Microcredit may have over-promised, but it still benefits millions: Esther Duflo

The public distribution system in India is no magic bullet to eradicate poverty, says economist Esther Duflo,who has been named among the 100 most influential people in the world by the Time magazine this year. At 38, Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at the Massachusetts Institute of Technology and co-founder of the poverty action lab. Her book, ‘Poor Economics’, which she co-authored with MIT colleague Abhijit Banerjee, makes compelling arguments about ways to approach poverty. In a wide ranging interview to Ullekh NP, Duflo talks about poverty in India and how freeing people from pure destitution can have a dramatic influence on their outlook to life.

How important has been the influence of technologies, like satellite TV, on India’s poor? How do you explain migration that is not triggered by lack of food?

There are many things besides food that people aspire to and this would explain why they migrate, especially as the opportunity afforded by fast economic growth in cities (such as construction jobs) are more and more numerous. TV may have played a role, by setting a common set of aspirations. Research by Rob Jensen and Emily Oster in India has shown that cable TV has led to spread of a more tolerant attitude towards women.

Do you think direct cash transfers will help reduce poverty, considering Jean Dreze and Angus Deaton study states that despite growth, there has been a fall in per capita calorie consumption in India?

I don’t know if a direct cash transfer programme would make the lives of the very poor better, but I think it is an experiment that should definitely be tried. No doubt, people would not spend all this extra income on food. Our research wherein we gifted a cow to the ultra-poor in West Bengal has shown that being freed from pure destitution can have a dramatic influence on people’s outlook to life, and perhaps help them get started on a better footing. There is no evidence that making cheap food grain available through the public distribution system (PDS) helps in ensuring a minimum level of nutrition. Many of the poor do not use the PDS: when we made double fortified salt (with iron and iodine) available at subsidised prices in the PDS, few people used the voucher. But they did when it was available in the village store. Moreover, even when food is cheap, people may use the resources freed by the fact they have to spend less on basic necessities on things other than food. This was demonstrated in China. I think the PDS is very far from being a magic bullet.

Why haven’t you dwelt on one of the most effective job schemes in recent times, the MNREGA, in your book?

There is not a huge amount of evidence on the impact of MNREGA yet, although there are some studies under way.

How do you rate the poverty index developed by the Oxford Poverty & Human Development Initiative?

It is important to recognise, as Amartya Sen did a long time ago, that poverty is not only about lack of income: it is lack of a proper education, health, ability to realise your potential, control over your life. I am a bit unsure about the value of putting all this into a single index: how do you know how much to weigh each component? It makes sense to look at all these variables separately.

How do you ensure you get reliable data in India?

India has excellent data.The NSSO was established by some of the world’s most prominent statisticians. In cases where the data is not good, it is because it is collected by people who have incentives to distort the truth---for example, nurses report data on immunisation, but they are also rewarded on the basis of people who are immunised ... we need independent data measurement apparatus. For crime measurement, this is now in the process of happening after our work with the Rajasthan police showed that the picture of crime statistics was distorted by the incentives of policemen not to file FIR for petty crimes if they could avoid it.

What does the ongoing shift in dietary pattern mean for India?

According to Deaton and Dreze’s analysis, poor Indians eat less and less calories, and their children’s nutritional status is very poor. Finding ways to make sure that kids get the micronutrients they need from an early age (before they are eligible for school meals) should be a huge priority.

Are you developing any market-based system to deal with air pollutants?

My colleagues Michael Greenstone, Rohini Pande, Nick Ryan, and Aparna Krishnan are collaborating with Indian minister Jairam Ramesh and the pollution control boards in several states to put in place and pilot a market-based system for carbon and evaluate its effectiveness. This would be totally unique.

You seem to look up to micro-financing, but not its Indian experiment. What are the key lessons from India?

That’s actually not true. The first randomised evaluation of a group-based microcredit programme was conducted by us in collaboration with Spandana, in Hyderabad. We found real, if modest, effects, that we explain in detail in the book. The main lesson is that microcredit may have overpromised, but it still delivers tangible benefit to millions of clients, and it needs to be protected against political interference, such as those we have seen at work in Andhra Pradesh, or in Bangladesh.

What are you currently working on?

In India, I am finishing a project on improving compliance to environmental regulation in Gujarat, and starting a new project to make double fortified salt (salt fortified with iron and iodine) available to villagers in Bihar.

How prone are you to rhetoric?

I hope not too much.