility function.


    [​IMG]


    Thus, while technological conditions would define the “least-cost” options for
    satisfying individual consumption – either through the provision of pv1and/or pu1, the
    relative technical efficiency of the supply option by itself will not be sufficient to
    determine demand for a “public good”, puN. For example, an individual’s need for
    security may be equally met through the purchase of a gun (pv1) and the
    services of a hired bodyguard (pu1), as it could through utilization of publicly
    provided police services. The individual may nonetheless value the existence of
    common police services, puN, which is equally available to all members of the
    community, including himself. Or, the desire to read a particular book may be just
    as efficiently met through an individual’s private purchase of the book as it may
    through membership in a reading club. Yet, the individual may value the
    existence of a public library collection – one that is beyond his own reading
    needs and of a size that he does not expect to ever fully utilize during his lifetime.


    The distinct nature of a public good in the individual utility function
    – say, public cleanliness – is thus illustrated by Figure 1 (Figures at end of
    document). Let pv1 measure the individual’s consumption of hygiene with private
    goods; pu1, the extent consumed by the individual using a public good – say,
    cleanliness of the common area fronting his own house; and puN, the existence
    of a clean neighborhood enjoyed in common with other individuals. The individual
    displays normal shaped preference or indifference curves over both his private
    and public consumption possibilities. The two private goods are supplied under a
    constant return to scale technology, and individuals are assumed to be
    homogeneous in income and preferences. The common good is provided at
    constant costs and exhibits no lumpiness in provision. Provision of puN is
    assumed here to be financed through an equal direct charge or lump sum tax
    share mandated on each individual. The level (or quality) of public good provision
    enjoyed in common by all individuals is indicated in quadrant (II) along the puN
    axis. Once the public good is provided, exclusion is assumed to be impossible.


    Prior to the provision of puN, FF in quadrant (I) is the total budget
    constraint faced by the individual over the two private goods – pv1 and pu1. Each
    individual purchases an equilibrium mix of pv1 and pu1 -- shown at A -- that is
    independent of the amounts purchased by other individuals in the neighborhood.
    However, given his preference for the common good, the individual remains in
    disequilibrium within the public goods quadrant – at e0, and will wish to realize a
    positive level of public goods provision. Under the simplifying assumptions made
    here, the individual obtains equilibrium across the two quadrants at (B,C) with an
    exogenously (or collectively) determined level of public goods provision, puN0
    . TT in quadrant (I) is the after-tax budget constraint for puN0 level of public goods
    provision; and B, the new private good consumption equilibrium obtained by the
    individual, after tax. The dashed line through C, or TC, mirrors the corresponding
    consumption possibilities in quadrant (II). That is, once the public good is
    provided, the individual’s equilibrium level of private consumption at B, in
    quadrant (I), is ultimately governed by the individual being part of the collective
    equilibrium obtained at C, in quadrant (II). Conditions exist however that could
    make the equilibrium obtained at C unstable or unachievable. Under such
    conditions, both the tax-funding and allocation of the common facility will be
    subject to significant problems of governance. Or, the individual’s private
    consumption equilibrium may not be sustained at B.


    The dilemma of collective equilibrium under conditions of majoritarian
    democracy has been extensively studied by both the normative, social-choice
    literature and under the positive, public choice inspired political economy. The
    existence of a positive, if differing, preference for public goods however is taken
    for granted in both perspectives. The developed world has sustained relatively
    high levels of public goods provision along with high levels of tax compliance and
    good governance in the allocation of public facilities (Fukuyama, 2004). In terms
    of Figure 1, these countries have maintained a progressive path along the vector
    P in quadrant (II) that signifies household access to increasing levels of public
    good provision and utilization options over time.
     
  6. Rage

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    [...]

    The failures at tax collection and public goods provision that instead
    characterize the developing world suggests that the preference structure
    illustrated in Figure 1 cannot be taken for granted. The possibility of a preference
    bias in the individual household’s consumption of private versus public sanitation
    is therefore admitted in Figure 2. The individual’s indifference to public
    cleanliness, or puN, is reflected in the shape of the indifference curves in
    quadrant (II) of Figure 2, while the individual’s indifference map in quadrant (I)
    displays normal preferences over private forms of consumption. For the
    individual holding such a preference bias, the consumption of “public cleanliness”
    is subject to rapidly diminishing returns measured in private utility terms. And the
    “optimal” mix of private-public goods consumed by the individual when faced with
    any reasonable set of relative prices would tend towards a corner solution. The
    individual would buy into far greater amounts of private as opposed to public
    cleanliness. In such a case, a state-mandated tax or charge (including no-littering
    rules) that reduces the individual’s private consumption possibilities imposes a
    net utility loss. That is, the individual perceives himself as being worse-off with,
    rather than without, public provision8. The long term consequences for the
    individual household in such a community is represented instead by the curve C
    in quadrant (II), that indicates shrinkage of household access to common
    facilities accompanied by a return to private consumption options in quadrant (1).


