The ‘Common Services Centre’ Model: A no-win scenario?

In our previous post titled, ‘Does co-opting private agents for welfare delivery work?’, we explored the origin and proliferation of Public Private Partnership (PPP) models in social welfare delivery in India. The post also underscored the design and delivery challenges faced by PPP outlets while shouldering welfare roles traditionally performed by State functionaries. In this post, we dive into the finer details of one such PPP model using 10-district survey data from the Pragya Kendra Assessment Study (PKAS), conducted in June 2018 by Rahul Lahoti, Rajendran Narayanan from Azim Premji University, and Inayat Sabhikhi, an independent researcher. The study focuses on the functioning of Common Services Centres (CSCs) in the state of Jharkhand, where they are known as ‘Pragya Kendras’. These CSCs or PKs are internet-enabled front-end delivery points for a range of G2C and B2C services across India. Set up under the PPP framework, CSCs are primarily located across rural and remote parts of the country and run by private citizens who are referred to as ‘Village Level Entrepreneurs’ (VLEs).

PPPs are often large projects involving several parties, some private and other governmental, and, as such, tend to be quite complex in terms of the set-up and its implementation. Moreover, there are aspects to these projects that are specific to the industry/sector, the country where they take place, and ultimately the particular type of infrastructure (hard or soft) they aim at creating or improving. Specifically, in the context of social welfare, existing theoretical literature does not provide any specific parameters for gauging the robustness of a PPP model. Nevertheless, some of the literature throws light on some generic parameters that are central to a project’s success and need to be taken into account when considering a PPP in a developing country.

We use some of the parameters from Dachs (2008)^[i] and Franceys et al. (2003)^[ii] to arrive at parameters specific to PPPs in welfare delivery and assess the Common Services Centre model with respect to three overarching parameters:

• Incentive Structures for the private players involved
• The contours of ‘accountability’ within the PPP model and mechanisms therein
• Regulation and monitoring of the private players involved

Set against this backdrop, the following case study uses the first parameter, incentive structures, as a pivot to analyse Common Services Centres (CSC) in Jharkhand and explains how weak incentives coupled with inadequate accountability/monitoring mechanisms result in suboptimal outcomes for all stakeholders involved.

CSCs: The Model

Aimed at providing citizens a variety of G2C and B2C services, the CSC model is different from previous service delivery models in three ways: a) the face of service delivery is a private entrepreneur as opposed to government officials and/or elected representatives, b) the service is provided digitally, not manually and c) the responsibility of setting up the CSC is left entirely to the private entrepreneur. Although the CSC ‘programme’ was initially conceptualized under the National E-Governance Plan (NeGP) of 2006,^[iii] it was re-launched in 2015 under the Digital India Mission. Across these years, VLEs have been identified as the key to CSCs success. Positioned as ‘change agents,’ VLEs have been envisaged as the ‘real ambassadors of Digital India.’^[iv] Their broader objective is two-fold – encourage rural entrepreneurship, which results in profitability, and social development through community service. The idea behind this is that ‘participation and collective action, not ICT alone, would lead to sustainable socio-economic development and long-term rural prosperity.’^[v]

To incentivize these entrepreneurs and help them sustain the centre run by them, the state government provides them with a commission/service charge for every transaction/service they facilitate/provide. This amount is decided keeping in mind a three-way share amongst the VLE, government and the private company. These private companies are identified by state government-appointed State Designated Agencies (SDA). Known as Service Centre Agencies (SCA), the aim of this private company is to ‘identify, hire and train’ VLEs. Commissions for SCAs are decided through service agreements between the SDA and SCA. The CSC 2.0 Implementation Guidelines released in 2015 by the Ministry of Electronics and Information Technology recommend, however, that revenue sharing from the CSC should be in a ratio of 80:20 between the VLE and other stakeholders i.e. at least 80% of the income from the commission should go to the VLEs and 20% to remaining stakeholders.^[vi] As for the social development objective, the suggested VLE selection criteria includes the ‘ability and extraordinary skill to communicate to the people in the local language and skills to help others articulate their own needs. He should be able to organize and inspire a team of rural citizens.’

Pragya Kendras in Jharkhand: A Closer Look

Unfortunately, analysis of the PKAS data from (at least) one state, depicts a rather sobering picture. The details of these two cohorts of respondents (VLEs and citizen users) have been presented in Table 1 below. In the following paragraphs, we use their findings to explore and analyze incentive compatibility in welfare delivery models. 

Table 1: Details of Respondents in the study

Source: PKAS

Using data from PKAS, Table 2 provides service-specific official rates (as stipulated by the government), the actual rates charged by the VLEs in the sample and the magnitude of the overcharges. Table 3 enumerates the services which were found to be most profitable by the VLEs interviewed.  As tabulated, users faced an astonishing 236% over-charging on services related to certificates (caste, birth, death, home etc.). This corroborates with Table 3, where certificates were chosen as the ‘most profitable service’ by 19 VLEs. A potential reason could be that getting a certificate made often requires more than one visit, thus increasing the scope for repeated over-charging, while other transactions like banking and printing services are usually restricted to one visit.

