Wednesday, July 23, 2008

Providing Urban Amenities to Rural Areas

PURA is an ambitious program advocated by my dream scientist Dr. A.P.J. Kalam. However this model is fundamentally flawed. Although APJ has good intentions, he needs to understand a little bit of economics before propagating such basically flawed approaches. A simple example to illustrate the same:
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Milk delivery system
I live in a small & beautiful hill-top colony called "Bhawani Nagar" (located in Marol, Andheri East, Mumbai). Here there are around 2000 flats (perhaps, area could be of 500 meters by 500 meters). Consider the daily milk home-delivery system. Four delivery boys of a near-by milk-booth visit each home in the early morning and deliver the milk packet. What are the costs to the milk-booths? 

One-time cost: Because these delivery boys use cycle (of value Rs. 2000/- or less) as their transport, it is about 8000/- for the four boys.
Regular monthly cost to booth owner: Salary to the delivery boys is about Rs. 3000/- per month (their responsibilities are delivering the milk to approximately 500 flats on every morning, collecting the amounts, maintaining the accounts etc).

How this is transferred as a cost to the milk-consumers of these flats? Assume 50 Paise (about a US cent) for each day's delivery is charged to the flat owners. Now what is the revenue of the milk-booth on this home-delivery service? Monthly it is about Rs. 30000 (2000*0.50*30). 

Expenses on this service: Booth owner would spend about Rs. 15,000 monthly (including salaries to delivery boys, maintenance of cycles, defaults, etc). So this is a 50% profit business.
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Consider that similar service is offered in rural India for 2000 houses as was in our previous case. Assuming that 200 houses for a village, 2000 houses would be available in 10 villages. Now our model of milk delivery would slightly be modified due to the sparsely populated rural India. Milk is kept at a central location which has physical proximity to each of those 10 villages (hub and spokes model). Now the booth owner need to employ 10 people for delivery of the milk in the early morning. Now coming to the costs & profits to the booth owner.

One-time cost: Because these delivery boys use cycle (of value Rs. 2000/- or less) as their transport, it is about 20000/- for the ten boys. It is difficult to get the trained talent and so initial training costs equate to 2000/- for each delivery boy.
Regular monthly cost to booth owner: Salary to the delivery boys: Rs. 1200/- per month (their responsibilities are delivering the milk to approximately 200 individual houses on every morning, collecting the amounts, maintaining the accounts etc).

How this is transferred as a cost to the milk-consumers of these houses? Consider the fact that rural people are relatively poor and so, 5 Paise (about a US cent) is the amount can be charged for every single day of the delivery. What is the revenue of the milk-booth on this home-delivery service? Monthly it is about Rs. 3000 (2000*0.05*30). 

Expenses on this service: Booth owner would spend about 15,000/-(including salaries to delivery boys, maintenance of cycles, defaults, etc). Ideally to make this a 50% profit business he needs 30 thousand rupees revenue, however he actually makes of about 3 thousand rupees only. This makes it 10X disconnect.

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Conclusion: Rural India needs all those service which are present in urban India. However,  this is not economically feasible.  Rural India is sparsely populated. And so, distribution costs of services are obviously high. At the same time income of rural people is fairly low. And so, they can afford only a small part of service charges. 

Solution to this issue is by urbanizing few of the rural areas. Say, for example, create the infrastructure for 6000 urban locations. Those urban locations would in turn will provide services to neighboring rural areas. This is what exactly advocated by Atanu Dey in his RISC paper.

1 comment:

Abhinav Dhere said...

A really very good blog....development of villages is development of India...I write a blog that deals with development of India..if possible please do visit and give your valuable suggestions at:
http://nav-bharat.blogspot.com