    [​IMG]


    The dilemma of public goods provision proves to be fundamentally
    different at the most elemental level. Thus, consider the familiar free-riding
    incentive that potentially affects the stability of collective equilibrium. In Figure 1,
    if the individual is honest and pays his tax share, he obtains a net increase in
    welfare captured by the shift from e^o(U^o) to C (U^N) in quadrant (II). However, he
    potentially obtains an even greater increase in private welfare by evading his
    share of taxes. In a large number setting, tax evasion moves the individual
    household towards D, on the higher indifference curve U^ev, as long as other
    households continue to pay their tax share in the short run. However, in the longrun,
    if other individuals attempt the same, tax collections break down and the
    individual tax-evader faces the least preferred prospect of a return to e^0
    , as puN tends towards a zero level of provision. The individual in Figure 1, therefore,
    maintains a long term interest in enforcing honesty in tax collections, or
    penalizing tax evasion. That is, each individual perceives a net gain through good
    governance over time – measured by the increase in utility obtained from a move
    from e^0 to C in quadrant (II).


    No such surplus for good governance or honesty in tax payments exists
    for the individual household defined by Figure 2. Instead, an attempt by the state
    to provide an equivalent level of public goods, puN^0 within such a community
    imposes significant utility losses on the individual tax payer, who is now forced
    onto a lower indifference curve, U^N at C. The compulsion to evade, or lower, the
    tax burden is much greater here than it is in Figure 1, and is motivated by
    different considerations. While the “free-rider” is, by definition, motivated by
    higher levels of private welfare attainable with the provision of a public good (at
    D in Figure 1), the tax-evader in Figure 2 seeks – at the very least and through
    tax evasion – to simply minimize his utility loss measured in private good terms.
    Even under circumstances where such evasion or lowered tax burden leads to
    poor service quality and/or a complete breakdown in service provision.


    The fundamentally different incentive structure may be more starkly
    illustrated by altering the pay-off matrix used in the familiar prisoner’s dilemma
    game. In Figure 2A (end of document), the provision of the public good through
    equal mandatory tax shares leaves both individuals – R & C -- with a worse payoff
    in cell (I) – (1, 1) relative to their pre-tax position in cell (IV) - (2,2). Each
    individual will therefore attempt to maintain his pre-tax position through tax
    evasion even at the cost of reduced public provision – cell (III) - (2,1) or cell (II) (1, 2).
    Note that the underlying indifference to the state of public cleanliness is
    reflected in an unchanged private payoff perceived by the honest tax payer in the
    face of tax evasion by other individuals -- across cells (I) & (II) or cells (1) & (III).
    Under such a payoff structure, there exists little basis within the community to
    expect, leave alone enforce, honesty in tax payments by individual households9.
    Further, within a system of majoritarian democracy, the penalty threat required to
    minimize tax evasion will be seen as “oppressive” and deemed politically too
    costly.


    Where the level and type of investment by the state in public facilities is
    set by exogenously determined technical standards -- or by “developmental
    goals” far beyond what is warranted by the prevailing preference for sanitation --
    expectations of a soft-budget constraint are inescapably built into its operation
    and maintenance by local agencies. Public provision will inevitably be burdened
    with the necessity of subsidized or free provision to significant sections of the
    population. Note that the provision of subsidies too differs in significance under
    the two preference structures. In Figure 1 (the case with a normal preference for
    public sanitation), subsidies in form of tax exemptions or reduced user or access
    fees to a section of the population will be seen as a privilege that may, in
    adherence to democratic principles, need to be satisfied through some form of
    “means test”. In contrast, subsidized access to the public good, or exemption
    from tax in Figure 2, far from being seen as awarding a privileged level of private
    welfare, is likely to be interpreted as a “human right” – a claim to minimize the
    “undue” burden of taxation. This difference in perspective across the two cases
    may explain the observed inability of the state in India to impose a credible “hardbudget
    constraint” on subsidized provision.


