Author: Smriti Sharma

Smriti Sharma is a researcher at the National Institute for Public Finance and Policy.

• Sustainable strategy to eliminate vector-borne diseases, 28 February 2017
• Problems of the Health Management Information System (HMIS): the experience of Haryana, 13 June 2016.
  
• Closing the gap between farmers and warehouses, 13 July 2015.
  
• Improving warehousing in India through a grading mechanism, 25 March 2015.
  
• A dramatic cost reduction for KYC using the e-KYC API of UIDAI, 14 September 2014.
  

Sustainable strategy to eliminate vector-borne diseases

by Shubho Roy and Smriti Sharma.

In his budget speech of 2017, the Finance Minister Arun Jaitley announced that the government has prepared an action plan to eliminate two vector-borne diseases by the end of this year (Paragraph 64):

"Poverty is usually associated with poor health. It is the poor who suffer the maximum from various chronic diseases. Government has therefore prepared an action plan to eliminate Kala-Azar and Filariasis by 2017..."

Kala Azar, also known as Visceral leishmaniasis, is caused by a protozoan parasite of the Leishmania genus. It is carried by an insect vector: Sandfly. If left untreated, Kala Azar can lead to the death of the patient.

Filariasis is a painful disfiguring disease which is caused by roundworms of the Filarioidea superfamily. It is carried by a mosquito vector: Culex quinquefasciatus. The most disturbing symptom is elephantiasis where the patients body parts swell to massive proportions. The infection generally occurs during childhood but manifests itself later in life and can lead to permanent disability.

In this article, we analyse this announcement. We argue that eliminating vector-borne diseases is a good cause for health policy to pursue. However, there is a need to place these actions within a larger strategy on communicable and vector-borne diseases. The critical component of that, which is at present lacking in India, is a sound surveillance system.

Communicable diseases in health policy

A lot of what governments do in the field of health is of dubious value. Tackling communicable diseases, like Kala-Azar and Filariasis, however passes the basic tests of public economics (Hammer, 2015). Communicable diseases involve a market failure, an externality. When one person gets infected, not only does that person suffer, there is the possibility of others getting infected. This is a negative externality. Each person will under-spend on preventing or curing the disease as the individual does not price the adverse impact upon others. This creates a market failure and justifies a role for the State.

In the extreme, when we get to eradication, we get to a public good. When a communicable disease is eliminated, everyone is protected, even if they did not pay for it. It fits both the tests of a public good:

1. non-excludable: it is not possible to prevent consumers who have not paid for it from having access to it. There is no way to ensure that only the people who paid to eliminate Kala Azar don't get Kala Azar and others are still exposed to it.
   
2. non-rivalrous: it may be consumed by one consumer without preventing simultaneous consumption by others. When an infectious disease is eliminated, it cannot come back. Enjoying good health by some persons does not reduce the supply of good health, i.e. absence of the disease.
   

Why Kala Azar and Filariasis?

But we must ask: Why were Kala Azar and Filariasis prioritised for elimination in the Budget speech?

It is not because they are most widespread diseases in the country. Statistics from the Directorate of National Vector Borne Disease Control Programme (NVBDCP) (Table 1) show that here are other vector-borne diseases like Malaria, Dengue and Chikungunya which are more important.

Table 1: Magnitude of vector-borne diseases in India (2014)

Disease	Cases in 2014	Deaths in 2014
Malaria	1,102,205	562
Dengue	40,571	137
Chikungunya	16,049	Unavailable
Encephalitis (Japanese and Acute)	12,528	2,084
Kala Azar	9,241	11
Filariasis	Unavailable	Unavailable

Perhaps it is felt that these diseases are low hanging fruits. Kala Azar is restricted to four states while other vector borne diseases are everywhere. In 2014, a new drug liposomal amphotericin was found to cure Kala Azar with a single dose. Previously, a course of 28 daily doses with hospitalisation was required.In the case of Filariasis, India has reduced the national microfilaria rate (based on sample blood tests) from 1.24% in 2004 to 0.44% in 2014. In Goa, Daman & Diu and Pondicherry, the rates have fallen low enough that mass drug administration (the standard treatment methodology) was stopped in 2012. The government has also achieved good coverage under Mass Drug Administration with 85.6% of the population covered in 2014.

Choosing low hanging fruits has its virtues. It allows for quick results and can potentially help create State capacity. There is a unique charm to eradication. Once a communicable disease is eradicated, you do not have to work on it again (apart from some low-level continued surveillance to check for recurrence). This frees up resources for other purposes.

