In fact: Why the Economics Nobel for Angus Deaton matters for India

It’s not surprising that most outside academic circles in India don’t know why Deaton deserved the Nobel. That’s also ironic, because a large part of his work is about India and Indians.

Written by Udit Misra | Published: October 14, 2015 12:44 am
Angus Deaton gestures at a gathering at Princeton University after it was announced that he won the Nobel prize in economics (AP photo) Angus Deaton gestures at a gathering at Princeton University after it was announced that he won the Nobel prize in economics (AP photo)

The website for the Nobel Prize has been running an online poll, which asks readers whether they had heard of Angus Deaton’s research on consumer choice and measure of well-being. Close to 70 per cent have clicked No. This is unlikely to surprise Deaton, who thought someone was playing a prank when he received the call from the Nobel committee on Monday.

It’s not surprising that most outside academic circles in India don’t know why Deaton deserved the Nobel. That’s also ironic, because a large part of his work is about India and Indians. Several of his career’s best achievements have had tremendous influence in India’s academic and policymaking circles.

Deaton is best known for linking aggregate data with individual data. When he joined the academic world, most policymaking was done on the basis of macroeconomic data, which, in turn, was based on several assumptions about individual consumption behaviour. Deaton has spent most of his career replacing these assumptions with robust individual-level data collection and analysis. Today, the situation has changed completely. The Royal Swedish Academy of Sciences, which decides on the Economics Nobel, said: “In the 1980s, research into economic development was mostly theoretical and, where it was empirical, it was based on aggregate data from national accounts. This has now changed. Development economics is a flourishing empirical research field based upon the advanced analysis of detailed data from individual households. Deaton’s research has been an important driving force in this transformation.”

Deaton’s impact on Indian policymaking can be divided into two broad areas. One, his contribution to how India should map the poor and disadvantaged, and his research on the evolving status of nutrition and health. Two, his unwavering belief that it is only through strong state intervention that people can be pulled out of poverty.

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For starters, his research on price indices was central to how India devised its poverty line through the report of the Suresh Tendulkar Committee. But beyond that, Deaton used the National Sample Surveys to fine tune the way consumption expenditure was calculated. This calculation, in turn, was central to the determination of poverty, which influenced the policy stance of the government.

The minute detail in which Deaton applied himself, and the manner in which he influenced policymaking, is evident in his pointing out of measurement inaccuracies in the 55th round of the NSS (1999-2000). Until the 55th round, NSS surveyors collected consumption data by asking respondents to recall their expenditure over the past 30 days. But in the 55th round, it was decided that data would be simultaneously collected for both a 30-day and a 7-day recall.

Deaton pointed out that the simultaneous recording of data, far from providing additional insights, muddied the eventual result. This was so because typically, respondents did not answer both questions. So, if the surveyor asked for the 7-day recall, people tended to ask the surveyor to multiply the same expenditure roughly four times for the 30-day period data. Similarly, if the surveyor asked for the 30-day data first, it was often divided by four to come to the 7-day data. The crucial behavioural bit is that people better remember expenditure over a 7-day recall than over a 30-day recall. As such, there were many overestimates and underestimates in the data. Further, if expenditure is overestimated, it would lead to an underestimation of poverty, and vice versa. The detailing of the problem by Deaton led to the results of the 55th round being ignored.

An associated element is that Deaton has never lent any ideological colour to his work. He has assiduously raised the quality of data at an individual level, and allowed the evidence to guide the final conclusion. In 2002, he wrote a paper with Jean Dreze titled Poverty and Inequality in India: A Re-Examination, which concluded, “They (the poverty estimates) show that poverty decline in the 1990s proceeded more or less in line with earlier trends… We find no support for sweeping claims that the nineties have been a period of ‘unprecedented improvement’ or ‘widespread impoverishment’”. His academic papers on nutrition and poverty triggered many debates with fellow researchers both on the Left and the Right.

But beyond the technical details and nuances of measuring poverty and well-being, Deaton’s worldview has always underscored the role of the government in pulling people out of poverty. Partly, this has to do with the fact that for him poverty is not just a monetary phenomenon, and health is central to his notion of well-being. Deaton very much belongs to the Amartya Sen school of thought, which emphasises the need for an effective contract between the people and the government.

In a 2013 piece, Deaton wrote, “The absence of state capacity — that is, of the services and protections that people in rich countries take for granted — is one of the major causes of poverty and deprivation around the world… Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty.”

The Modi government came to power with a narrative that rejected too much state involvement in the social sector. The rights-based approach was seen as being counterproductive, and a disincentive to economic activity. Will the recognition for Deaton’s work force a rethink? Deaton has been a big votary of improving governments’ capacity to deliver services, without which entitlements lose sanctity. However, lack of government capacity should not lead to a retreat of the state. The answer is to push for policy debates in public forums, and strengthen the contract between the government and the governed.

udit.misra@expressindia.com

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