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V Kumaraswamy: Hope of deliverance

Why improving public services delivery efficiencies is tough

V Kumaraswamy  |  New Delhi 

In recent months, politicians have made a great deal of noise about the inefficiencies in public service delivery and resolve to bring deliverance to the intended beneficiaries. Good luck to them.
It was Rajiv Gandhi who first revealed that for every rupee the government spent only 15 paise (an 85:15 ratio) reached the intended beneficiary. This may be as true today as then.
As a fact, it may be correct; as an exhortation to his civil servants to control inefficiencies, essential but as a strategy for poverty alleviation, it is probably hoping too much. Let's see why.
Distribution is a costly exercise. Take the recent case of some European airlines trying to cut the travel agents' commission.
As a pink paper quoted, the total distribution cost of tickets to the airlines, including the agents' commission at 9 per cent, is 23 to 28 per cent "" presumably including interest costs, periodic freebies, slab discounts, the system set-up and operating costs. No wonder eliminating these by Internet booking has led a whole new industry "" the low cost airlines.
Now, let's consider the delivery costs of FMCG products. Let's say the final price of a cream, bard of soap, soft drink or shampoo is Rs 100. Knock off 10 per cent for retail margins; 16 per cent cenvat; 6 per cent for the town stockists or wholesalers; 2 per cent for the cost of reaching it to them from the state nodal point; 12 to 16 per cent state sales tax; 6 per cent for the state distributor; 3 to 4 per cent for insurance, transport, handling and so on. Added to these are the price-offs, write-offs, two-for-one type schemes, volume discounts and personnel costs along the channel. For the best in the business these can be an additional 15 to 20 per cent.
These percentages are telescoping (that is, calculated on the cost up to the previous stage) and the FMCG company wouldn't get even Rs 40 for every Rs 100 you pay. It could be much less. Deduct the advertising costs (which may be 10 per cent or more), sales overheads, interest and packaging costs (which is often 40 per cent of the core product costs).
The core product "" the powder, paste or water "" will not cost any more than 15 to 20 per cent of what you pay. Anyone involved in distribution function will testify to this. The "Rajiv Gandhi ratio" will be 80:20.
If this is the case for private enterprise, aren't we being rather hopeful in presuming that the government will do better? With the best of efforts the 85:15 might become 80:20 or 75:25 "" good, but not enough for bring about lasting salvation.
The World Bank's World Development Report (WDR) 2004 is full of lament after lament (they call it diagnosis) about how systems have failed and not delivered to expectations on every conceivable public service from Cameroon to Cambodia, Brazil to Bangladesh. That proves one point: India is not alone.
There is an essential difficulty in delivering services to people located in uneconomical numbers over a vast area and little buying power. How do you establish a postal system to deliver two letters a week to a village of 300 people living four to five kilometres from the nearest mud road?
How do you deliver affordable healthcare to the people sitting in a remote jungle, who aren't literate, who blame fate for their illnesses and haven't heard of medicine. Even the WDR does not seem to have a credible workable proposal capable of general application.
One may argue that service is not goods and that costs in distribution of goods, like interest, storage, insurance and transport, are not applicable to services. But laying electricity lines, building schools and primary health centres, so essential to deliver services, are even more capital- and interest-intensive than physical distribution.
Plus, there are other more hurdles and peculiarities. You cannot have "sachet" packets "" the Re 1 or Rs 2 sachets for soaps and shampoos "" consumer marketing companies created when the Rs 20 to Rs 30 packets were beyond the reach of the low-income groups.
Breaking bulk in most services is almost impossible. You cannot encapsule primary education in two weeks; nor can you deliver primary healthcare by asking 1/100 of a doctor to visit the village. You cannot construct toilets (even community level) at 1/24th the cost just because it is effectively used only for an hour a day.
Plus, many of the social services that the government wants to give are not still in the radar of hierarchy of wants of the recipients. For a man starving for the last few days, literacy, healthcare and sanitation are distant priorities.
Even commercial marketing involves sustained efforts over a long period even if the goods yield instant and visible gratification. The "sustained efforts over a period of time but benefits years later" syndrome in education, literacy, family planning and so on adds to the lack of "pull" and apathy. Overcoming these involves a lot of money.
No doubt we should improve our delivery efficiencies: our systems aren't squeaky clean, bureaucrats aren't Rolls Royces and our politicians aren't lily white. But to rely exclusively on this would be like trying to pin the clouds to the sky. Even if we succeed, it will only be on the drawing board.
(The author works with Atul Limited. Views expressed are personal.)

First Published: Thu, September 02 2004. 00:00 IST