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Indian Budget: Last-mile behavioural problems


In this year’s budget, the government announced direct cash transfers as an alternate to the existing subsidy on kerosene and fertilizers to prevent leakages. This solution is a major step forward in plugging one of the biggest loopholes of our economic system. This circumvents the corrupt middle men who have been usurping these subsidies for a long time. But, what are the odds that middle men will not usurp this money, meant to light the kerosene lamps in all village homes, by setting up  liquor and gambling dens?

These vagaries in the individual’s behaviour who is enjoying the fruits of government expenditure is not only undoing the benefits of those expenditures but also creating more complex problems than that  existed before.

For example in this year’s budget Rs 103.40 bn is allocated for National Highways Development Programs.  On the face of it, this very large sum of money will help build new and improved roads  which will improve the quality of transportation and in turn helps the growth of the national economy. On closer look one finds a very different picture.

Even as the quality of the roads improve, vehicle riders respond by increasing speed on these very roads, resulting in more accidents in the better-quality roads.

Every day close to 300 people die in India due to road accidents. Ironically, the Pune-Mumbai express way, one of the best roads in India, is also the one that has the highest accident rates. Road accidents are the largest cause of deaths among the 10-24 age group. India boasts of having a huge demographic dividend – a large percentage of young population. Road accidents cause the single largest drain to this population on a daily basis. It is estimated that the annual cost of road accidents and injuries in India is around Rs. 550 billion, close to 3% of the GDP. The irony is that the amount earmarked to improve the quality of our highways is 1/5th of this loss.

Faulty driver behaviors  like over speeding, not wearing helmets and seat belts are the main causes of road accidents. Faulty behaviors at the last mile are causing problems else where in the economy too.

Plan allocation in this year’s budget for Ministry of health and family welfare is Rs 267.6 bn and rural heath mission is Rs 178.4 bn. TB eradication program in the country is one of the largest health care program in terms of investment not just in India but also in the world.  Government agencies and NGOs have created an efficient infrastructure to spread awareness about the disease, identify the patients and distribute medicines at a concessional rate to them.

But what happens after that? Many of the patients  as soon as they see an improvement in their conditions, discontinue taking the medicine and do not complete the full dosage of medicine. The existing levels of drugs in the body are insufficient to kill 100% of the bacteria. The remaining bacteria in the body of these drop outs lead to the formation of multi drug resistant tuberculosis . MDR tuberculosis is 100 times more costly than treating a first time infection and requires  3-4 times more time to recover and has a much higher morality rate. Thanks to increasing incidence of MDR tuberculosis, country will soon be staring at a tuberculosis problem more acute than the original problem they set out to solve.

This is a serious problem. Obviously the solution is not to stop investing in building better roads or not providing health care in the country. The solution to this problem lies else where.

Government cannot assume that its job is over by making sure the benefits of its programs reaches the end user. Many of its economic policies and practices are based on the belief of Classical Economics, which extols the virtues of an economic man who is an intelligent, analytic, selfish creature, and who takes logical and rational decisions.  But  the ground reality  is very different. The crucial last mile is the behaviour of the end beneficiary with respect to the benefit that has reached him. This problem at the last mile is not an economic problem but it is a behavioural problem. Human beings are irrational and make decisions even involving life and death in a hap hazard way. No wonder, rational “slow down’ signage on the roads do not slow us down, nor the gory picture on a cigarette pack deters us from smoking.

President Obama and Prime minister David Cameron  are some of the world leaders who have already realized that the successful implementation of government policies are intrinsically  linked to the management of the behaviour of the end beneficiary. The dogmas of the past that helped manage the hard numbers of the economy will not be useful to manage these critical soft issues. In the last few years new sciences like Cognitive Neuroscience and Behavioural Economics are helping to throw new light on why human beings end up doing what they do. But the starting point of developing new strategies to tackle this last mile problem is a new realization that the last mile of all economic activity is the irrational behaviour of an individual that needs intelligent management.

#behaviour #behaviouraleconomics #obama

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