Deaton's date with India's poverty crisis

Nobel laureate Angus Deaton's research on poverty has evoked strong criticisms from Indian economists.

Angus Deaton, Professor at the Princeton University, has won the 2015 Nobel Prize for Economics. Deaton’s path breaking achievements are in the areas of demand estimation for goods, strong correlation between consumption and income and his significant contributions in the field of poverty and inequality in developing countries.

Deaton is relevant to India. His rigorous research and analysis on the consumption patterns and poverty in the country have been witnessed through personal visits. Though squalor hurts, poverty has been an area of interest, debate and conflict among economists, politicians and governments. And, in India, the estimation of poverty and its alleviation has been “a work in progress”.

The poverty line is now defined at a monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban areas for a household of five members. This works out to household expenditure of Rs 4,860 per month in rural areas and Rs 7,035 per month in urban areas. Presently, the poverty estimate of India is at 29.5 per cent. The latest international poverty line by the World Bank stands at $1.90 per day.

In pursuit of his passion towards the study of inequality of income and wealth distribution, Deaton, along with Jean Dreze, Valerie Kozel and Abhijit Banerjee, researched India covering the period post 1988 – specially in the areas of poverty and reasons for impoverishment – and has come out with startling revelations. For a first-hand field experience, he visited Udaipur, Rajasthan, a few times. During the visits, Deaton and his team visited more than 100 villages, interacted with people, understood and experienced the living standards, and assessed the efficacy of government-sponsored programmes as well.

Deaton has strongly criticised and questioned the methodology of calculation of our poverty estimates. He remains unconvinced with our definition of “poverty line” itself. He strongly believes that the starting point of poverty measurement has to be consumption-linked, and not expenditure-based, estimates.

On the contrary, our poverty estimates from the National Sample Survey and the latest from the Socio Economic Caste Census are expenditure-centric with allocation of certain amounts to food, health, education, clothing and transport.

Deaton is a staunch believer in arriving at conclusions based on individual data analysis and does not believe in mere aggregation of numbers. His focus is on individuals and their decisions because, he says, “in the end it’s individual peoples’ well-being that counts”. This is precisely why he disagrees with the country’s poverty estimation postulate of measuring household expenditure for a five-member family.

His methodology is to measure individual consumption preferences and to scientifically arrive at the requirements of each household member, and not just an average with a cap of Rs 4,860 or Rs 7,035 per month. He illustrates this by showing that consumption of certain goods like food, tobacco, alcohol, clothes, transport, healthcare, education, varies significantly within the members of a household and hence cannot be averaged out.

Deaton Paradox
Deaton’s pertinent assessment of our inability to capture the “real income” of people engaged in agriculture and rural labour, land owners who are engaged in tilling and jobs from which cash incomes are generated may well render our poverty estimates opaque. This phenomenon of how consumption varies surprisingly smoothly despite sharp variations in income of the households is popularly known as the ‘Deaton Paradox’.

When there are 10 economists there are 11 opinions. Deaton’s research findings have received strong resentments and criticisms from Indian economists and policy makers. His observation that our labour force is “underworked” has received flak from his adversaries. This seems to have a correlation to the various subsidy programmes and supply of free foodgrain through the PDS.

The Nobel laureate has even said that height of Indian children is stunted due to low calorie intake and is directly related to the increase in poverty levels making them ill-equipped for productive and skilled labour. This has attracted serious criticism from Aravind Panagariya, Deputy Chairman, Niti Aayog.

Deaton’s research has thrown light on the prevalent gender inequality, too. His findings reveal that female children in a household get relatively less food than their male counterparts, which could have enormous impact on social inclusion leading to inequality and economic crisis.

Deaton’s date with India has been both fruitful and illuminating. He has cited in his work that, “India has been a continuous source of fascination, both as a place and as a source of economic puzzles that need solving”. He laments that the country has become exemplar of global poverty with concentration of wealth with microscopic minority and abject poverty of macroscopic majority, in spite of poverty levels declining over a period of time.

By honouring Angus Deaton for his pathbreaking contribution on consumption, poverty and welfare, the Royal Swedish Academy has honoured itself. The prize money of $978,00 is a birthday gift to the economist who turns 70 on October 19.

(The writer is a Bengaluru-based economist)