How poor are we? A reality check

A person who spends Rs 20 per day spends Rs 600 in a month. A 5-member family (which is the Indian norm) in this income bracket therefore spends Rs 3,000 per month. And, according to the National Sample Survey, as much as 77 per cent of all Indians (836 million in 2004-05) lived on less than this sum.

The NSS figure has been quoted in the Arjun Sengupta report on the unorganised sector, released last year, and since then it has gone into the common lexicon. For instance, Mani Shankar Aiyar quoted the number in a speech that he was to have delivered to a bunch of economists at Stanford last month. Lesser mortals have quoted it all over the place, so much so that it is now accepted as gospel.

But, can the NSS numbers be correct, or should we put them to a simple reality check? The easiest way to do that is to look at the number of mobile telephone connections, which in March was in excess of 300 million.

The mobile industry thinks that in two years that number will be 500 million subscribers (at the present rate of 8 million new connections every month), in a country that by 2010 will have about 1,150 million people. Somehow, that does not gel with the NSS numbers.

The maths is not complicated. India has some 210 million families. Allow three connections per family for the top 50 million families who live (according to the NSS) on more than Rs 20 per head per day, and you account for 150 million connections. You still have 150 million connections that are there with the 160 million families that are (as the Sengupta report classifies them) extremely poor, poor, marginally poor, or vulnerable.

That makes for virtually one phone connection per family in that very deprived group -

which seems to defy common sense.

It is of course true that a lot of low-income people can indeed afford mobile phones today, as handsets cost no more than Rs 700. The average revenue per telephone user at the bottom of the pyramid is Rs 70 per month, much of which is on incoming calls. With controlled usage, the low-end user can reduce his monthly bill to no more than Rs 20-30.

So we are indeed talking of people with very limited budgets. Still, one phone per poor family does not make sense - especially when the majority lives in rural areas that may not even have cell phone coverage. It makes even less sense when you think of 300 million becoming 500 million connections in two years.

More scientific questioning of the NSS numbers can be done by looking at the household surveys done periodically by the National Council for Applied Economic Research. The survey done in 2001-02, with its numbers projected for 2005-06 (a year after the NSS), says that there would have been only 132 million families out of a total of 204 million (or 65 per cent) who earned less than Rs 7,500 per month - at 2001-02 prices.

Compare this with the NSS finding that 77 per cent lived on less than Rs 3,000 per month, at 2004-05 prices, and it becomes clear that either the NSS or the NCAER numbers are completely off the mark. Since the NCAER numbers are more logical when matched with the cell phone numbers, I would believe them and not the NSS.

The truth almost certainly is that the NSS/Sengupta numbers that are taken as gospel by so many, including cabinet ministers, are in fact highly suspect. Indians are better off than what these numbers tell us - by a factor of two or more.