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Levels Of Living

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BSCAL
Last Updated : May 31 1997 | 12:00 AM IST

Material well-being has been traditionally judged by the command people have over income and assets. The literature on this subject abounds and so do controversies over methodology of data collection and empirical estimation procedures.

The Net State Domestic Product(NSDP) indirectly estimated by using the Central Statistical Organisation data contains many types of income which do not accrue at the level of the household. For example, profits both from public and private sector undertakings do not wholly get distributed to the households; rather they are directly accounted for to compute domestic product. Similarly, the value added due to mining activities, forest-based products and other natural resources will get directly accounted for in the national accounts while only a nominal proportion may get transferred to the households through wage payment and activities relating to their processing, storage and transport.

Further, it is also a fact that direct incomes are normally under-reported due to various practical considerations. For example, the rich wish to understate income due to a possible danger of getting netted as income tax payers. On the other hand, the relatively poor wish to understate household incomes in the hope of becoming eligible for innumerable kinds of direct and indirect subsidies announced by the governments under poverty alleviation and other welfare programmes. The perks and subsidies offered to regular salaried employees and returns from investments in banks and securities are less likely to be netted in the household surveys.

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For all these reasons, it is expected that directly observed levels of household per capita income would be lower than those implied by the NSDP estimates. One opinion is that consumer expenditure gives a better representation of well-being since consumption is believed to be influenced by past saving as well as prospects for future income. From this point of view, use of consumption data would be more appropriate. However, the object of studying inequality in income or level of living in a poor country is to lay bare the disparities in the opportunities available to different sections of the population to earn livelihood for themselves. Realised consumption often includes public expenditure on services such as health, education and nutrition and thus would reflect a higher level of well-being than income alone would indicate. Besides, at least in the short-term, it is possible that the current consumption has been maintained through liquidation of both movable and immovable assets.

Income disparities

While the total household and per capita income present absolute averages at the level of the state, they do not highlight income inequality within the state. Gini ratio is a popular index of income inequality within the population groups. Gini ratio ranges between 0 and 1, and the higher value signifies relatively larger income inequality. The Gini ratio for rural India based on distribution of household according to per capita income is 0.43 and the ratio ranges between 0.49 in Karnataka and Gujarat to 0.34 in north-east and 0.35 in West Bengal. It is lower than the national average in Himachal Pradesh, Haryana, Bihar, Orissa, Kerala, Madhya Pradesh and Rajasthan whereas it is high in Gujarat, Karnataka and Maharashtra.

Generally speaking, the disparity appears low among states which have lower per capita income and high among states with relatively higher per capita income with the exception of Haryana and Kerala, which presents an encouraging picture of higher per capita income with low disparity.

As expected, per capita household income increases considerably with the size of land holding. For example, the landless wage earners have an average total income of Rs 11,313; and a per capita income of Rs 2,308 per annum which is 48 per cent lower than the all India average of Rs 4,485. This difference is only 22 per cent lower for marginal farmers and 7 per cent higher for small farmers, 45 per cent higher for medium farmers and 144 per cent higher for large farmers. Thus, rural incomes are clearly a function of the size of land ownership in India. The Gini ratios among all these categories are moderate.

The levels of income are high for the salaried, professional and trade class who constitute about 13 per cent of all rural households. Their per capita income is 31 per cent higher than the national average and relative to the wage earners category their income is 2.4 times higher. Wage earners have recorded 45 per cent lower per capita income than the all India average. The wage earners income is only Rs 2,450 per capita per year (Rs 6.70 per day per person) which is about 58 per cent lower than that for the salaried, professionals and traders and 55 per cent less than that for the farmers. Wage earners are a relatively more homogeneous group as reflected by the Gini ratios.

While the household income increases considerably with the size of household, the per capita income in fact falls. This phenomenon is because of the differentials in the household composition in terms of age and sex as well as number of earning members. It is therefore, desirable to undertake age standardised estimates to substantiate most of the above comparisons. However, household size is closely associated with the lifecycle issues which enable changes both in the size and composition of households and in turn affects levels of income. Per capita income is about 30 per cent lower for large households (above eight members) than those living in households with four or fewer persons.

The levels of income by social groups suggest that both the total household and per capita income is least among the scheduled classes followed by scheduled tribes. SCs have a total household income of Rs 19,556 and per capita income of Rs 3,504 which is only about 68 per cent of the all India mean household income and 72 per cent of the all India mean per capita income. Although the variation is large, the SCs are relatively more homogenous in terms of level of income as reflected by the Gini ratio.

Among the religious categories, Christians have recorded the highest level of income ie Rs 28,860 per annum, followed by the Hindus with Rs 25,713 and the Muslims with Rs 22,807. The per capita income differentials between the religious groups is more contrasting due to the vast differentials in family size. Respective per capita incomes are Rs 5,920 for Christians, Rs 4,514 for Hindus and Rs 3,678 for Muslims.

The level of adult literacy in the household has a close association with the level of income. For example, households which have both literate men and women have 81 per cent higher income compared to households in which all adult members are illiterate.

As expected, both the level of household and per capita income increases according to the level of village development. For example, developed villages have 25 per cent higher per capita income compared to the less developed villages. The share of income in the developed villages from non-agricultural sources is higher.

Variation in earnings

For rural India, 58 per cent of households fall below Rs 20,000 income category followed by 27, 9, 3.3 and 3.4 per cent in subsequent income categories. It is further apparent that the proportion of households in up to Rs 20,000 category is only 34 per cent in Haryana and 42 per cent in Punjab, whereas it is as high as 74 per cent in Orissa and 71 per cent in West Bengal. The relative proportion of rich households is also high in Haryana, Punjab and Maharashtra.

While the distribution of household income according to land size categories confirms a direct positive association, occupation groups further affirm the relative advantage of the salaried, professional and business class households.

A study of the share of household income from various sources for states makes an interesting comparison. On the whole, agriculture and allied activities contribute 55 per cent to the total household income in rural India and this is followed by income from salaries and professional services (16.5 per cent), agricultural wage (7.9 per cent), non-agricultural wage (6.3 per cent), petty trade (five per cent) and other self employment and partisanship (4.5 per cent).

The origin of income and its share in the total household income according to population group presents a very instructive picture. It is clear that prosperity in rural India is closely linked with the size of ownership of land and its exploitation. While those in the lowest income category get only 39 per cent of income from agriculture they get 22 and 14 per cent respectively from agricultural and nonagricultural wages. The share of agricultural income increases from 39 to 50, 57, 64 and 77 per cent in successive household income categories. The middle income gro-ups receive up to one quarter of their income from salaries and professional services. Similarly, landless wage earners receive 52 and 40 per cent (92 per cent in all) of income from agricultural and non-agricultural wage employment alone, and large land owners get 90 per cent of their income from cultivation alone. As expected, those below the poverty line receive 44 per cent from wage employment and another 39 per cent from cultivation.

(Excerpted from Human Development Profile of India, a report by NCAER and UNDP.)While the household income increases considerably with the size of household, the per capita income in fact falls. This is because of the differentials in the household composition in terms of age and sex as well as number of earning members.

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First Published: May 31 1997 | 12:00 AM IST

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