A story of failure

In the recent past, India has seen many outbreaks of re-emerging infections, which were claimed to be eliminated. Kala Azar itself reemerged after near eradication in the 1960s. DDT was used for controlling malaria between 1953-64. This helped to decimate the sand-flies that cause Kala Azar. But the pathogen continued to reside in humans. In 1977, when the sand-flies resurged, Kala Azar resurfaced. The disease again resurged in 1983 and 2003 (Muniaraj, 2014). The National Health Policy of 2002 had envisaged elimination of Kala Azar and Filariasis by 2010. This was postponed to 2015.The plague in Surat in 1994 was followed by an outbreak of pneumonic plague in Himachal Pradesh in 2002 (Joshi et al., 2009). There was another bout of plague in Uttarkashi in 2004 (Mittal et. al., 2004). The first outbreak of Chikungunya in India was reported in 1963 but it resurged after three decades in 2006.

What does it take to finish the job?

It is important to ensure that an elimination drive is sustained beyond its stated date. Vector-borne diseases will not cease to exist with the administration of mass dosage of drugs alone. We need continued disease surveillance and epidemiological investigation post-2017 too. A Kala Azar patient can relapse after six months after the end of treatment. Similarly, Filariasis does not manifest itself in early stages in any outward symptoms. The infected person can thus continue to host the disease for several years.

India is at the cusp of eliminating Kala Azar and Filariasis. It must ensure that the eliminated diseases do not re-emerge. This requires a surveillance system. Surveillance can provide information on entomological data, which can help in creating clusters of diseases that can be targeted by similar vector management measures. Surveillance for epidemiological data can help in calculating the disease burden attributable to each disease. Lastly, surveillance can provide information on implementation. This can help in monitoring and evaluation of disease control and prevention.

Prevention, control and surveillance: current scenario

NVBDCP's present strategy concentrates on vector management by using indoor residual spraying, nets impregnated with insecticides and anti-larval measures. In addition, early diagnosis and complete treatment is provided to afflicted patients. NVBDCP frames technical guidelines and policies to guide States for implementation. Health departments are responsible for the prevention and control of vector-borne diseases at the State level. But their approach to vector-borne diseases continues to be ancillary and ad hoc in absence of entomological and epidemiological data, and data dissemination:

• Poor entomological surveillance: The government established 72 zonal Malaria offices to conduct entomological surveillance but only 50% of these are functional. State health departments conduct larval surveys but they do not count adult mosquito populations. The field staff uses the outdated ladle and dip method for studying the vector population, despite the availability of new and improved devices like ovitraps. Vector management efforts employ fogging and anti-larval activities to contain mosquito populations. But, this is done without adequate evidence on vector populations.
  
• Poor epidemiological surveillance: IDSP has a laboratory network of 117 district labs in 28 States/UTs to perform tests for epidemic-prone diseases. Out of the 117 laboratories, 44% of the laboratories do not conduct all the tests recommended under IDSP. This means that some diseases cannot be confirmed and therefore they remain unreported. Private healthcare providers do not report diseases and that leads to under-estimation of the disease incidence. The data for dengue, Kala Azar and Chikungunya on NVBDCP's website is outdated enough to render it useful for public health management. Case and death data for filariasis is unavailable.
  
• Poor data collection and dissemination: The reports from the rural reporting units to District Surveillance Units of IDSP are often delayed. While 85% districts communicate surveillance data through emails, 67% report data through the portal. This leads to delays in collating and analysing data. State health departments campaign, educate and inform the public about the diseases. But, none of the measures taken by State health departments are ever evaluated for their impact.
  

The information from NVDCP has three groups of problems:

1. Missing data: The epidemiological data for some diseases is either incomplete or missing. The missing data on deaths cannot be construed as zero deaths.
   
2. Policy decisions without evidence: India hopes to eliminate Filariasis by the end of 2017. But there is no data on the number of cases and deaths resulting from Filariasis.
   
3. Under-estimation of incidence: The burden of disease is likely to be highly under-stated by the official statistics. As an example, Dhingra et. al., 2010 estimate that Malaria kills between 125,000 and 277,000 persons in India every year. This is vastly unlike the official statistics. Similarly, Haanshus et. al., 2016 find that in the class of hospitalised patients with undifferentiated fever in India, malaria prevalence is as high as 19%. Similarly, Shepard et. al., 2014 estimate there were 5.8 million cases of dengue per year.
   

Building a surveillance system

A sustainable strategy should bring down the infectious diseases in the short term and avoid resurgence later on. The US Centers for Disease Control and Prevention (CDC) has developed a framework for preventing infectious diseases which focuses on:

• Continued surveillance of infectious diseases, laboratory detection and epidemiological investigation;
  
• Reducing diseases by developing vaccines, preparing strategies for infection control and treatment;
  
• Using scientific data to inform health policies to prevent and control infectious diseases.
  

India requires the development of similar principles. We need a robust surveillance system that measures all vector-borne and communicable diseases. This system should generate a constant stream of good quality data which can feed back into management decisions in public health.