    The overextension of facilities by the state in the face of such a preference
    bias is likely to generate a far worse pathology of outcomes in the public sector.
    With indifference to public sanitation that is widespread amongst the population,
    public facilities once provided are valued by individuals only to the extent that it
    allows each to reach a higher level of private consumption welfare. This is no
    different from the individual behavioral response described within the “tragedy of
    the commons”. In both cases individuals do not uphold a positive existence value
    for the “commons” and there is an overriding incentive to “corrupt” or over-use
    the commons for private individual gain. Thus, positions potentially obtainable
    along the private consumption axis in Figure 2 – such as e^* or better still, e^r
    -- will be individually preferred to position C, once the public good is provided. Thus,
    position R in quadrant (I) represents a feasible increase in private gain through
    corruption under conditions of a soft-budget constraint. R is obtained by the
    individual household by a combination of tax evasion – measured in real terms
    by the TF segment along the pu1 axis -- and use of the common facility for
    private use – measured in real terms by C`T along the same axis. The public
    park, for example, will be subject to both littering and pilferage as individuals
    attempt to convert their access to the park for private ends. The allocation of
    common facilities is subject to endemic corruption as individuals would seek to
    obtain disproportionate benefits in quadrant (I) – from privileged access to school
    admissions, hospital rooms, railway reservations, employment, etc. Only under
    conditions where the soft-budget constrain breaks down, or is withdrawn, will the
    corner solution, e*, be realized by the community along with a relapse towards
    purely private consumption options in quadrant (I).


    Until such time, the community is likely to be caught in a “low equilibrium
    trap” with continuing depletion of resources within the public sector. Figure 2B
    illustrates the problem by revising the payoff structure to reflect a fully subsidized
    provision of the public good that is sustained by the availability of a soft-budget
    constraint. Thus, unlike in Figure 2A, the private payoffs in cell (1) with public
    provision remain unchanged relative to the payoffs in cell (IV) without public
    provision. However, now each individual actively “exploits” the public facility for
    private gain and is able to realize a significantly higher private payoff – reflected
    by the payoffs (4, 2) or (2, 4) in cells (II) and (III). As in Figure 2A, the individuals
    remain indifferent to the state of public provision, including its misuse by others –
    across cells (1) & (II) or (1) & (III). In addition, the fully subsidized provision of the
    public good means that neither individual has an immediate interest in moving
    back to cell (IV) – the dominant cell in both Figure 2A and in the classic
    prisoner’s dilemma game. That is, as long as the soft-budget constraint holds
    and the possibility of securing higher private payoff exists, the community is
    trapped between cells (II) & (III).


    [​IMG]


    The persistence of such a “low equilibrium trap” over time is clearly
    evident in the administrative history of public sanitation in India. Thus, under both
    British India and the nationalist state, local agencies in rural and urban districts
    have rarely achieved financial self-sufficiency in provision of basic services.
    Instead, sanitation services tend to receive significant subsidies; sewage and
    water tariffs or taxes are consistently set far below cost; collection rates even for
    the subsidized charges remain low; municipal bodies are plagued by perennial
    deficits and operate under soft-budget constraints; wide spread misuse and
    pilferage of public facilities is observed; unreliable and poor service quality; lack of
    maintenance, frequent breakdowns and resort to private supply options in the
    informal sector.
     
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    S.4. Sanitary Reform and British India


    The lack of demand for public sanitation is not unique to the Indian
    subcontinent. It provoked the emergence of the so-called “sanitary movement”
    and efforts at providing public sanitation in the industrializing cities of Britain
    during the nineteenth century. Nonetheless, important differences underlie the
    lack of demand for sanitation in the two cases. In the latter case, un- familiarity
    with evolving modern standards of hygiene and sanitation informed both private
    behavior and public choices. Public health efforts in Britain had also to contend
    with a relatively high income elasticity of demand for hygiene – public and
    private-- displayed by the lower income groups and in the working class
    neighborhoods. Progress in the public provision of sanitation was obtained only
    with support of the middle and upper income groups whose taxes crosssubsidized
    city-wide sanitation measures and facilities (Chaplin, 1999). In this
    case, the lack of effective demand by part of the population for public sanitation
    was overcome through cross subsidization across the city at the same time that
    education and advocacy of modern hygiene and public health measures helped
    form a normal preference for these goods across the population.


