There is a celebrated Sherlock Holmes quote: “It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” This is a more familiar version of the adage from ‘A Scandal in Bohemia’. A slightly different and less colourful version exists in ‘A Study in Scarlet’, conveying the same intent. Whether a capital mistake or not, it is a current mistake to theorise, and passionately assert, in the complete absence of data.
Witness the discourse and debate on inequality, which makes blood pressures shoot up. Inequality is defined with respect to a metric, a variable whose distribution is being mapped. Inequality in the distribution of wealth, which is a stock, is one measure. Inequality in the distribution of income, which is a flow variable, is another. One should rightly be sceptical of estimations of wealth, especially if imputation of the value of real estate or shares is involved.
Strangely, a lot of people who pontificate on policy do not seem to know that India, like many other countries, does not officially collect data on incomes. That’s because data on income is believed to be unreliable. Instead, we collect data on consumption expenditure, an exercise the National Sample Survey Office (NSSO) started in 1950,.
Inequality in the distribution of consumption expenditure will be lower than in income. Nevertheless, from the former, we can deduce something about the latter, at least as a trend. There is a difference between a census and a survey. A census is a complete enumeration of the population. A survey is based on a sample. If the sample is truly representative, the survey will tell us something about the characteristics of the population. For consumption expenditure, NSSO has surveys known as the household consumption expenditure survey (HCES).
The trouble is, the HCES isn’t undertaken every year. Historically, HCES data is available once every five years. Until recently, it was available for 2011-12, not later. A lot of the stuff floating around on inequality was based on information for 2011-12 and we mechanically assumed it was equally true of today’s India.
But now, HCES for 2022-23 has become available. Whenever there is a new survey, with improved and slightly different methodology, questions are raised about comparability with earlier surveys. This is a valid point, but we should not make a mountain out of a molehill. There are consistency checks that can be used. There are different measures of inequality.
One such aggregate and popular measure is the Gini coefficient. It ranges between 0 and 1. Between 2011-12 and 2022-23, the Gini coefficient shows a decline in inequality in India. Measured this way, there has been no increase in inequality. Those are the facts. Inequality is a relative concept, poverty is an absolute one. There is a poverty line and using something like the HCES, one computes the percentage of population below the poverty line, defined as a minimal consumption basket. Between 2011-12 and 2022-23, the percentage of population below the poverty line declined. That too is a fact.
The HCES has a wealth of data on consumption expenditure patterns of households. Researchers have not yet begun to explore this in detail. Recently, the PM’s Economic Advisory Council (EAC-PM) brought out a working paper on what HCES shows about changes in food consumption. The paper has been authored by Mudit Kapoor, Shamika Ravi, Sankar Rajan, Gaurav Dhamija and Neha Sareen, and it is available on the EAC-PM website.
What does the research show? One, monthly per capita consumption expenditure has increased throughout India, but it has increased more for rural India than urban India. There are variations across states. But overall, the message of rural prosperity is undeniable. Two, for the first time in independent India, the share of food in monthly consumption expenditure has declined below 50 percent. This is primarily driven by a decline in the importance of cereals, aided by free and subsidised wheat and rice provided under various government schemes. This decline is especially marked for the bottom 20 percent of households.
The result has been an increase in dietary diversity. Free food (roughly 800 million eligible people) meant expenditure on cereals was saved and money could now be spent on fresh fruits, milk and milk products, eggs, fish and meat. That switch is a known phenomenon, as there is improvement and development. But the trends in HCES 2022-23 are quite striking.
Three, seasonality in the consumption of such items has declined. This is not just demand, it is also supply. Think of the improvements in infrastructure, transport, storage and supply chains. Four, one of the most remarkable findings is the examination of micronutrient intake. Take for example iron. There are wide variations between states. Iron intake has improved in Bihar, but not much in Rajasthan.
Micro nutrients that depend on cereals, such as iron and zinc, have suffered because cereal intake has declined. The average iron intake is inversely related to the prevalence of anaemia. Despite attempts to increase iron intake, anaemia indicators have not improved fast enough. This means a programme like universal fortification of cereals is probably not the answer.
Instead, a policy designed to improve household dietary diversity might work better. Consider average iron intake. In Rajasthan, 84 percent of average daily iron intake is from cereals. It is 22 percent in Kerala. Fresh fruits contribute 40 percent of the average intake in Kerala. Vegetables and pulses are major contributors in the Northeast. My take from this analysis is that if we formulate policies on the basis of aggregate behaviours, we will make mistakes.
The final message I want to leave is broader, beyond food consumption patterns. HCES has a wealth of data. Researchers are yet to probe it in all its richness. Immediate and instantaneous reactions on consumption inequality and poverty numbers are fine. But there is a need to look beyond. The problem is this is boring and painstaking research. Not too many have a taste for it. Therefore, we act like in the Sherlock Holmes quote. And we will make errors.
Bibek Debroy
Chairman, Economic Advisory Council to the Prime Minister
(Views are personal)