The policy agenda for vector borne diseases involves the following components:

• Building entomological surveillance capabilities: State health departments should invest in their entomological surveillance capabilities. They should systematically collect and document changes in vector occurrence, abundance and infection rate for the entire country. State health departments should complement larval surveys with adult surveys. In order to estimate and monitor adult mosquito prevalence, health departments should procure mosquito traps like ovitraps and BG-Sentinel traps (Sivagnaname and Gunasekaran, 2012). State health departments should make the entomological surveys public. For example, the Health Department of New York has launched interactive maps. These maps show the progress made on mosquito surveillance and control operations. The City of Chicago publishes maps with a list of locations and mosquito test results. The CDC displays information on vector borne diseases in maps which also give information on the vectors for each disease.
  
• Improving epidemiological surveillance: The government should assess the disease burden for each vector-borne disease. State health departments collect information on disease incidence and mortality. The epidemiological surveillance should also include information on geographical distribution of the disease and sub-populations affected. This information should be compiled and made publicly available. Better laboratories are required that conduct tests for all the vector-borne diseases.
  
• Improving data collection and dissemination: The government should strengthen data management. The health staff responsible for collecting entomological and epidemiological data should be given electronic devices like tablets or mobile phones. The field staff should enter surveillance data through these digital devices. For example, Kenya moved away from manual data reporting to electronic data reporting for its National Tuberculosis, Leprosy and Lung Disease Programme with an Android based application called TIBU. Florida's Department of Health puts out weekly and annual reports on surveillance. State health departments should also conduct impact analysis on vector control measures. NVBDCP and IDSP should make these studies publicly available to all the stake-holders including other State governments, the private sector and consumers.
  

Building a generalised and integrated communicable disease management system is laying infrastructure. It can be used for tackling different problems from year to year. Our objective should be to lay this general infrastructure, and not narrowly run campaigns targeting one disease or another.

For an analogy, consider Aadhar. Aadhar is just an identity platform. However, it has been built on robust technology using sound processes. In itself, Aadhar does not do much. However, Aadhar can act as a backbone for multiple initiatives ranging from financial inclusion, rationalising subsidies, targeting delivery of public services, national security, preventing corruption and leakage, etc. It constitutes a general purpose infrastructure which builds a platform on which many specific public services can run.

In similar fashion, a well designed communicable disease management platform which leverages technology can be used to deal with kala-azar and filariasis this year, but can be used for malaria, chikungunya and dengue the next year. The same surveillance, monitoring and data dissemination systems will work for multiple diseases. So far, the government has integrated the disease surveillance programme, i.e. brought multiple programmes under one umbrella but it has not re-imagined the way it should be carried out.

References

The case for Universal Healthcare is weak by Jeffrey S. Hammer, July 2015, Ajay Shah's blog

The lost hope of elimination of Kala Azar (visceral leishmaniasis) by 2010 and cyclic occurrence of its outbreak in India, blame falls on vector control practices or co-infection with human immunodeficiency virus or therapeutic modalities by Muniaraj Maylisamy, 2014, Tropical Parasitology

Epidemiological features of pneumonic plague outbreak in Himachal Pradesh, India by Joshi K et al., May 2009, Transactions of the Royal Society of Tropical Medicine & Hygiene

Quick control of bubonic plague outbreak in Uttar Kashi, India by Mittal V et al., December 2004, The Journal of Communicable Diseases

Report of the Working Group on Disease Burden for the 12th Five Year Plan by Planning Commission, Govt. of India, May 2011

Adult and child malaria mortality in India: a nationally representative mortality survey by Dhingra Neeraj et al., October 2010, The Lancet

A high malaria prevalence identified by PCR among patients with acute undifferentiated fever in India by Haanshuus CG et al., July 2016, PLOS ONE

Economic and Disease Burden of Dengue Illness in India by Shepard Donald S. et al., December 2014, The American Journal of Tropical Medicine and Hygiene

Need for an efficient adult trap for the surveillance of dengue vectors by Sivagnaname N. and Gunasekaran K., Indian Journal of Medical Research, November 2012

Handbook for integrated vector management by World Health Organization, 2012

Smriti Sharma and Shubho Roy are researchers at the National Institute of Public Finance and Policy, New Delhi.

Problems of the Health Management Information System (HMIS): the experience of Haryana

by Smriti Sharma.

Last year during a "Beti bachao, Beti badhao" video conference, errors in the data became visible. The `Maternal Infant Death Review System' (MIDRS) of Haryana showed that the health staff in some  districts of Haryana had been grossly under-reporting deaths of mothers and infants. As an example, for the trimester of April-June 2015, the number of infant deaths measured in the MIDRS was 3,307, but only 728 were reported into in the Health Management Information System (HMIS). For maternal deaths, HMIS showed 21 deaths while MIDRS showed 145.

