Bicycle for Development

An analysis of the huge role increased bicycle density can

play in the rural development in India
and the rapid means to achieve it

Gaurav Singhal
B.Tech., IIT Kanpur
gauravsinghal2@yahoo.com

September 15, 2008

 Contents

Abstract 3
1. Introduction 4
2. Present Condition: A Scope for Catch-Up 4
3. Effect of Bicycle on Productivity 5
4. Bicycle affordability and ownership 7
5. The Proposed Step: Subsidy 9
6. Different Aspects of Proposed Subsidy 9
7. Conclusion 11
8. References 12

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“All subsidies will be targeted sharply at the poor and truly needy like small and marginal farmers, farm labour and the
urban poor. I have asked the National Institute of Public Finance and Policy (NIPFP) to prepare a blue print to accomplish
these objectives.”

-P. Chidambaram, Finance Minister of India in his Budget Speech for 2004-05.

Abstract

Increased attention has evolved on stimulating growth in the rural sector over the recent
years. Transport, if analyzed for the cost-benefit analysis for rural poverty reduction, has
given one of the best returns in this regard. Barring Agricultural R&D, Road Investments
were a staggering 3-10 times more effective than other investments and subsidies in
rural economy in the decade of 1990s.

Road investments are a pseudonym for investment in transport. Another integral part of
increased mobility through transport in the rural areas is the bicycle ownership. What a
road does at a macro level, the bicycle supports at the micro level.

Bicycle is one of the best means to improve the mobility and productivity of a poor
person by conserving time and energy, and experiments done in Africa show that it can
increase the family income by as much as 35%. Two studies done in Africa have
reported a benefit-cost quotient of 4 by owning a bicycle, similar to the benefit-cost
quotient of roads. A bicycle increases the speed compared to travel by foot by three
times, and at the same time reducing the energy required for travel to one-third. Thus,
for many years, additional time and energy is available with the person to perform
additional productive work.

But the ground condition is that the bicycle ownership in India is way behind some of
the other developing countries, leave aside the developed countries. A clear reason for it
is the relative affordability, as despite being one the cheapest in the world in India,
relative to per capita income the affordability of a bicycle in India is still not as easy as in
some of the other countries compared with, especially China and Brazil. India has 2
times the relative price of a bicycle and barely 1/7 the bicycle density of these two
nations.

Providing a subsidy on the purchase price of the bicycle is seen as a rapid solution to
enable the have-nots to cross the economic hurdle to own a bicycle. Such a subsidy in
Shanghai in 1980s has proved to be a major factor in increasing the bicycle density by a
mammoth 360% over a decade. The burden of bicycle-subsidy for Central Government
will be only 1% percent of the total subsidy it provides. It is ironical that to support
transport, huge subsidy is given on petrol, which is consumed majorly by middle class
households, but not on bicycle, which is used majorly by poor households. Even if roads
are there, a dismal bicycle density will create a bottleneck for the rural transport.

Since at the rural level, the problem is of the productivity improvement majorly, such a
move can induce a lot of productivity increase and resultant economic activity. It can
unleash long term and recurring benefits to a rural household, with subsidy reaching
directly to the targeted lowest strata, strata having highest room for productivity
improvement. It can start an avalanche of transport growth, translating into a surging
rural growth. A subsidy on the bicycle can be one of the best investments in rural
economy made by a government.
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1. Introduction

This document deals with the idea of increasing the per capita bicycle density in India at
a significantly higher rate than at present, to propel accelerated economic growth among
the poor and rural sections of India. Bicycle density in India is compared to other nations
and reasons for a relatively very poor bicycle penetration among Indian masses are
analyzed. It is shown that Per Capita Income wise prices are relatively much higher in
India and the idea presented is to reduce the end purchase price of bicycle by
government subsidy or by other measures such as tax reliefs, so that a lot of people can
jump over the economic hurdle. Effects of possession of a bicycle on the realization of
economic opportunities are analyzed and a cost-benefit analysis is reviewed. The pros
and cons of such a subsidy are discussed and the rationale behind such a move is
analyzed.

2. Present Condition: A Scope for Catch-Up

Indian economy has grown above 6% over last 10 years and above 8% over the last 5
years. But if one closely analyzes the growth pattern for different sectors, the rural
economy has dismally lagged behind the urban economy. Bharat has lagged behind
India. Time has come when we start thinking out of the box to stimulate huge
developmental opportunities in the rural sector also.

