Poverty Premium in Delhi

Aditi Dimri & Amiya Sharma

The term ‘urban poverty’ is as difficult to define as the phenomenon itself is easy to encounter. Although the phrase “urban poor” usually evokes vague equations with “people in slums”, urban poverty is far from homogenous in nature. This is probably why various government measures targeting India’s urban poor often fall short of expectations. Despite being located in the capital city, slums in Delhi are often relegated to the periphery when it is a question of access to services. Saddled with usually inefficient government provision of services, these slums do not even have the option of organised private alternatives since the private sector presumes that they do not possess enough purchasing power. Consequently, residents of Delhi slums often pay a poverty premium – either qualitative or quantitative or both – for most basic services. Poverty premium is the differential between the “real cost” per unit of a commodity paid by the urban poor and the formal market price paid by more affluent residents. This “real cost” includes the actual price paid for the commodity, as well as hidden costs like cost of access (including bribes), opportunity cost of procuring the service, cost incurred due to poor quality of the product, etc.

To ascertain the nature of this premium, a survey was undertaken in Sanjay Colony, a slum settlement in Okhla phase II, Delhi. The survey was conducted in June 2006 and covered 95 households. The aim was to calculate the poverty premium (if any) being paid by residents there for a basket of basic services comprising water, power, education, health, sanitation, housing and finance.

At the end of the month-long exercise, several striking facts came to the fore. It was established that residents of Sanjay Colony pay Rs 45 per kilolitre of water – 4 to 7 times the amount paid by subscribers to the Delhi Jal board (DJB). They also incur a heavy premium on credit, paying as much as 5-10% per month as interest on loans. Health and sanitation are also areas of concern. What is noteworthy is the fact that despite severe financial constraints, 54% residents of Sanjay Colony opt to go for private treatment on account of the various procedural hassles that government hospitals involve.

Delving deeper into the survey results brings to light the malaise surrounding an average Delhi slum today. In Sanjay Colony, water is the most valued commodity, its value derived from the fact that there is never quite enough of it. On paper, the DJB is supposed to provide water free of cost to slum clusters through tankers. In reality, provision through tankers is massively inadequate for this 30,000-strong community. Hence residents have to look for other sources of water – usually at a steep price. The main avenues for purchase of water are public toilet complexes, where borewell water (meant for consumption within the complex) is ‘unofficially’ sold. Nearly 60% of residents’ water consumption is bought against a price. Interestingly, the market for water has established a rigid equilibrium here: Re 1 for every 20 litres is the universal tariff, regardless of the source or amount of purchased water. As per the survey, the average expenditure incurred on water in Sanjay Colony is Rs 236 per month per household. For an average consumption of 5.28 kilolitres of water, this implies that residents here consume water at Rs 45 per KL, whereas most DJB consumers pay only between Rs 6.67 and Rs 11.83 per KL. These figures, of course, do not take into account the qualitative premium imposed due to consumption of such poor quality water that is hardly fit for drinking.

Coming to finance, the situation is just as grim. Not deemed creditworthy by commercial banks, slum residents have to resort to local moneylenders when faced with major expenditure. Most people, however, simply avoid borrowing on interest and try to make do with either their savings, or by asking for help within the extended family. The reason for this aversion to borrowing is not hard to figure out – local rates of interest are exorbitantly high. Community fund (also known as chit funds) interest rates at 2-3% per month (24-36% per annum) are only the lower end of the spectrum. Moneylenders shell out loans at nothing less than 5 to 10% per month interest. This converts into an interest of 60 to 120% per year, as against the usual bank rate of 8-12% per annum. Loans at short notice, in fact, are charged an interest of 15% per day! No wonder borrowing money is not a popular option in Sanjay Colony.

The reasons for poverty premium are numerous. On the demand side, lack of consumer options restricts choice, while on the supply side, the perception that the poor have no purchasing power leads to minimal corporate attention and ensures that consumer options remain limited. Informality of markets is another reason. Due to inadequate existing provision, informal markets crop up to cater to the unfulfilled service demands of a community. In the absence of monitoring, there is little incentive for this informal setup to focus on the quality of service. Illegality of residence compounds the problem, since it makes residents shy away from approaching grievance redressal forums.

The solution to this premium, of course, is tougher to pin down. In the course of the survey, what was striking was the fact that people expressed whole hearted approval to the idea of billed water provision (through pipe lines straight to home). This is one suggestion that merits careful thought keeping aside political desires of ‘benevolence’ that insist on maintaining provision “free” on paper, whatever the urban poor may actually be paying for it. Regarding finance, an institutionalised cooperative and community banking approach must be given due attention, especially after the ultimate recognition recently bestowed upon Bangladesh’s Grameen Bank model. Hence, what may be prescribed here is not a macro approach to the issue, but a more intensive micro analysis of individual problem areas. Theoretical generalisations of problems faced by the urban poor do not seem to have worked – a more involved and flexible approach just might.