The Hindu Business Line : Per capita consumption in rural India rises

Chennai, April 21 If the richest 20 per cent own 80 per cent of capital and earn 80 per cent of total income, a massive 40 per cent increase in the incomes of the poor would be needed to match the increase in GDP that can be brought about by a small 10 per cent hike in the incomes of the rich.

However, as the Finance Minister, Mr P. Chidambaram, once told a high-profile gathering of India’s corporate executives, ‘the problem is that all of you, taken together, have only about 3,000 votes’.

In other words, the pro-rich high-growth strategy had to be supplemented by programmes for passing on some of the benefits to the poor. And so, in its very first budget the UPA Government called on banks to ‘double their agricultural loans in three years’. Technically, of course, ‘budget speech’ is the right word to use, rather than ‘budget’, because the whole point was to tap extra-budgetary resources.

In fact, as in the case of Indira Gandhi’s Integrated Rural Development Programme (IRDP) in the 1980s, the quantum jump in agricultural credit failed to bring about cost-reducing increases in agricultural productivity and/or a spurt in growth of agricultural GDP.

But a very different picture emerges if one looks at data on consumption rather than production or productivity. According to National Sample Survey (NSS) data, per capita consumption in rural India as a whole increased by 12 per cent in the 12 months between 2004-05 and 2005-06, against a 15 per cent increase in the five years between 1999 and 2004.

This acceleration was primarily the result of an explosive increase in the consumption of the lowest one-third of the rural population; from a mere 7 per cent in the five years from 1999 to 2004, to 15 per cent in a single year.

Before 2004, it was the rich who gained the most; later, it was the poor. While the top third of the rural population, too registered gains between 2004-05 and 2005-06, the lowest one-third gained very much more in percentage terms.

One point which needs to be highlighted is that despite Mr Chidambaram’s emphasis on ‘outcome budgeting’ at no point of time did anyone, in the Ministry of Finance, the RBI , the Planning Commission or NABARD, raise any questions or doubts about the effect of increased agricultural lending on agricultural production and productivity.

As in the past, there was no one to bell the cat. During the early days of Indira Gandhi’s IRDP, when a naïve young man drafted a candid speech for Mr V. N. Nadkarni (then a CGM and later a Chairman of State Bank of India) to deliver at the IIM (Ahmedabad), he read it attentively and then asked, in wonder, ‘you expect me to say that to them, huh?’

But in the end, even if no one survives to tell the tale, we know for a fact that there has, for decades, been no surge in either agricultural production, or in cost-reducing agricultural productivity.

As more data become available, currently available data on consumption expenditure might need some modifications. But they cannot simply be junked.

Though NSS data on consumption expenditure are not perfect, they have by and large stood the test of time because of the checks and cross-checks that have been built into the system from time to time to cope with known problems.

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