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Poverty: The direct approach isn't always best -Bjorn Lomborg & Manorama Bakshi
-Livemint.com

It is important to give preference to those approaches that help the poor the most for every rupee spent, no matter how they are labelled

Sometimes in life, it is clear that the direct approach isn’t the best one. This is true in many areas, even when it comes to policymaking. Take, as an example, the area of extreme poverty. It seems logical, at first, that the most effective response should be head-on: giving money and assets to protect people from income shocks.

In recent times, microcredit schemes have been presented as a panacea, attracting a lot of money around the world. However, a series of trials have shown that microcredit doesn’t do much good—often not even increasing average incomes, and burying the poor in debt.

Subsidized crop insurance is another direct approach designed to help generate more income for the poorest of farmers by making agriculture less risky. But how useful is this approach? New research by Munshi Sulaiman, research director of Save the Children International, with Michael Murigi of the University of Sydney, analytically weighs the costs and benefits of this along with other direct approaches to poverty alleviation.

The Pradhan Mantri Fasal Bima Yojana (PMFBY) is the most recent—and most comprehensive—crop insurance model, launched in 2016 and reaching some 39 million farmers. Typically, the insurance premium is almost entirely paid by the Central and state governments. Taking the state of Andhra Pradesh as an example, the researchers find that PMFBY, if expanded from 22% coverage today to 50% coverage in 2024, will cost around Rs2 trillion. This expenditure generates a number of benefits, including the actual insurance payouts, and allows farmers to take higher risks on more valuable crops that rely on bigger levels of rainfall. The insurance safety net means fewer suicides and less malnutrition for farming families.

While protecting farmers from income shocks is an important outcome on its own, the benefit of insurance coverage on farmers’ risk-taking behaviour, investment decisions and impact on productivity are the major economic justifications for subsidizing crop insurance. In the long run, two-thirds of the benefits come from the payout and one-quarter from higher profits. In total, every rupee spent on the policy achieves societal good worth about Rs1.40 in Andhra Pradesh, and about Rs1.50 in Rajasthan, another state the researchers looked at. In this case, the direct approach to alleviating poverty by subsidizing insurance does achieve more than it costs, but it can hardly be said that it has dramatic returns.

Another approach is a direct response to poverty that combines very specific interventions in a way that has been shown to have an immediate and sustained impact on food consumption, income, and savings, as well as assets.

Eliminating extreme poverty depends critically on creating sustainable livelihoods for the economically active ultra-poor: households which are landless and primarily rely on casual work for their livelihood. The success of a “graduation approach” in a number of countries has made it a critical tool in social protection schemes. More than 40 countries are now implementing different versions of this model, at various scales. This approach was forged by the world’s largest non-governmental organization (NGO), the Bangladesh Rural Advancement Committee (Brac), and is implemented at a small scale by various NGOs in West Bengal, Andhra Pradesh, and Jharkhand.

This model follows a strict set of targeting criteria to reach the ultra-poor and provides time-bound support that usually lasts between 18-24 months. First, food or money is given to the poor to ease the stress of daily survival. Second, beneficiaries are encouraged to start savings. Third, they are provided with livestock or other income-generating assets. Following this, there is training provided in both technical skills and life skills. Finally, beneficiaries are provided with health support.

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