From the Classroom: Behavioral Economics and Decision-Making in Rural India

By: Patricia Loria

For centuries, local communities in India assumed the responsibilities for ensuring water for drinking, agriculture, and livestock. In the mid-1900’s this was changing. The Indian government took on an increased role of providing water, which included piped water in urban areas and tanked water in rural areas. Community practices of accessing groundwater, which was increasingly becoming depleted or salinated, or using tanks or step wells for the collection of rainwater, which particularly in most of the north only comes in vicious cycles during the short monsoons, fell into disuse.

The effect of dirty water is undisputed in its significance, even beyond the health effects of waterborne diseases such as cholera, malaria, and diarrhea. Women have historically taken on disproportionately the challenges of water shortages, including the drudgery of carrying heavy loads of water where it can be found for long distances back to their villages.

Understanding Behavioral Economics

Move forward to the turn of the century and another trend of mass consumerism is taking place. People the world over are buying cell phones and other luxuries instead of basic necessities.

Just this year, Richard Thaler won the Nobel Peace Prize for economics regarding his work on buying decisions and how people do not make rational economic decisions and lack self-control. NGOs across the world, including Jal Bhagirathi Foundation (JBF), are using some of these learnings to help people rethink their purchasing decisions.

To be clear, this is not a problem only for the poor or developing nations. In America, according to a survey by Bankrate, just 37% of Americans have enough savings to pay for a $500 or $1,000 emergency. Some of this is due to poverty, but much of this phenomena is due to a lack of savings in exchange for buying the latest car or a luxury vacation.

Changing Hearts and Minds

As part of my graduate studies in Virginia Tech’s Executive Master of Natural Resources (XMNR) degree program, I recently had the opportunity to participate in an International Residency trip to India where I was able to engage directly with JBF staff and see first hand the work they are doing with rural villages in Rajasthan. Below are some of my observations, reflections, and lessons learned about behavioral economics and decision-making as related to sustainable development in India.

Community engagement sessions led by JBF staff are used to educate villagers about why water solutions are “good investments.” Households in this region of Rajasthan earn about 5,000 rupees or 83 dollars per month. A water tank that could be fed with rainwater that produces sweet water (a term for drinking water in India) costs about 37,500 rupees or 625 dollars per household, clearly a significant investment that requires planning and foresight, and perhaps even community lending.

JBF provides the community the skills to adapt existing masonry capabilities and training on how to build the catchments, but ultimately it needs to be carried about by a local community member or the quality is not trusted. If the tank meets the JBF specifications, including the right encasements to protect the water, quality coverings to protect from other elements, and hand pumps to prevent contamination from retrieval items like buckets, then 100% of that investment is reimbursed.

So how do the JBF staff make the argument to villagers to save and make this significant investment.

  • First, there is a return on investment argument. Because of their rural location, the targeted households are forced to buy sweet water from tanks typically costing about 1,200 rupees per month, and that water is placed into non-sanitary tanks (non-quality casements and uncovered) affecting household health. Therefore, it takes about 2-and-a-half years to recoup the investment but then the water quality is much better and there are no additional monthly expenses.
  • Secondly, with these earnings, these people are not the poorest of the poor in India. To greet us, the women came out in their finest outfits and jewelry. Defining luxury items vs. normal items vs. necessities is debatable. Some men have cell phones and mopeds and consider these necessities. Many have satellite TVs and consider these items normal. They are certainly not living a life of luxury, but they could be using this money to invest in their future — a main argument by the JBF staff. The JBF trainers would define items like tanks as necessities and other times described as normal or luxury items, but this often requires persuasive arguing.
  • Third, a bit of peer pressure is applied. The males of these households who have made these investments in tanks or toilets get cheers and accolades pressuring others to “keep up the Joneses,” as you would say in America.
  • Finally, social and cultural pressure is utilized. Protecting the dignity of women is a primary cultural belief in this area. Rajasthan is still an area of strong male dominance. Women are veiled and will rarely speak to men not in their immediate family, But, says the facilitators, they are often made to walk long distances for water where they could be exposed to unacceptable men. Another important investment JBF can help facilitate with government funding is providing women with access to proper toilet facilities that allow them to meet the modesty expectations of their village communities.

JBF, with its staff of only 40 and major donors like Charity Water and HSBC, is clearly making a significant impact in the areas of Rajasthan where it works. The staff have studied the concerns of its target market and have developed strategies to combat these arguments with a mix of economic, social, and cultural rebuttals.

This has resulted, according to JBF, in an estimated 140% reduction in the amount of income spent on purchasing water, which has a major impact on poverty reduction and over 550,000 beneficiaries of their programs. Their use of persuasive briefings was impressive and was a major learning for me.

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Patricia Loria, a graduate student in Virginia Tech’s Executive Master of Natural Resources (XMNR) program, has been working in international business in the financial, insurance, and humanitarian aid fields for the last 20 years. In 2015, Patricia joined Clements Worldwide to focus on product development, research, and marketing for the commercial and personal lines segment, particularly for humanitarian aid organizations. She is also the author of the biannual Clements Worldwide Risk Index and many fleet reports and whitepapers. Patricia has a Master’s in Business Administration from Darden Business School and will complete the XMNR program in December 2017. She plans to drive dynamic change in sustainable development utilizing her project management, product launch, global partnerships, and communication experience.

For more information on JBF visit their website at jalbhagirathi.org.