MIDRS is a surveillance-based system which was launched by the Haryana government in 2013 to keep tabs on such under-reporting. The system includes a mixture of routine passive data collection and active surveillance by specially recruited and trained field volunteers. Ironically, HMIS too was conceived as a mechanism to monitor the functioning of the National Health Mission (NHM).

Inaccurate data in HMIS raises concerns about the working of NHM. In this article, we take a close look at the HMIS in Haryana and understand the sources of difficulties.

HMIS: A management tool for National Health Mission

The Indian government launched the `National Rural Health Mission' in 2005. This was renamed as the `National Health Mission' (NHM). HMIS was intended as a management information system to oversee the working of NHM. NHM is a national mission that runs through the length and breadth of the country. There are approximately 1.8 lakh health facilities that make use of HMIS to capture data.

HMIS captures data about antenatal coverage, immunisation coverage, delivery services, family planning coverage indicators etc. Some states like Haryana used another system called DHIS for data collection at the State level. These systems remained in operation, but their data was uploaded into HMIS to achieve comprehensive information in HMIS.

Substantial public expenditures are taking place through NHM. For NHM to work effectively, HMIS must be sound. Hence, the reports about errors in HMIS are particularly alarming. If HMIS contains faulty information, there may be substantial failures in the working of NHM. This motivates HMIS as the object of study.

How does HMIS collect data?

Figure 1 shows how data flows into HMIS. The Indian public sector health system has multiple tiers, where the first point of contact between the community and the health system is the sub-centre where the most peripheral health services are provided. Here at the sub-centre, when a pregnant woman walks in, an auxiliary nurse & midwife (ANM) jots down her details into her register.

The ANMs at the sub-centre level do not have access to computers and have to record information in handmade registers. ANMs maintain multiple registers and carry all of them every month to the relevant Primary Health Centre where the information from their registers are transferred onto the DHIS (in Haryana) by a Data Entry Operator.

Figure 1: Data flows in HMIS

Figure 1 also shows the different levels at which the data is aggregated. Data from the sub-centre, primary health centres and community health centres is aggregated at the block level. The data sent from the block level and sub-district hospital and district hospital is aggregated at the District Headquarters. The District Headquarters then sends the aggregated data to the State Headquarters which forwards it to the national level.

Issues of data quality

Numerous concerns have been raised about the quality of the data. Singh et. al., 2014, found that many districts in Haryana were routinely over-reporting data. For example in Palwal district:

• ANC registrations were 47% higher than the total number of expected deliveries. Expected deliveries refer to the probable number of pregnancies which is calculated by multiplying the total population of the area by the birth rate.
  
• Reported deliveries were 11% higher than the expected deliveries.
  
• Measles vaccines administered were 16% higher than the number of reported live births.
  
• Overall, only one district (out of the 21 districts in Haryana) did not have reported occurrence (eg. immunisation rates, deliveries, children weighed) higher than the total population.
  
  

In a recent paper, Sharma et. al., 2016, found that the ANMs over-recorded the following two indicators the most:

• 3 or more Antenatal Care (ANC) visits by pregnant women
  
• Provision of 100 or more Iron/Folic Acid (IFA) tablets
  

When the ANMs reported the data for monthly submission, the data they inflated the most pertained to:

• IFA supplementation
  
• Contraceptive device insertions
  
• Administration of 2nd dose of Tetanus Toxoid (TT) to pregnant women
  

The authors find that data were over reported because it was known to the health staff that these particular indicators were crucial to the success of the program. Numbers were inflated when the actual coverage of service delivery of a sub centre was low; inflating the data helped to hide low performance.

Going by IPHS Guidelines, it is the responsibility of ANMs to register pregnant women and provide at least four antenatal check ups to pregnant women. They are also responsible for administering IFA tablets. We may conjecture that by inflating these indicators, ANMs were making their performance look better than it was.

Reasons for bad data quality

Why is the quality of data so bad?

Lack of capacity

HMIS was launched in 2008, but as yet, computers and the internet have not reached down the entire chain. There are two chronic problems:

• Lack of infrastructure: Data entry at the sub-centre level is by ANMs writing into physical registers. There are bound to be errors at this level because ANMs record data in handmade registers which are very badly designed. These registers sometimes do not have enough space available to write. Also, handmade registers do not necessarily capture all information that is necessary for the DHIS.
  
  
• Over-burdened manpower: At the PHC level, the Data Entry Operator is responsible for entering data for DHIS. Alongside, she is responsible for fulfilling several other reporting requirements too. For example, there is another health information system called Mother and Child Tracking System (MCTS). This too has its parallel reporting requirements and the Data Entry Operator has to report data for MCTS too. Similarly, the Data Entry Operator has to undertake data entry of immunisation report, vaccine and logistics, release and logbook data.
  
