Impact of IAY

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Nonetheless, there are also severe problems in its implementation, caused in

part by its design of large, unencumbered grants. The lump sum payment

of Rs 20 000 is large enough to again attract substantial corruption. Local

politicians, including Members of Parliament, Members of Legislative

Assemblies, and even village heads, view this as an important mechanism

for patronage for supporters and there is clear evidence of a high proportion

of benefi ts being manipulated towards this end. These machinations are a

natural outcome of the context of the scheme, since the total allocation of

grants-based IAY, although substantial, is miniscule relative to potential

demand based on the number of poor households without housing in the

country.16

The substantial size of individual grants also makes this a popular scheme

with local offi cials, since it is large enough to withstand large ‘unoffi cial’

fees running into several thousands of rupees. As a consequence, safeguards

built into the design of the scheme have stayed on paper. For example,

payments for each stage of construction are to be made only when the

preceding stage has been completed, and individuals are required to make

their own arrangements for construction. In particular, offi cials are not

allowed to engage contractors on behalf of the benefi ciaries. According to a

recent audit by the Auditor General, almost one-third (31 per cent) of IAY

funds were misused (CAG, 2003). Of this, almost half was accounted for

by the depositing of funds by state governments into current accounts, civil

deposits, or treasuries outside the government account. The remainder was

due to misappropriation, unapproved works, and unauthorized activities.

Almost 20 per cent of the audited money was spent on construction of

houses through contractors. Over-infl ated expenditures combined with poor

quality of dwellings was a natural outcome. In particular, only half the

houses constructed were provided with smokeless stoves and 43 per cent

of the houses were constructed without sanitary latrines.

Against this backdrop of corruption and poor governance in

implementation of the IAY, it should be noted that the targeting performance

of the IAY has not been too bad, with only about 2.2 per cent of the

benefi ciaries not being eligible.17 The problem with the IAY is its small size

relative to the eligible population (implying exclusion through rationing)

and severe attrition in funds actually reaching the poor due to corruption

(again raising type two targeting errors of leakage).