Wednesday, October 25, 2006

How good is CK Prahlad's idea on reducing poverty?

Management guru C.K. Prahlad is famous for his book “The fortunate at the bottom of the pyramid: Eradicating Poverty Through Profits”. He identifies 5 ways to improve affordability:

1. Easy payments in installments
2. Dramatic cost-cutting
3. Goods in smaller rather than large packings
4. Pay-by-use
5. Direct distribution, cutting out intermediaries

The latest provisional poverty data for 2004-05 shows that poverty reduction since 1993 has been just 0.7 percentage points per year, as against 1 percentage point per year in earlier times. The total number of people below the poverty line is 300 mln, roughly about 1/3rd of the total population. This is more or less equal to the total population of our country at the time of independence. All this at a time when the factors identified by Prahlad are taking roots.

This shows that the private sector cannot achieve much unless the government does its bit for the poor. Free power and subsidized fertilizer used mainly by the biggest farmers will not relieve the country of poverty. What is needed is world class roads, telecom and electricity in every village to democratize commerce. That will typically require public private partnership, harnessing government finance with private provision. That will then improve the ability of the private sector to contribute to poverty reduction.