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Secret spendthrifts: Rich Indians who spend on items such as jewellery are often the ones who turn away data-collectors or under-report

Does anyone in India know how much households really earn and spend? The official system of measuring income and expenditure is coming in for strong criticism, but a new, privately-funded challenger is not without flaws either. Most statements about how much Indians earn, eat and spend, as well as on Indian inequality, are based on household surveys. The National Sample Survey Organisation has been conducting a quinquennial (once in five years) survey of household consumption expenditure since 1972, and this is the official source of data on how much Indian households spend.

The NSSO also conducts annual surveys (the 2011-12 one will begin on July 1) with a sample of over 50,000 households, but since the quinquennial survey has a much larger sample size (1.2 lakh households the last time), it is considered more reliable.

The NSSO’s survey reports have come in for criticism from some economists, like former World Bank economist Surjit Bhalla, who points out that the gap between consumption as measured through the NSSO’s household surveys and consumption as measured through national accounts (the total value of good and services produced in the country) has been growing to the point that the former is now just 43 per cent of the latter.

TCA Anant, India’s chief statistician and the secretary of the Ministry of Statistics and Programme Implementation, under whose charge the NSSO falls, admits to this gap. “This divergence is real, but it is not unique to India. Across the developed and developing world, it ranges from 30 to 70 per cent, and there are methodological and conceptual reasons for this,” says Anant, a statistician formerly with the Delhi School of Economics (see box on the left). Anant explains that the NSSO is moving towards reducing this gap by minimising recall errors, and improving its urban sampling system.

The main challenger to the NSSO is now the National Council for Applied Economic Research (NCAER), a Delhi-based research organisation which has been conducting surveys since 1968. NCAER’s household surveys are entirely privately-funded and the organisation has on its governing board Mukesh Ambani, Bhalla and HDFC chairman Deepak Parekh, among others. Its recently completed 2010-11 survey has an exponentially bigger sample size, rivaling the NSSO now at 1 lakh households.

The NSSO and NCAER differ significantly in the picture of India that they paint — consumption expenditure measured by the NCAER is significantly higher than that of the NSSO. In addition , while the NSSO measures consumption expenditure only, the NCAER collects income as well as expenditure and savings data (see box 2).

“We are not saying that the NCAER survey should replace the NSSO. We’re just saying that the more data there is on income and expenditure , the better. People can take a look at our findings and make up their minds,” says Rajesh Shukla, director of NCAER’s Centre for Macroeconomic Research, which conducts the surveys. But some economists say that that it’s not as simple as that. “What the NCAER does is at most put out aggregate information based on broad assumptions,” says Madhura Swaminathan , an economist with the Indian Statistics Institute, Kolkata. But the problem is that this data is then used for caste and state-wise analyses , which is not accurate, she says.

Swaminathan is also criticial of the survey questionnaire used by the NCAER. “There are established Indian and international methodologies for measuring things like agricultural income, but the NCAER does not follow any of these. This makes it very difficult for others to cross-check their data,” she adds. Why doesn’t the NSSO then measure income? It has tried and failed in the past and this remains an area of measurement that has not been cracked in India. “I belong to a class of economists who believe that what people report as their ‘income’ is akin to an opinion and not something that is easy to pin down,” says Anant.

First, there is the problem of how those working in agriculture, some of whom get paid in grain, and many of whom get their payment only at harvest time, will objectively report their income. Then, there is the question of those who work in the informal sector and have irregular wages. Even within the formal sector, says Anant, the legal definition of income and the way people understand it, is very different from the economic view of all that which gives a person command over purchasing power. In addition, there is likely to be under-disclosure at the upper end of the spectrum. “It is no doubt a complex process, but other developing countries like Sri Lanka and China do it. A country that is world renowned for its statistics programme should certainly be able to do it,” says Swaminathan. She, along with a team of researchers who form the Foundation for Agrarian Studies, have been conducting village-level surveys of household income for the last five years.

SPOT THE DIFFERENCE

Why is consumption as measured by household surveys so much less than consumption as measured through national accounts?

For one, in an unequal country, the bulk of consumption of some commodities is going to take place within a very small segment of the population: the purchase of laptops or diamond jewellery, for instance. This presents statisticians with a serious sampling challenge, compounded by the fact that casualty errors (households that are part of the sample, but from which information cannot be collected) are highest among the richest — they are often not at home, they frequently turn away data collectors, and they often under-report . Across the economic spectrum, a lot depends on whether the sample selection is accurate, and the NSSO acknowledges that there are problems with its urban sample, where the divergence is greatest. Part of the problem is the dynamic nature of Indian urbanisation, to capture which the NSSO needs to move to a GIS-mapping system, which is at least a decade away. Finally, household surveys will by definition miss out on all that is consumed outside a household. So a car bought by a private company but given to its director for his personal use will not be declared by him as an asset he owns, yet form part of his consumption.

(Source: TOI-Crest interview with Anant)

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