Provision of rural infrastructure is an answer. In a recent report analyzing data for 4

decades from 1960s to 1990s, Fan, Gulati and Thorat1 have shown that Investment in
Roads along with Agricultural R&D has provided the best returns in improving the
agricultural GDP and decreasing poverty. But in this context of rural transport, the
bicycle density per capita in India is among the lowest in the world, lower then even
some of the developing countries we compare India with. Even if roads are there, a
dismal bicycle density will create a bottleneck for the rural transport.

Table 1: Bicycle density in various countries

Country Bicycles per 1000 persons

Japan 588
China 385
Brazil 286
Romania 222
Mexico 76
India 41
Indonesia 15
Source: Jeroen Buis; The Economic Significance of Cycling, VNG uitgeverij, The Hague (2000).

It may be seen that there is a lot of potential to increase the bicycle density in India to
bring it at par with several other nations of the world. A lot of improvement in
productivity can be seen in this way by efficient utilization of time, effort and money.
Infact, a major cause of the poverty in rural India is of inefficient utilization of abundant
resources only.

1. Fan, Gulati & Thorat; Investment, Subsidies, and Pro-Poor Growth in Rural India, Intl. Food Policy Research Institute (2007).

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3. Effect of Bicycle on Productivity

Bicycle is the prime source of transport in villages and semi-urban areas. It is estimated
that compared to simple walking, a bicycle increases the speed of travel by 3 times, and
at the same time reducing the labor required by 3 times2. If all the people who don’t
have a bicycle are provided with one, it can increase their productivity by increased
available time and energy to perform additional work. The productivity levels in rural
India are very low compared to the urban India and hence it has the highest need and
potential for productivity improvement. At the micro level, bicycle is the single most
important mass-machine rural India can use to enhance the productivity. It will induce a
lot of economic activity and well being.

A journey on foot to a field 4 km away (about one hour) reduces the time available for
field work by 25% (two hours out of eight) and uses up to three times as many calories
as travelling by bicycle. As a result, intensive agricultural activities decrease
dramatically at distances of as little as 2-4 km from the dwelling place to the field2.

With a bicycle, a farmer can also go to the city much more often to have access to
markets, seeds and credit; a girl student can go to a college in a nearby village; an
unemployed in the town can start dropping newspapers; and a young boy can take his
sick mother to the nearest primary health center. All these will create access to markets,
health, education and information, in turn creating growth and well being directly to
that strata that has remained unaffected from current industrial growth, which needs a
support utmost, and whose wholesome participation is utmost needed to realize the
dream of India becoming a developed nation.

Two studies done in this regard are worth mentioning for analyzing the effects of a
bicycle on rural productivity improvement and poverty reduction. The first is the study
done by Institute of Transportation and Development Policy, Europe on Cost-benefit
analysis of bicycle ownership in Uganda3. In this study 300 poor households from
different regions of Uganda were given subsidized bicycles and a one-time guidance of
how to utilize the time saved in doing any allied productive work. The impacts of the
bicycle on the household’s social and economic life were examined, and the findings
were as below:

• Saving of almost 2 hours per day of transport time per household

• Substantially more frequent visits to market and medical facilities
• 23% fewer journeys to carry out domestic tasks
• Even regional destinations up to 40 km away within reach
• Relieving the housewife of 46% of all of her transport loads
• A 35% higher income from selling harvest products on external markets with
higher prices.
• Benefit to Cost quotient of 4 for the operative years of the bicycle.

2. Lowe; The bicycle: Vehicle for a small planet, Worldwatch Institute (1991).
3. Jürgen Heyen-Perschon; Non-Motorized Transport and its socio-economic impact on poor households in Africa, Institute
for Transportation & Development Policy (2005).

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Figure 1: Increase in Household Income due to bicycle

Source: Jürgen Heyen-Perschon; Non-Motorized Transport and its socio-economic impact on poor households in Africa, Institute for Transportation
& Development Policy (2005). (100,000 USh. = ~ 60 US $)

It can be seen that bicycle in this study caused a significant change in the lives of
surveyed poor in becoming able to overcome the poverty. The bicycle had improved
both their sphere of activity and their transport capacity. This made a virtuous cycle, the
effect of which was their significantly higher ability of growth and development.