  

Lack of accountability

We spoke with the personnel at all levels of HMIS in Haryana. We were told that data errors happen, and are verbally pointed out over telephone calls. Those numbers are then corrected and re-submitted. There is a casual, informal camaraderie between Data Entry Operators and the Monitoring and Evaluation Officer. They all seem to sympathise with each other and have a shared belief that they are over-burdened, which justifies human errors. This situation is not unique to Haryana. According to National Health System Resource Centre's assessment of HMIS in 23 states, 72% of the states give feedback to the districts on the HMIS data. Out of these, 61% give feedback to blocks. However, the feedback is given verbally. Only 38% of the states give feedback via emails or letters. The assessment also showed that the feedback is used to manipulate data and not to improve quality.

The way forward

What you measure is what you can manage. The fact that HMIS has poor measurement raises important concerns about NHM. It is hard to see how NHM can effectively generate bang for the buck when it is grounded in an inaccurate management information system.

While duplication of data reporting is inefficient and a source of discrepencies in data, there are multiple databases which have health related data. These include District-level Household Survey, National Family Health Survey, Annual Health Survey and the Mother and Child Tracking System (which follows each individual mother and child). These should be used on a regular basis to cross-check the information in HMIS, so as to uncover data problems sooner.

The movement of aggregated data betrays IT systems design that is many decades out of date. In a modern IT system that would be constructed today, only transactions would be stored (e.g. one death). All aggregation would be done on the fly when queries are required.

Some early steps towards true business process engineering are easy to envisage. An online application called ANMOL or ANM Online, allows ANMs to use tablets to enter and update the service records of the beneficiaries on real time basis. Since the entire process is digital, the ANMs don't have to carry or maintain the registers and the entire process becomes paperless for them.

The problems of HMIS and NHM are primarily a question of incentives and public administration, and not about computer technology. For a counterpoint, in the 18th century, the recording of deaths in the US and in Europe was being done correctly. It does not require great technology to do these basic things.

Too often in India, there is a temptation to solve problems of public policy with computer technology. As argued in Shah, 2006, these projects must be located around two elements: of doing a full blown business process re-engineering, BPR, (i.e. not a superficial layer of computers on top of the old process), and of removing discretion with front line staff.

References

Singh, Gajinder Pal, Jordan Tuchman and Michael P. Rodriguez, Improving Data for Decision-making: Leveraging Data Quality Audits in Haryana, India, Abt Associates Inc., 2014.

Shah, Ajay, Improving governance using IT systems, page 122-148 in `Documenting reforms: Case studies from India', edited by S. Narayan, Macmillan India, 2006.

Sharma A., Rana S. K., Prinja S., Kumar R., Quality of Health Management Information System for Maternal & Child Health Care in Haryana State, India, PLoS ONE, 2016.




The author is a researcher at the National Institute for Public Finance and Policy, New Delhi. I thank Jeff Hammer and Ajay Shah for useful comments.

Closing the gap between farmers and warehouses

by Smriti Sharma.

Warehouses have long been considered important for holding and preserving crops. But warehouses can also potentially solve liquidity issues for farmers. Prices for commodities are depressed immediately after harvest because most farmers bring their crops to the market and this excessive supply pushes the prices down. This means that farmers have to settle for prices that may not be remunerative. If farmers could store their crops in warehouses till the time they got a better price for their produce, it could help avoid the distress sales, but farmers don't use warehouses. The reasons for that can be broadly divided into a) Lack of finance and b) lack of access to storage:

Lack of finance

Small farmers don't have the financial wherewithal to hold their crops. According to the NSSO, in the year 2013, almost 86 per cent of the Indian farmers held less than 2 hectares of land. Of these 86 per cent farmers holding less that 2 hectares of land, 80 per cent farmers held only 1 hectare of land. The same report points out that every month farmers holding upto 1 hectare of land spent Rs. 1213 more than they earned. In case of farmers with upto 2 hectares of land, the dissaving was of Rs. 469 per month. Small farmers depend on the earnings of one harvest to finance sowing the next and therefore cannot store their crops and wait.

Another reason farmers don't store their crops is because farmers need money to repay their loans. In absence of access to formal sources of finance, small and marginal farmers borrow money from arhatiyas and other middlemen at very high interest rates. Farming is a resource intensive business. Cultivating a crop requires seeds, fertilizers, pesticides, water and fuel. Farmers usually procure these inputs on credit. The arhatiyas lend money to farmers at a exorbitant interest rates ranging from 24 per cent to 45 per cent per annum. This creates a pressure on the farmers to sell their harvest as soon as possible and repay the money to the arhatiyas.

Lack of access to storage options

Warehouses are usually far from the production centres and closer to mandis. Farmers don't find it viable to transport small quantities to warehouses. This is because the transportation costs, storage charges, loading and unloading charges end up exceeding the remuneration. This is why farmers prefer to sell their produce to a local village-level middleman who can aggregate crops of various farmers and take the entire stock to the mandi.

