Thursday, June 21, 2007

Rent seeking in civic services

The ingenuity of rent-seeking channels never ceases to amaze! Sample this latest discovery. Before I venture into it, let me confess that I stumbled upon this by sheer accident. I can imagine each of us monitoring numerous such processes on a daily basis, while continuously missing the minutiea which conceals such impressive inventory of best practices in rent-seeking!

The Citizen Charter of the Vijayawada Municipal Corporation (VMC) outlines the following well established procedure for the sanction and execution of new water and Under Ground Drainage (UGD) connections.
Step 1. The house owner makes an application at the Citizen Charter Counter.
Step 2. The application is referred to the Assistant Engineer (AE) concerned, so as to verify whether connection can be given (to verify the availability of network in the area and feasibility of giving connection immediately).
Step 3. After verification the applicant has to remit the requisite connection charge, and the connection is sanctioned.
Step 4. The Engineering section then gives the physical connection from the existing distribution line.

The real action however takes place somewhat like this.
Step 1. The owner applies at the Citizen Charter Counter.
Step 2. The application along with the applicant, is referred to the Assistant Engineer concerned.
Step 3. Rent seeking starts. The AE or his sub-ordinate insists on speed money to expedite the physical inspection. The first transaction is direct and the report is sent to the Counter.
Step 4. The connection charges are paid and the sanction order is issued at the Citizen Charter counter. The applicant feels relieved at having got his connection sanctioned. But wait, the ordeal has only started!
Step 5. The sanction letter is given to the AE, who directs the applicant to a particular plumbing contractor for executing the connection. The contractor demands Rs 2500 for the work. Suspicious, the applicant enquires elsewhere and finds out that it costs only Rs 1000, and confronts the AE. The AE responds that only his contractor is accredited to work on the municipal distribution lines! Resigned to his fate, the applicant then purchases the required plumbing material only to be told that he ought to be purchasing a different brand of material from a particular shop. On enquiry, he is told it costs two or three times as much! The poor citizen finally ends up paying Rs 1000-Rs 2000 more for the connection.

The existing process contains all the trappings of transparency and accountability. But as is the case elsewhere in public service delivery, the processes have been badly subverted by entrenched vested interests. In fact rent-seeking behaviour has been effectively institutionalized.

Instead of direct bribe payments, the rents have been costed into the legal transactions. The chances of detection is minimized, and all the stakeholders (officials, plumber, and the materials supplier) have been co-opted into a tightly knit arrangement. The incentive structure could not have been better designed. An economist would therefore, conclude that market distortions have been minimized! Given that there are 40-60 applications received daily by VMC, we are looking at a susbtantial remuneration. Even at an average of 50 connections daily, with a rent of Rs 1000 per tranasction, we have a Rs 1.3 Cr to Rs 1.5 Cr economy!

Interestingly, there is a simple solution to this. Outsource the process of executing connections, while more intensively monitoring the processes at the Citizen Charter. The citizen would apply at the Citizen Charter Counters, then come back after two days and make the payment, and the outsourced contractor will then execute the work for a flat rate. The interface with the AE or other Muncipal officials is restricted to that at the Citizen Charter Counter. In fact, it can be a simple thumb rule of governance, that reducing rent-seeking requires minimizing citizen-official interfaces and interactions.

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