Another report worth mentioning in the role of rural transport in poverty alleviation is a
discussion paper by Fan, Gulati and Thorat, titled “Investment, Subsidies, and Pro-Poor
Growth in Rural India”. The authors quantitatively estimate the Benefit to Cost ratio for
various government subsidies on agricultural GDP. The results are as shown:

Table 1: Returns in Agricultural Growth and Poverty Reduction to Investments

and Subsidies
1960s 1970s 1980s 1990s
Return Rank Return Rank Return Rank Return Rank
Returns in Agricultural GDP (Rs. per Rs. spent)
Road Investment 8.79 1 3.8 3 3.03 5 3.17 2
Educational Investment 5.97 2 7.88 1 3.88 3 1.53 3
Irrigation Investment 2.65 5 2.1 5 3.61 4 1.41 4
Irrigation Subsidies 2.24 7 1.22 7 2.28 6 n.s. 8
Fertilizer Subsidies 2.41 6 3.03 4 0.88 8 0.53 7
Power Subsidies 1.18 8 0.95 8 1.66 7 0.58 6
Credit Subsidies 3.86 3 1.68 6 5.2 2 0.89 5
Agricultural R&D 3.12 4 5.9 2 6.95 1 6.93 1

Returns in Rural Poverty Reduction (Decrease in number of poor per million Rs. spent)
Road Investment 1272 1 1346 1 295 3 335 1
Educational Investment 411 2 469 2 447 1 109 3
Irrigation Investment 182 5 125 5 197 5 67 4
Irrigation Subsidies 149 7 68 7 113 6 n.s. 8
Fertilizer Subsidies 166 6 181 4 48 8 24 7
Power Subsidies 79 8 52 8 83 7 27 6
Credit Subsidies 257 3 93 6 259 4 42 5
Agricultural R&D 207 4 326 3 345 2 323 2
Source: Fan, Gulati & Thorat; Investment, Subsidies, and Pro-Poor Growth in Rural India, International Food Policy Research Institute (2007).

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As can be seen, throughout the four decades, road investments have given one of the
best returns in poverty eradication, apart from Agricultural R&D. This was even truer in
the recent decade of 1990s, where road investments have caused the maximum decrease
in number of poor people. Barring Agricultural R&D, Road Investments were a
mammoth 3-10 times more effective in rural poverty reduction than other investments
or subsidies.

Road Investments are a pseudonym for investment in transport. What a road does at the
macro level, the bicycle supports at the micro level. This argument is also strongly
supported by an investment-return ratio of 4 for the bicycle estimated by two studies
done in Africa4,5, similar to the ratio estimated for road investments in the report
mentioned above (see table). Hence, it can be said that the study strongly suggests that
to have an easy access to transport in the form of cost effective means, such as a bicycle,
can be one of the biggest mean to break the vicious cycle of poverty.

Also, since 2003, there has been a structural increase in India’s GDP growth to nearly 8%
from 5%-6% in the previous 2 decades. The main reason for this spurt in growth has
been the growth in productivity. Productivity increase has been the key driver behind
the jump in GDP growth, estimated to be contributing nearly half of overall growth
since 2003, compared to a contribution of roughly one-quarter in the 1980s and 1990s6.
But almost all such contribution to productivity growth has come from the services and
manufacturing, and while these two sectors have registered a healthy Total Factor
Productivity increase in the last decade, agriculture has lagged behind dismally. In fact,
it is estimated that during 1997-2004, agriculture recorded a decay in productivity. In
this scenario, the bicycle can become a strong tool to increase the rural and agricultural
productivity rapidly, moving India to a rapid path of inclusive growth with increasing
rural incomes.

4. Bicycle affordability and ownership

In the light of above studies which show the huge potential the bicycle has in rural
income growth and poverty alleviation, it is imperative to search for the reason for a
relatively very low bicycle density among Indian masses, even though the bicycle prices
here are absolutely one of the lowest in the world.

Reason for a Very Low Bicycle Density

High cost of bicycle to an ordinary Indian is the primary reason. This sounds a
completely strange argument on the face of absolute bicycle prices in India being one of
the lowest in the world. But a closer look at bicycle prices relative to per capita income
with some other developing countries in the Table 2 reveals the reason for such a dismal
bicycle ownership in the India.

4. Jürgen Heyen-Perschon; Non-Motorized Transport and its socio-economic impact on poor households in Africa, Institute for
Transportation & Development Policy (2005).
5. Sieber; Rural transport and regional development: The case of Makete District (1996).
6. Poddar & Yi; India’s Rising Growth Potential, Goldman Sachs (2007).

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Table 2: Relative Bicycle Prices and Comparison with Bicycle Density
Per Capita Bicycle prices x
Country Bicycle prices 100/ Per Capita Bicycle Density
(US $) Income (Bicycle per 1000 persons)
(Nominal, US $) Income
A B Ax100/B C
China 45 2,360 1.91 385
Brazil 80 5,910 1.35 286
Romania 132 6,150 2.15 222
India 47 950 4.95 41
Source: World Development Indicators database, World Bank (2008); Jeroen Buis; The Economic Significance of Cycling, VNG uitgeverij (2000);
and various other websites.