    Attempts at sanitary reform in the Indian subcontinent, however,
    confronted a highly evolved set of indigenous preferences that did not escape the
    notice of British administrators-reformers:

    The response of the state in British to perceived “public need” may be
    compared over two main periods. The first period, following the transfer of the
    colonies to the British Crown in 1858, is characterized by a more measured and
    centralized, or “imperial”, response to existing consumption preferences amongst
    the native population13. The British treaded cautiously, promoting significantly
    pared down schemes that could be supported locally for both their financial and
    administrative requirements. Village unions were organized with an exclusive
    focus on sanitation and funded by a small house-tax. Recognition of underlying
    fundamentals severely limited the public-goods response supplied by the
    administration – on both the tax and expenditure side:

    The technical form of public-good supply too was shaped by specific
    native preferences. For example, the policy towards eradication of malaria and
    mosquitoes in the provinces was shaped by the native preference for private
    wells and community tanks and an aversion to piped-water. In districts where the
    resistance was strong and threatened the financial sustainability of a
    conventional public-goods response, the British restricted themselves to the
    supply and sale of quinine packets through public and private agents. Both the
    distribution of tax effort and public expenditure on public goods across the
    provinces in British India seemed to mirror the divergent preference for public
    provision. The British resisted any attempts at “artificial and abstract” equalization
    of public goods provision within its territories (Kumar, 1982).

    The second -- a more democratic and decentralized -- stage of British rule,
    post-1920, was marked by increasing resource commitments by the state in
    response to pressures from back home and locally for more “nation building”
    expenditures. The unsustainable nature of these developmental goals in light of
    prevailing preferences for modern public services is evident in the performance
    of local government bodies – municipalities, district and local boards -- following
    the Government of India Acts of 1919 and 1935. The Acts set the stage for
    significant fiscal and political decentralization with greater revenue powers and
    responsibilities granted to the provinces and recognition of locally elected
    officials. As expected, the elected members of municipal bodies proved
    reluctant to increase taxes to cover the cost of service provision or to enforce
    collection of dues. The district boards and municipalities continued to operate
    with a soft-budget constraint that was steadily pushed outwards with greater
    decentralization. Thus, while in 1895 the district boards had obtained 9 % of their
    total revenues from the provincial government the latter’s contribution increased
    to 42% by 1920 (Kumar, 1982). The same period witnessed accumulation of
    uncollected arrears and increased embezzlement of funds by municipal bodies –
    problems that continue to plague the financial health of local government, post
    independence.
     
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    S.5. The Great Reversal: Failures of Provision in the Indian State


    Plan investment outlays on water supply and sanitation projects in the
    subcontinent witnessed dramatic jumps, post-independence. Plan outlays in the
    urban water and sanitation sector increased from a modest amount of Rs. 430
    million (current prices) under the 1st Five Year Plan (1951-1956) to Rs. 59822.8
    million under the 8th Plan (1997-2001). Plan outlays for rural water supply and
    sanitation increased from Rs. 60 million under the 1st Plan to Rs. 107287.9 under
    the 8th Plan. The significant build-up of the state’s developmental goals
    following independence in 1947 may therefore be seen in terms of a major
    reversal of the earlier, more measured, “imperial response” to the underlying
    preferences for private-public consumption with predicted results.


    Thus, post-independence, local sanitation boards and municipal
    corporations in both urban and rural districts have rarely sought, let alone
    achieved, financial self-sufficiency in the provision of basic sanitation services.
    While financial assistance from the state and central government for water supply
    and sanitation has increased, local municipal agencies have failed to recover the
    cost of maintaining their public facilities. Available cost recovery data for local
    public agencies in various cities offer a stark picture.


    The detailed study by Bagchi (2003) comparing pricing and cost recovery
    levels for urban services in three metropolitan areas -- Ahmedabad, Chennai,
    and Pune --found no significant improvement in the financial performance over
    the 1990s, notwithstanding the impetus towards decentralization provided by the
    73rd and 74th (1992) Amendments to the Indian Constitution. In all three cities,
    tariffs and taxes for water, sewerage and solid waste disposal were found to be
    unrelated to actual costs of provision. The rate of cost recovery for water and
    sanitation services was measured by Bagchi (2003) by comparing the share of
    water supply (WS) and sanitation revenues to total municipal revenue (TR) with
    the share of water and sewerage expenditure to total revenue expenditure (TRE).
    Thus, for the city of Ahmedabad -- the worst performer -- in 1990/1 while WS and
    sewerage contributed just 8.84% of the total corporation revenue, it accounted
    for almost 16% of the total expenditure. The relative shares in 1999/2000 showed
    no change – at 10.28% of total revenue versus 17 % of total revenue expenditure
    (see Table 4 in Bagchi). The cost recovery measures got much worse for all
    three cities when considering solid waste disposal (SWD) and sanitation services
    alone – i.e. without the share of water in revenue or expenditure. The per capita
    measures in Bagchi (2003) are more revealing. Again, for Ahmedabad in
    1990/91, the per capita income from SWD and sanitation was Rs. 0.12 (Rs. 5.65
    for Pune; Rs. 0.11 for Chennai) as opposed to the per capita expenditure on
    SWD and sanitation of Rs. 42.01(Rs. 52.86 for Pune; Rs. 44.66 for Chennai) . By
    1999/2000 these had increased to, respectively, Rs. 1.29 (Rs. 17.77 for Pune;
    Rs. 0.41 for Chennai) as against Rs. 170.20 (Rs. 129.54 for Pune; Rs. 112.93 for
    Chennai). Overall, with the exception of a few municipalities in Maharashtra and
    Gujarat, municipalities in no other state raise own-revenues sufficient to cover
    local expenditures (NIPF, 2004).


