Evaluation of Infrastructural Interventions for Rural Poverty Alleviation

This study starts from the premise that positive externalities must play a critical role in the selection of projects, which may fail the tests of conventional cost-benefit analysis. It proposes an alternative method for the evaluation of rural infrastructure projects. This paper emphasises the information constraints of traditional methods and how policy makers have to make decisions about choosing from projects without having a full perception of the benefits that will accrue. It highlights the need to build a systematic methodology specifically suited to the evaluation and selection of infrastructural interventions designed to deal with poverty alleviation in rural areas. The paper presents a method for the generation of suitable information for the decision-making process.

It states how the emphasis was, and sadly, even today tends to be, on conventional cost-benefit analysis that usually fails to capture the spin-off benefits that accrue from the creation of rural infrastructure. In a project, which produces physical goods, it is quite easy to value the produce by taking market prices. Also, in most industrial projects costs are clearly identified and the output is repetitive which means that, given the technology, it is easy to calculate the stream of costs and benefits that will flow. This, however, is not the case with rural infrastructure. An infrastructure project aimed at poverty alleviation in rural areas will, of course, have some conveniently measurable direct and tangible benefits but, in the main, benefits that accrue from such projects are more often than not indirect and intangible.

Rural infrastructure projects also trigger a number of forward and backward linkages whose benefits cannot be directly or indirectly measured and quantified, as is the case with activities such as rural roads, irrigation, health, education and housing. This characteristic of rural infrastructure has led to the realisation that multiplier effects and employment generation effects need to be incorporated in the analyses. The economic and social consequences of rural unemployment and poverty are more than the wage income foregone. Thus, income created for poor rural households and their energy/fuel gaps covered need to be 'valued' more completely.

It recommends, as the first step, a cost-benefit analysis of all financial and social costs and benefits of rural infrastructure projects. The second step should be the assignation of distributional weights for determining the likely benefits across the full range. Next, it concludes that policy makers should be apprised of the full range of possible outcomes. Last but not the least, it recommends that there should be devolution of economic powers to local bodies so that project selection becomes more meaningful.