Aspiration Versus Need: The Puzzle of Urban Poverty in India

Lawrence Haddad, an economist and director of the Institute of Development Studies at the University of Sussex, recently noted that the urban poor remain woefully underserved by the development community. In a piece for The Guardian, Haddad called for development organizations to up their game in terms of research and analysis of the needs of the urban poor.

My suggestion is that we go one step further: Yes, let’s enhance our understanding and adjust our focus. But let’s also use the full range of available tools, including market-based solutions, to act on what we already know – namely, that the urban poor aren’t just poor, and that they’re not just a passive group of aid recipients.

They’re also active consumers who have their own unique wants, needs and aspirations. And like any unique group of customers, they (along with the environment they live in) present both unique opportunities and challenges. Let’s look at some specifics based on the foundation’s six-plus years of experience working on urban poverty in India.

Urban Poverty in India: A Complex Picture

1)    Unlike many people living in rural poverty, urban slum dwellers already know water needs to be treated to be drinkable. However, home-based purification systems – which are often viewed as more desirable – are likely to be unaffordable. By contrast, well-maintained public water kiosks have the same health benefits and can be accessed by anyone who pays either a small monthly or a “per-use” fee. The adoption challenge thus lies less in health education than in convincing potential customers that a community kiosk is, given the price point, as desirable as an in-home appliance.

2)    Impoverished urban families believe their children have opportunities and are eager to support them. The boom in affordable private schools offers evidence of urban parents’ willingness to invest in their children’s futures, regardless of income. (In Indian cities, up to 85 percent of children are estimated to attend private schools.)  So does a recent survey of 1,400 Bangalore slum dwellers. According to the survey, 90 percent of parents wanted their children to become professionals – teachers, doctors, engineers, etc. – and were investing in their children’s chances of doing so. But the Bangalore survey found that few children were leapfrogging their parents’ in terms of career or earning capability. For example, over 65 percent of porters’ fathers were porters, and 48 percent of carpenters’ fathers were carpenters. Meanwhile, urban youth – many of whom drop out of school before grade 10 – are flocking to vocational training in over-priced (and low-quality) multimedia or technical courses. The challenge here is helping youth, especially those who dropped out early, achieve upward mobility through quality, affordable training programs that can help them gain employment not just in highly aspirational – but sometimes unobtainable – professions, but also in stable blue-collar trades like masonry or plumbing.

3)    The extreme density of India’s cities diminishes some costs of doing business while increasing others. Take an example from our own experience in urban microfinance: Urban loan officers can easily cover 900 to a thousand households for monthly collections (compared to an average of about 600 in rural areas.) However, urban MFI salaries typically ran 15 to 20 percent higher than rural salaries, while staff turnover tends to be higher, which increases recruitment and training costs. High population density also means the cost of renting space is at a premium. This adds to the expense of running any business, which has proven to be an especially knotty problem for affordable private schools seeking to comply with the space requirements under the new Right to Education (RTE) regulations.

4)    Higher nominal incomes mean the urban poor can spend more money on goods and services that will help them escape the poverty trap… right? Actually, this last point isn’t so clear cut. The urban poor do typically have more income and higher cash flows than the rural poor, but they also tend to have higher expenses as well as the opportunity to buy more (and better advertised) nonessentials at a relatively low price point. Think color TV sets and higher end mobile phones. The challenge here is aligning purchase, need and desire. How do we stimulate demand for market-based solutions that are vital to breaking the cycle of poverty, but that pack less immediate gratification that phones and TVs? Do sanitation companies need to match their advertising spend with mobile phone companies? I doubt that’s the answer, but I’m interested to figure out how philanthropies, development organizations and government will tackle the problem of stimulating demand.

Make no mistake: I’m not making the case that market-based solutions are the only (or the best) means of addressing the many problems facing India’s urban poor. And I’m certainly not saying we can set up markets and walk away. But I am convinced that, alongside the public and philanthropic sectors, the market is one key to addressing the escalating scale and depth of urban poverty in India.

Our job now is figuring out how to do it responsibly, effectively and scalably.

Read Lawrence Haddad’s post, “Poverty is urbanising and needs different thinking on development,” here.