There do exist some godowns in rural areas but such warehouses are not equipped to scientifically store and preserve the crop. The Government started Grameen Bhandaran Yojna in 2001 to encourage scientific warehousing in rural areas but this study reveals that most godowns built under the scheme did not conform to the quality parameters for scientific warehousing. When a farmer stores his crop in a warehouse, he's in effect leaving his entire wealth in the hands of people managing the warehouse. Leaving his wealth in either an unsecured place or unreliable hands is a risk that a small farmer cannot bear. Which is why, farmers are reluctant to store their produce.




How would we address these problems?

Improve quality of warehouses

Warehouses are not simply storage points. Warehousing is a combination of the product (the warehousing facility) and the service (warehouse management). Until now, the warehousing regulations in India focused only on the physical attributes of the warehouses, things such as the plinth height, ceiling and flooring. However, the warehouse service providers need to be assessed on the basis of their ability to preserve quality and make good for any losses (if incurred) to depositors. Warehousing Development and Regulatory Authority (WDRA) is currently in the process of re-writing its warehouse registration rules wherein the focus would be on the systems and processes for warehouse management, heightened disclosures and making more information available to market participants. These requirements will ensure that the warehousing space is occupied only by those who have the financial, managerial and technical strength to do the business of warehousing.

In addition, WDRA intends to bring in a system of grading warehouses which will help in differentiating warehouses as well as bridge the information gaps in the warehousing sector. The system of grading will generate and encourage a system of information creation that will be useful for farmers to identify the warehouses in their proximity that they can use to store their crops.

Bring the mandi to the warehouse

Farmers avoid going to mandi because the transportation charges, loading and unloading charges make the entire deal unviable. If WDRA registered warehouses could be recognised as sub-market yards as suggested in this article, then the distance between farmers and buyers could be reduced. Farmers could use warehouses as a point of storage until the time the market turns favourable. In the meantime, the stock could be pledged to avail loans from banks. Currently, the warehousing market largely offers a physical storage receipt against which farmers can get their stock financed. Banks lien the stock, place an external collateral management company to secure the quantity and quality of stock. With negotiable warehouse receipts issued by WDRA-registered warehouses, farmers would be able to transfer the ownership of their commodity without having to make physical deliveries. This will save costs for farmers and encourage them to store their crops in warehouses.

Achieving scale through aggregation

Small and marginal farmers with their small yields are unable to interest the buyers to procure crops from them directly. This re-inforces the dependence of farmers on aggregators. Some states in India have done away with the APMC Act to enable farmers to market their produce directly. However, farmers continue to depend on middlemen to buy their harvest and sell it further. This issue of dependence cannot be solved unless small farmers achieve scale which is also their Achilles' heel. Farmers need to aggregate their produce so that they can collectively rent warehouse, market their produce and negotiate better terms for procuring farming inputs and loans. This form of aggregations is already being tried out with farmer producer organisations (FPOs) and primary agricultural cooperatives (PACs).

Some success stories have been shared here. To encourage aggregation among farmers, NABARD has set up a Producer Organisation Development Fund (PODF) to provide credit support to any registered producer organisation by way of grants or loans or both. More steps in the same direction need to be taken.

Conclusion

Warehousing is both a need and the solution to farmers' post harvest crop management. WDRA is hoping to reform the warehousing space with better registration requirements, inspection and supervision mechanisms. This will instill a lot of confidence among the users of warehouses including the farmers and the banks. This in turn will help bridge the distance between the farmers and the warehouses.

Acknowledgement

I am grateful to Amey Sapre for insights.

Improving warehousing in India through a grading mechanism

by Smriti Sharma.

A key sub-industry in modern agriculture is warehousing. Storage reduces price fluctuations. Trusted storage permits `dematerialisation', where warehouse receipts are traded or delivered, and is the key link between physical goods and finance. At present, the quantity and quality of warehouses in India are inadequate. This is a key bridge that has to be crossed for the modernisation of agriculture. Trusted mechanisms for warehousing of non-agricultural goods are also an important enabler of the market economy.

Warehouses claim to take in goods and keep them safe. The customer of a warehouse does not know the probability with which the promise will be violated. There are a diverse array of warehouses in India, but customers do not know the failure rate of alternative warehouses. Currently, consumers do not have information to differentiate between one warehouse and the other. Most people make a choice with regard to a warehouse on the basis of word of mouth and local reputation. Sellers of warehousing service withhold privileged information about their warehousing service from the buyers. This leads to a situation of information asymmetry.

Information asymmetry is one of the classic market failures. Market economies seek to establish State capacity that efficiently addresses market failures. As an example, customers of a restaurant do not know whether the kitchen is clean, and this calls for the State to undertake certain interventions which address this problem.

