How the data sets stack up -C Rangarajan & S Mahendra Dev
Why measuring inequality is not the same as measuring changes in the level of poverty in India
In recent years, there has been a lot of discussion on increasing inequality within several countries of the world, including India, particularly after the publication of Thomas Piketty’s book on inequality. It is true that rising inequality has adverse economic and social consequences. The Gini coefficient or other measures of inequality are being used to examine trends in inequality. In this column, we examine the trends in inequality and show that the poverty ratio is equally important as the Gini coefficient in analysing issues relating to growth and distribution.
Generally the Gini coefficient, which lies between 0 and 1, is used for measuring inequality. The Gini coefficient of consumption expenditure for rural areas declined marginally between 1983-84 to 1993-94 (from 0.304 to 0.286) while it recorded a marginal rise during the high growth period of 2004-05 and 2011-12 (from 0.304 to 0.311). In the case of urban areas, it stayed the same from 1983-84 to 1993-94 (0.344) while it increased modestly from 2004-05 to 2011-12 (0.376 to 0.390). Using long time series since 1951, a study shows that inequality in rural areas declined while it increased in urban areas in the post-reform period, particularly in the high growth period (Gaurav Datt, Martin Ravallion and Rinku Murugai, “Growth, Urbanization and Poverty Reduction in India”, 2016).
One view is that inequality in consumption may be an under-estimate as National Sample Survey (NSS) data may not be capturing the consumption of the rich adequately. The difference between the consumption expenditure according to the National Sample Survey Office (NSSO) and national income could be partly due to this factor. However, there is no strong evidence that underestimation in NSSO is only relating to the upper-income groups. In fact, the Rangarajan Committee examined the issue of differences in consumption between NSSO and NSS. According to the committee, these two estimates of consumption (National Accounts Statistics, or NAS, and household survey based) do not match in any country, and India is no exception. What is alarming in India is that the difference between NAS and NSS is widening over time. For example, the difference was less than 10% in the late 1970s; it rose to almost 50% in 2009-10. Some adjustments made in the report reduced the difference from 45.8% to 32.5%. But still the differences are high.
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