Figure 2: Relative Bicycle Prices and Comparison with Bicycle Density

The preceding Table and the Chart reveal that bicycle prices in comparison to per capita
income are still very high in India compared to the world. There appears, very logically,
to exist a correlation between the relative price and bicycle density all over the world. As
the ratio of bicycle price to the income goes high, i.e. the bicycle becomes ‘relatively’
costlier, the bicycle density tends to go low. A higher relative bicycle price means higher
portion of monthly savings to afford it, and thus a higher economic barrier. This
explains the paradox that despite ‘absolute’ bicycle prices being one of the lowest in
India, a bicycle for an Indian is actually way costlier than for a citizen of any other
country discussed.

People in China have a less than 40% relative price compared to India as a bicycle cost
and the density in China is a staggering 800% more than that of India! This can suggest
the magnitude of people in India who can be made eligible to cross the economic hurdle
and have access to a bicycle. For example, in Shanghai the bicycle ownership increased
360% during 1980 to 1990. This was mainly because Shanghai’s urban layout was aimed
at keeping home to work-place distance short and because of subsidies for purchasing
bicycles7. Similar results are also imitable in India if right direction is given to the policy
factors. It can start an avalanche of growth in transport.

7. Kuranami, Winston & Bell; Non Motorized Vehicles in Ten Asian Cities, World Bank, Washington (1995).

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5. The Proposed Step: Subsidy

The idea the present document proposes is ‘Government Subsidy on Bicycle for
Accelerated Rural Growth’. It proposes to provide 50% subsidy on the purchase price of
the basic model of a bicycle. The total cost of the subsidy to govt. will amount to about
2,000 crore per year, depending on the number of bicycles sold after the subsidy is
provided.

At present about 1 crore bicycles are sold every year in India8 at an average price of
about Rs. 2000. Since decrease in prices will cause additional spurt in sales, the total
subsidy provided by the government will on average be about 2,000 crore per year,
assuming probable 100% increase in the sales over a long term period. With Central
Government total subsidy outlay (explicit and implicit) exceeding Rs. two lakh crore per
annum9, an additional ~1% increase to the existing burden would be miniscule
compared to the direct and targeted potential this step has in reducing poverty and
creating well being.

Unlike the other modes of subsidy, like on food, petroleum, fertilizers etc., which have
only a one-time beneficial effect, the subsidy on bicycle will have a long term recurring
effect over the realization of financial opportunities by the user. A mere Rs. 1,000 one-
time support to a family will make it save and utilize time and energy worth manifold
for at least 5 years. As earlier also mentioned, it is estimated that a bicycle saves the time
of travel and energy by 3 times. Hence, depending on the amount of usage, it can be
conservatively estimated that a bicycle can increase the efficiency of a person at least by
10%. This will be a significant step considering rural India’s average growth rates of ~3%
in recent times.

It is ironical that huge subsidy is given on petrol, which is consumed majorly by city-
centered middle class households, but not on bicycle, which is used majorly by rural
poor households. This is an example where the relatively rich get subsidized while the
poor don’t.

6. Different Aspects of Proposed Subsidy

Huge Impact in a Very Short Time

Huge impact will be seen in a short span of time. The impact in the long run will be
similar to the impacts made by construction of roads, increasing mobile density or
providing power supply. As the experiment in Uganda indicated, the effects are huge
compared to a 2-4% annual growth rate shown by the rural India. By this step, there will
be huge upsurge in the transportation in the smaller towns and villages. Used bicycle
prices will also in tandem get a proportional reduction and a used bicycle will become
even more affordable to the poor. Farmers, laborers, artisans, daily wage workers etc.
will directly benefit from it, reducing time to travel and hence increasing productive
time and energy significantly.

8. The Economic Times (September 14, 2008).

9. The Tribune (September 7, 2008).
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Recurring, Long Lasting and Self-Sustaining Effect

The effects of a bicycle on a household are recurring and long lasting. The economic
benefits realized from the bicycle usage over the years will bring the household in a
position to easily buy a new bicycle when the former gets old, and hence self-sustain the
growth. Also, with almost zero operational cost, the benefits keep coming at almost zero
cost for as much as 10 years after the initial investment.

Targeted Direct Benefit to the Lowest Strata

The National Common Minimum Program (NCMP) of the present government pledges:
“All subsidies will be targeted sharply at the poor and the truly needy like small and
marginal farmers, farm labor and urban poor”. Bicycle is the main mode of
transportation for almost all in Rural India, for a majority in Semi-Urban, and only for
the poor in Urban India. Among those who have wealth, only the young students ride it,
which constitutes a very small portion of the total number of people using bicycle in the
country. Hence subsidy on the basic model of bicycle will give a targeted direct and
instant benefit to the lower income groups, without the delays that are associated with
the other trickle-down developmental policies. This will be one of the best modes of
targeted subsidies.