Absent government involvement, users of warehousing services have devised their own solutions to address this problem. National Commodities Derivatives Exchange (NCDEX) operates a remarkable closed-user-group (CUG) that attempts to solve the problem of information asymmetry by creating its own inspection, audit and monitoring mechanism to ensure sanctity of the physical settlement of commodities traded on its exchange. Alongside this, many collateral management companies have come up which offer turn-key services of protection to users.

As is well known in public economics, when faced with market failures, such private solutions are not as nice as having a well structured and efficiently implemented government-based solution.

Grading of warehouses

Warehousing Development Regulatory Authority (WDRA) is mandated by the Warehousing (Development and Regulation) Act, 2007 to regulate warehouses that issue negotiable warehousing receipts (NWRs). Currently, WDRA registered warehouses go through a process of accreditation. This process verifies whether entities who apply to register with WDRA comply with certain registration requirements. This intervention is inadequate in that it does not create a mechanism for watching the performance of a warehouse on an ongoing basis. In and of itself, the WDRA registration has generated limited trust on the part of market participants.

A better intervention, which can be introduced by WDRA, is a mechanism for grading of warehouses, WDRA can provide more granular and complex information pertaining to warehouses and WSPs. This would require establishment of processes through which grades are awarded.

Experiences with grading in related fields

Is grading the right intervention for this market failure? Some analogies may be instructive:

• Credit rating agencies assign grades to bonds.
  
• In the real estate sector, grading helps by providing the real estate developers with the incentives to conform to fair trade practices and legal requirements.
  
• The New York Health Department made it mandatory for the restaurants in its five boroughs to get themselves graded for their sanitary scores. The grades summarising the sanitary scores are then made public. Within 18 months of starting the grading programme, the share of restaurants without a trained food protection supervisor decreased from 13% to 7%. Prior to grading, 11% of the restaurants had inadequate hand washing facilities, which reduced to 5%. Also, a 10% drop was registered in restaurants that had signs of mice infestation.

These areas -- bonds, real estate, restaurants -- have the same market failure as that found in warehouses, i.e. information asymmetry.

Grading warehouses and warehouse service providers

Warehousing is an amalgam of warehousing infrastructure including warehousing premises, equipment and manpower which is used to deliver a service. For purposes of grading warehouses, warehouses need to be compared to each other, and against some benchmarks that the market may find useful.

A variety of public and private agencies internationally have formulated broad parameters, on the basis of which warehouses are classified and graded. For example, in Tanzania, warehouses are scored on parameters specified by Warehouse Receipts Regulations, 2006 and then graded accordingly. In UK, United Kingdom Warehousing Association issues an advisory for its members that lists broad headings like these, against which standards are set for warehouses.
Real estate consultants like Knight Frank also have their own list of parameters for warehouses. The parameters devised by each of these agencies are customised for the needs of their clientele. There is no single check-list against which WDRA can require warehouses to be graded.

A grade can capture information on the physical attributes of the warehouse (e.g. warehouse building and warehouse site), management of the warehouse (e.g. ownership, technical and managerial staff) and the warehousing processes and activities (e.g. storage and handling of goods, fire security, pest control, use of technology and book-keeping).

There is no fixed recipe for grading. WDRA must allow expertise present in the market to innovate in designing better grading mechanisms, and for grading agencies to discover what information is relevant for the warehousing market. For an analogy, financial regulators have pushed the bond market towards the use of credit rating agencies, while not micro-managing how credit rating agencies analyse a bond.

Re-imagining the role of accreditation agencies of WDRA

Provisions in the WDR Act allow WDRA to facilitate grading of warehouses by specialised agencies. It would be useful for WDRA to develop such an environment for the warehousing industry.
Rolling this out also presents complexities, which will need to be addressed:

1. Financial regulation in India has encouraged a mindless notion on the part of investors, where the credit rating agency is the only determining factor about whether a bond can be the target for investment or not. A more subtle environment needs to be created, without black-and-white notions. As an example, a steady stream of information emanating from a warehouse, about failures in settlement, is valuable for users without being a black-and-white grade.
   
2. The business of grading is frought with conflicts of interest. The "issuer-pays" model disincentivises grading agencies to be critical of their clients and award unfavourable ratings. The global experience with rating of bonds has exhibited such problems.
   
3. The tools of coercion by the State can be applied at various levels, such as forcing warehouses to get graded, or forcing warehouses to always disclose what grade they got, etc. Careful analysis is required to use the minimal coercive power while maximally addressing the market failure.

Conclusion

There is a market failure -- asymmetric information -- in the field of warehousing, which justifies government intervention. The intervention presently used at WDRA -- requirements applied at registration -- are not addressing the problem. The WDRA Act contains provisions which could be used to bring about a mechanism for grading warehouses. Done right, this could reduce the information asymmetry.

A dramatic cost reduction for KYC using the e-KYC API of UIDAI

by Suyash Rai, Smriti Sharma, Sanhita Sapatnekar.