    Even with low levels of cost recovery for urban services, the three cities
    display poor ability and willingness to collect arrears in payment. In Ahmedabad,
    the percentage of collection to total revenue demand, including arrears, for its
    conservancy tax was 19.72 % in 1990/91 while increasing to 31 % by 1999/2000.
    The collection efficiency while higher for Chennai (34.49 % for its sewerage tax)
    and Pune (52.24 % of the sewerage tax), showed less improvement over the
    same period – overall collection efficiency in Chennai was lower at 30.87 % in
    1999/2000.


    The composition of total revenue expenditures (TRE) in all three cities
    suggests on the other hand a persisting bias towards unproductive use. Thus, in
    1990/91 share of salaries and wages (S&W) in TRE for SWD and sanitation in
    Ahmedabad was as high as 93 % (90.5 % for Pune; 89.37% for Chennai) while
    share of operation and maintenance (O&M) expenses in TRE for SWD and
    sanitation was only 6.13 % (0.005% for Pune; 4.31% in Chennai). The picture in
    1999/2000 remained mostly unchanged – S&W share at 92.95% (93.41 for Pune;
    87.24% in Chennai) versus a O&M share at 5.53% (4.95 % for Pune; 1.99 % for
    Chennai). What is more, expenditures on salaries and wages by municipalities in
    several states exceed their own-revenues, leaving little or nothing for
    maintenance and operational expenses (NIPF, 2004). The very low allocation of
    funds towards maintenance has meant rapid deterioration of existing public
    facilities over time and non-existent service.
     
  9. Rage

    Rage DFI TEAM Stars and Ambassadors

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    S.6. Conclusion


    The failures in provision of public sanitation in the Indian subcontinent
    have arisen less from any specific institutional failing than from the proclivity of
    the developmental state to ignore the prevailing preference bias towards private,
    as opposed to public, consumption. By overextending the level and type of
    provision relative to what local preferences would support, the state has set in
    motion outcomes that, considered jointly, are symptomatic of a “tragedy of the
    fiscal-commons”: low levels of tax compliance combined with endemic corruption
    and mis-governance often with a complete breakdown of public services and
    frequent resort to private supply options. The increased control over economic
    resources exercised by the Indian state, post-independence, has subjected it to
    the private-consumption demands by individuals and rampant corruption.
    Electricity, irrigation, water and sanitation services are often provided free of
    charge or significantly below-cost, and dues to the state frequently cancelled in
    fulfillment of electoral promises. Local public sanitation services have rarely, if at
    all, achieved financial self-sufficiency. Instead, sanitation departments in both
    urban and rural Indian districts have struggled through varying stages of fiscal
    bankruptcy and mis-governance, often with a total collapse in the provision of
    basic sanitation services.


    Greater efficiency in pricing and administrative reform including fiscal
    decentralization ensures an optimal supply of public provision only where a
    normal preference for the public good may be presumed. Given the lack of a
    normal preference for sanitation in the subcontinent the desired outcome in terms
    of a higher overall level of public sanitation is not ensured even under Tieboutmotivated
    efforts at decentralization. A positive role for the state confronted with
    the discussed bias towards private consumption rests as much on efforts to steer
    the underlying preference towards the provision of public goods as it does on
    better governance.


    http://pubchoicesoc.org/papers_2006/mehta.pdf
     
  10. Rage

    Rage DFI TEAM Stars and Ambassadors

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    This is a somewhat rigorous piece for those with a more firm grounding in economics from Dr. Nimai Mehta on an important issue that confronts us today: public sanitation- or the lack thereof- and its significant impact upon our economy. It analyses the issue of the paucity of public works- in particular in terms of dealing with consumer and institutional waste, and the lack of a proper culture of 'organized sanitation' and hygiene, traced from a historical-empirical perspective.
     

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