A common gag in slapstick comedies is for the chap being chased by bad guys to come to a crossroad, turn the road signs to point them in the wrong directions, and head off into the distance. Those giving chase read the signs and hare off in the wrong direction. It is funny in a movie, not so funny when the wrong road signs lead you into economic and political cul-de-sacs.
I refer to the latest numbers, for 2011-12, on how much Indians spend in a month. If you believe the National Sample Survey Organisation, the average expenditure by an Indian in a village (and 70 per cent of the population still lives in villages) is Rs 1,281. In the cities, the average Indian spends Rs 2,402. The national (weighted) average therefore is Rs 1,617. If you annualise that number and multiply it by the population of 1.23 billion, you get a total expenditure by all Indians of Rs 24 trillion. Now for the reality check. Because the National Accounts Statistics tells us that Private Final Consumption Expenditure last year was Rs 49.61 trillion — or more than double the figure that you get from the NSS.
When the numbers vary so widely, they have huge implications for assumptions about poverty-level income, the numbers below the poverty line, and also about the level of inequality — which is likely to be greater than the NSS shows, because it is the higher-income/expenditure categories that are more likely to get under-reported. If you go by NSS numbers, the top 20 per cent of the population spends less than six times as much as the bottom 20 per cent — a figure that is almost certainly a substantial under-estimate. It is not that the problems with NSS numbers are not known. However, the NSS does not seem to feel the need to take a fresh look at its methodology, or to use statistical ways of correcting the numbers to give them a closer relationship to reality. But the numbers that are put out officially are naturally reported faithfully by newspapers. They then become the basis for various estimates — including assertions like the one popular with NGOs, that 77 per cent of Indians lived on less than Rs 20/day in 2005, something that the evidence before our eyes should tell us is impossible. If nothing else, 25 per cent of households have bought cars and two-wheelers in the last five years, and a good number below them also could not possibly be subsistence-level families.
To get a better statistical sense of reality, one therefore has to do some back-of-the-envelope calculations, using the NSS findings and fitting them into the National Accounts numbers. The figures you then get, of what the Indian at the exact mid-point in an income ranking (ie the median Indian citizen at the 50th percentile) lives on today, would be a little less than Rs 65/day in the villages and Rs 120/day in cities. This presents a radically different view of where India and its people are than what is commonly believed. Accepting them should make it impossible to assert, as the Planning Commission does, that in 2009-10 36 per cent of the population was below the poverty line of Rs 26/day in the villages and Rs 32/day in cities. That estimate was subjected to some ridicule, by NGOs of course but also by the Supreme Court. It is also, without doubt, the basis for the political conclusion that the majority in India need large-scale hand-outs from the government, whereas in reality what the poor need much more are opportunities to improve their own lot — education and jobs. Talk about the wrong road-signs.