Minimum Chance of Leakage

There would be negligible chance of leakage of this subsidy as unlike kerosene or food
grains, a bicycle will get no extra price in the open market. Melting it for a cheap source
of iron will also not work out due to unfavorable economics with 50% subsidy. Only
smuggling to neighboring countries may see a rise, but seeing the size and weight of the
article and the economics and risks involved, it won’t also be a very lucrative and safe
option for such activities either. Also, small leakages can never out-throw the huge
development the subsidy will create.

Secondary Benefits

When compared with motorized transport, increased mobility through bicycles will also
mean a saving of foreign exchange on imported hydrocarbon fuel, reduced pollution in
the environment and a better health for the people.

But Why Bicycle?

When so much other subsidies are already there, why further on bicycles now?

Bicycle is the single most important machine the poor India can use to lift it
economically. It has all the characteristics that make it an ideal equipment for
development:

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 • Ability to increase productivity even up to 10%
• One of the best benefit-cost ratio (3-10 times) compared to most other subsidies
• Low cost of acquisition, almost zero cost of operation
• Manifold and recurring returns, for years
• Simple, so that everyone can use

No wonder, 58% of people questioned for a transport project in Tanzania, Africa gave
bicycle the highest priority as solutions for their transport problems10. For such an
important mass-machine, the bicycle density in India is very low compared to the world.
It is high time India increases its bicycle density and brings it at par with other
developing countries.

But Why Subsidy, Why Not Microcredit?

The target mass for bicycle subsidy is mostly uneducated and unaware of the formal
processes of credit and has an inertia for bureaucratic red-tape. The gestation period for
a petty loan of about a thousand rupees will be much to abandon such a process
altogether for them. Moreover at present, there’s no institution in India, like Grameen in
Bangladesh, which has successfully demonstrated microcredit disbursal to crores of
poor across the country. Microcredit instead of subsidy is a good idea but till such a
mechanism evolves, which may take years, there is no option other than the subsidy.
Moreover, the amount of subsidy is too little compared to the massive impact it can
create.

In the mean time the process of providing subsidy materializes, tax burden should be
removed from the bicycle industry and it should be ensured that the benefit is passed on
to the consumer. A tax on bicycle is a tax on the poor.

7. Conclusion

Despite having one of the lowest absolute prices in the world, bicycle ownership in India
is no-where near some of the other developing countries. Affordability in terms of
bicycle prices in comparison with per capita income explains the huge gap between
India and such countries. A bicycle gives a person mobility that increases his
productivity substantially as indicated by many studies. What building roads does in a
rural economy at the macro level, bicycles do at the micro level. As agriculture sector
has witnessed prolonged periods of decay in productivity in last decade, increasing the
bicycle density rapidly through subsidizing its purchase price should be seen as a highly
effective and fast mean to stimulate rural growth. Such a move will unleash long term
and recurring benefits to a rural household, with subsidy reaching directly to the
targeted lowest strata, strata having highest room for productivity improvement. A
subsidy on the bicycle can be one of the best investments in rural economy made by a
government.

10. Sieber; Rural transport and regional development: The case of Makete District (1996).
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8. References

• Budget Speech 2004-05, Ministry of Finance, India.

• Census of India-2001, Availability of Assets (Bicycle) Data, Office of the Registrar
General & Census Commissioner, India.
• Fan, Gulati & Thorat; Investment, Subsidies, and Pro-Poor Growth in Rural India,
International Food Policy Research Institute (2007).
• Gannon & Liu; Poverty and Transport, World Bank (1997).
• Jeroen Buis; The Economic Significance of Cycling, VNG uitgeverij (2000).
• Jürgen Heyen-Perschon; Non-Motorized Transport and its socio-economic impact on
poor households in Africa, Institute for Transportation & Development Policy
(2005).
• Kuranami, Winston & Bell; Non Motorized Vehicles in Ten Asian Cities, World
Bank, Washington (1995).
• Lowe; The bicycle: Vehicle for a small planet, Worldwatch Institute (1991).
• Poddar & Yi; India’s Rising Growth Potential, Goldman Sachs (2007).
• Sieber; Rural transport and regional development: The case of Makete District,
Karlsruhe Papers in economic policy research. Volume 4 (1996).
• World Development Indicators database, World Bank (2008).

Please visit http://thebicyclereport.blogspot.com to download the above reference documents and for more
on the bicycle report.

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