The economist’s understanding of poverty with regards to India is laudable. His commentary serves to knit the various contributions into a well-integrated discussion
This year's Sveriges Riksbank Prize in economic sciences has been conferred upon Angus Deaton for his analysis on consumption, poverty and welfare. His seminal work in the field of social welfare, with the help of large-scale sample survey results, especially in the Indian context, necessitates for high quality governance data available for cross-checking the claims made by the Government of the day, by independent researchers and thinkers.
Mr Deaton’s work undoubtedly impresses upon the need for timely, transparent and uncensored data, to support the democratic ideals of a nation. The three Ts — Timely, Transparent and Trouble-free information — as enunciated by the Prime Minister's speech at the 10th convention of the Central Information Commission, New Delhi, even though in the context of Right To Information, coincidently converges with the ideas of Mr Deaton. The celebrated economist is perhaps one of the scholars whose work establishes an unseen relationship between research and democracy.
Mr Deaton used several data sets of the famous National Sample Survey, to measure poverty. In his golden words, “Poverty is more than the lack of money; malnutrition in India is not just lack of calories and certainly not just lack of cereal calories, but is more about the lack of variety in diets.”He discusses the ambiguity that arises by using different definitions and data sources for individual income or consumption levels in world poverty measurement. Should one rely on the direct information on individual consumption or income provided by national representative household surveys, or should consumption and income figures be scaled up or down so that means coincide with the National Accounts dataIJ
It is generally the case that consumption expenditure per capita estimated in the NA is higher than the mean expenditure per capita obtained in the surveys: Thus scaling up leads to lower poverty estimates than when surveys are used. It is also the case that the difference between the two estimates tends to widen over time, so that trends are not more reliable than poverty estimates at one point of time. Mr Deaton analyses in detail the reasons for this divergence and concludes that NA-scaled survey data are in some sense faulty, whereas a pure consistency argument pleads in favour of using survey data at their face value. Relying entirely on the sample survey data but applying more appropriate expenditure deflators, Mr Deaton estimates the poverty figure for India in 1999 to be 100 to 180 million lower than that obtained by the World Bank.
In his book, Understanding Consumption, Mr Deaton seeks to explain aggregate consumption behaviour as the result of individual optimising behaviour. Theoretical arguments are tied closely to econometric practice and empirical evidence throughout the book. Apart from an admitted reluctance to deviate from the optimising agent paradigm, the treatment is remarkably undogmatic. Mr Deaton draws insight from a rich class of theoretical structures encompassing, for example, non-time-separable utility (habit formation), liquidity constraints, and uncertainty (precautionary motive). Similarly, he draws his evidence from a diverse set of empirical studies employing panel and aggregate data from across countries and time.
A major focus of this work is the need to pay careful attention to aggregation issues. In Essays in the Theory and Measurement of Consumer Behaviour, Mr Deaton describes what he had in mind, when setting out to assemble these papers. Rather than selecting a diverse group of topics, he chose to bring together a first-rate collection of articles, on both the theory and measurement of consumer behavior. There is absolutely no doubt about his achievement of this objective. The readings are superb, and the commentary which appears intermittently serves to knit the various contributions into a reasonably well-integrated discussion.