The problem

On 2001-09-11, Mohammad Atta hijacked American Airlines Flight 11 and flew it into the North Tower of the World Trade Centre. Tracing flows of money led to the observation that a high ranking official within Pakistan's Inter-Services Intelligence (ISI) had allegedly ensured more than USD 100,000 was wired to Mohammad Atta, before the attack took place. Law enforcement authorities became quite keen to observe and block the `financing of terror'.

The Financial Action Task Force (FATF) develops and promotes policies that hinder money laundering, financing terrorism and financing weapons of mass destruction. One element of this requires financial institutions of member countries to implement `Customer Due Diligence' (CDD) for a variety of financial activities and circumstances. India is a member of FATF and Indian regulators are obliged to apply CDD. Regulators in India have applied CDD through excessive forms of `Know Your Customer' (KYC) requirements, which go well beyond the principles-based risk-sensitive requirements of CDD. As a result, financial firms in India face increased costs.

When an Indian financial service provider deals with a low value customer, the cost of performing the KYC that's required is often a substantial one when compared with the lifetime NPV of the customer. This has hampered financial inclusion by reducing the profitability of small value customers in the eyes of financial firms.

In 1999, Project OASIS (Old Age Social & Income Security) was established by the Ministry of Social Justice and Empowerment to make recommendations on how to develop old age income security. One of the key insights of Project OASIS was the importance of modern computer technology for the objective of serving small value customers. Paper- and human-intensive processes can even be viable for the rich, but when dealing with poor people, the only way to make ends meet is to push to the frontiers of technology.

A new attack upon the KYC problem

The Unique Identification Authority of India (UIDAI) has developed a novel technology that cuts the cost of opening an account by approximately 80%. The steps of this process are as follows:

1. First, the customer has to have already enrolled in Aadhaar once. This involves supplying the name, identification, address details, and biometric data including the photograph. As there are many Aadhaar applications springing up in India, many individuals have ample incentive to undertake this cost of enrollment, once. Recent data shows that 670 million people in India have enrolled.
2. Now let's focus on the account-opening process at a financial firm. The customer shows up with his Aadhaar number.
3. The staff-person at the financial firm engages with the customer and takes the Aadhaar account number and captures fingerprints using a device.
4. Aadhaar has provided an applications programming interface (API) through which the software at the financial firm now reaches into the Aadhaar database, presents (encrypted) credentials of a Aadhaar number and matching fingerprints, and requests a packet of information.
5. This information is used to populate the form for the account-opening process. E.g. the photograph is brought from the Aadhaar database and placed into the account opening form. The entire process -- from fingerprint to completed form -- takes roughly 15 seconds.

e-KYC eliminates human effort in account opening, and allows residents to present their KYC information electronically and instantaneously, without needing any physical form of identity or address proof. e-KYC eliminates the movement and storage of verification papers, and therefore costs of document management. Error-free data is obtained from the Aadhaar database, at a much lower cost when compared with the costs of typing in and removing the errors in human-created data. e-KYC is a game changer when it comes to opening accounts for poor people.

An example

Invest India Micro Pension Services (IIMPS) enables low income informal sector workers to accumulate micro-savings for their old age. It has faced KYC challenges in the past, and is an early adopter of e-KYC. IIMPS's target population, i.e. the informal sector poor, cannot gain access to formal financial products as they have insufficient identity documentation (due to factors such as migration), or a complete lack thereof. As a result of this, and due to differences in KYC compliance across regulators, a host of interested low income workers are unable to join the integrated micro-pension program. This is only the first half of the problem. Lengthy KYC application and verification procedures cause significant cost and time overhead expenses for IIMPS while processing each micro-pension application. e-KYC has resolved both of these issues.

Watch a demo

See the video on the nipfpmf channel on youtube.

Making it a reality

In the past, there has been doubts regarding the future of UIDAI's Aadhaar project. However, the BJP government has recently reaffirmed its interest in continuing with it. e-KYC is a valid document for all financial services, under the Prevention of Money Laundering Act Rules. e-KYC has also been accepted as valid proof of identification and address by five regulators in the financial sector, namely the Reserve Bank of India (RBI) ; the Securities and Exchange Board of India (SEBI) ; the Pension Fund Regulatory and Development Authority (PFRDA) ; the Insurance Regulatory and Development Authority (IRDA) ; and the Forward Markets Commission . It is also compliant with the Information Technology Act, 2000. This means the encryption and digital signatures ensure both end-points of the data transfer are secure, making e-KYC legally equivalent to KYC paper documents. e-KYC is up and running. However, most financial firms do not (at present) utilise it. They need to modify their software systems in order to utilise the API. As only 670 million people are enrolled in Aadhaar, financial firms have to have the ability to do the old-style KYC also. In the future, there could be situations where the entire process capability for conventional KYC is removed, which would further reduce costs.