Table 2: Magnitude of Overcharges

Source: PKAS

Table 3: Most Profitable Services for CSCs

Source: PKAS

We begin with the average set-up cost. The implementation framework for CSC states in clear terms that ‘it would be the sole responsibility of VLE to invest in necessary infrastructure’ for an ideal CSC.^[vii] This includes ICT infrastructure like computer, printers, broadband connectivity, biometric devices and a backup generator. Simply put, the entire responsibility of Capex and Opex is placed upon the VLE and findings from the survey pegged these costs at Rs. 87,000 per person. In addition to this amount, VLEs spend an average of Rs.7512 per month to run the CSC.

Table 4 provides the average figures for the set-up and monthly running costs incurred by a VLE along with the average monthly revenue earned between 2017 and 2018. Based on these figures, the average monthly profit comes up to be Rs. 3328 – a meagre sum compared to the significant costs incurred both during set-up and day-to-day operations.  To put this in context, it would take a VLE around 2 years and 2 months just to recover their initial costs.

Table 4: Average Costs and Revenues of CSCs

Source: PKAS

In other words, inadequate financial support from the government (both in the form of lump-sum amounts during establishment and commissions) is resulting in low to non-existent profit margins for most VLEs. 64% VLEs from PKAS survey were unhappy with the rates/commissions and according to 70% of them, there has been no revision of rates in the last 3 years. It is no surprise then, that VLEs transfer the burden of financial viability from the government on to the citizens by over-charging. It must be noted here that CSCs are not the only delivery model plagued with inadequate incentives. A survey^[viii] conducted by Microsave in 2014 with Business Correspondent Network Managers (BCNMs) revealed similar trends. In their sample, BCNMs did not earn profits on any of the products because costs incurred under all banking products were higher compared to the revenues. Further, surveyed BCNMs reported average commissions earned to be approximately 9 paise per Rs. 100 transacted (for deposit, withdrawal, and remittance).

To increase profitability, one way forward for state governments is to revisit their financial contracts with VLEs and other private entities or perhaps integrating certain facets of previous service delivery models with the CSC one. For example, governments could incur set-up costs so that VLEs can generate profits right away, instead of worrying about covering their Capex and Opex. Another prospective answer lies in CSCs providing banking services – a deeper analysis of the PKAS data shows that VLEs providing banking services make almost 6 times the profit of those not providing banking services (Table 5).

Table 5: Banking Transactions and Profitability

Source: PKAS

At the same time, although banking services might help VLEs with increased profits, they won’t necessarily tackle the problem of over-charging in other services like certificates. To understand this, we need to have a broader discussion on the very involvement of private players as fronting entities in welfare delivery.

Looking beyond piecemeal commissions

NeGP guidelines make it clear that financial incentives provided to VLEs are crucial in ensuring the sustainability and effectiveness of CSCs. Naturally then, an important question arises on whether profitability should be a key factor in successfully delivering welfare benefits. The answer is not simple, but as an intermediate solution, the government must think of providing VLEs with a minimum salary as well as incentive-based commissions to improve the current model’s long-term viability.^[ix] Additionally, there is a need to explore solutions that go beyond commissions. As mentioned above, the problem of lack of profitability can also be tackled from the cost-side if governments agree to incur the costs for setting up CSC infrastructure (both physical and digital).

This might be a particularly useful discussion in light of governments transferring financial responsibility of some core government functions (such as welfare delivery infrastructure) to private citizens under the assumption of profitability of such ventures. It is worth noting here that the current CSC model is not a zero-sum game i.e., despite the citizens being over-charged, VLEs are not necessarily breaking even. The aforesaid analysis also hints at a causal relationship between poor incentives given to VLEs by the government and rampant over-charging (much to the detriment of citizens). This is not to say that corruption in weakly regulated environments (especially in far-flung rural areas) would be absent for financially profitable private delivery models. This is why accountability and monitoring mechanisms need to be strengthened along with restructuring of the incentives framework in the last-mile.

[i] Dachs, W. (2008), ‘PPP models from around the world’, in PPP in Vietnam Workshop Proceedings, Hanoi., pp. 1–16.

[ii] Franceys, R. and A. Weitz (2003), ‘Public–private Community Partnerships In Infrastructure For The Poor’, Journal of International Development, 15, 1083–98.

[iii] National E-Governance Plan, Ministry of Electronics and Information Technology. (2006). Key objective of the NeGP was to bring ‘public services closer home to citizens.’

[iv] Diginame, a CSC Initiative. (2018).

[v] CSC 2.0 Implementation Guidelines, Ministry of Electronics and Information Technology. (2015).

[vi] Ibid.

[vii] CSC Framework

[viii] Shukla, Vartika. (2014). State of Business Correspondent Industry in India – The Supply Side Story.

[ix] Sabhikhi, I Narayanan, R and Lahoti, R. (2019). Does Digital India deliver in improving Government front-end services?