Nobel laureate economist’s policy prescription for India

Angus Deaton highlights his research on the country; stresses on data quality, malnutrition and inequality

GN Bureau | October 16, 2015



Angus Deaton won this year’s winner of the Nobel prize for economics, partly based on his field research on consumption and inequality carried out in Rajasthan and elsewhere in India, in collaboration with Jean Dreze. Recalling his India studies, he says, “I am even more thrilled that the Nobel Committee highlighted the work that my collaborators and I have done on India.”

In a statement for the Indian press, Deaton has underlined some of the key outcomes of his India-centric research, forming a policy prescription in the process. Some of his concerns are:

* The quality of data, especially in National Accounts Statistics (NAS) of the ministry of statistics and programme implementation. “We need better work resolving this issue. Without it, we cannot be sure what is happening to either poverty or inequality in India today.”

* Move to cash transfer and phasing out public distribution system (PDS) based on some sample surveys. “…if we want to think about using cash transfers instead of the Public Distribution System, we have to consider all of the subsequent changes, what would happen to procurement and storage, and what would happen to the free market prices of grains. An experiment can be useful for part of this, but only a part, and without all the parts we cannot judge what to do.”

* Fighting economic inequality, or poverty, with more access to education and healthcare, funded through expanded tax base. “Decent education, available and effective healthcare, and functioning sanitation are goods that benefit everyone, and the new middle class should be more than happy to pay the taxes that help others share their good fortune.”

 Here is the text of the “Statement by Angus Deaton to the Indian Press”:

I am thrilled to have been awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2015. I am even more thrilled that the Nobel Committee highlighted the work that my collaborators and I have done on India.

My work shows how important it is that independent researchers should have access to data, so that government statistics can be checked, and so that the democratic debate within India can be informed by the different interpretations of different scholars. High quality, open, transparent, and uncensored data are needed to support democracy.

I have used data from India’s famous National Sample Surveys to measure poverty. Perhaps the biggest threat to these measures is that there is an enormous discrepancy between the National Accounts Statistics and the surveys. The surveys “find” less consumption than do the national accounts, whose measures also grow more rapidly. While I am sure that part of the problem lies with the surveys—as more people spend more on a wider variety of things, the total is harder to capture—but there are weaknesses on the NAS side too, and I have been distressed over the years that critics of the surveys have got a lot more attention than critics of the growth measures. Perhaps no one wants to risk a change that will diminish India’s spectacular (at least as measured) rate of growth?

We need better work resolving this issue. Without it, we cannot be sure what is happening to either poverty or inequality in India today. Measures that should be known and indisputable become instead the subject of bitter partisan debates.

Poverty is more than lack of money and my work with Jean Drèze has documented the improving, but still dreadful, state of nutrition in India. Former Prime Minister Manmohan Singh called stunting among Indian children a “national shame” and so it is. Our work highlighted that malnutrition is not just about a lack of calories, and certainly not about a lack of cereal calories, but is more about the lack of variety in the diet—the absence of things like leafy vegetables, eggs, and fruit. It is also crucially linked to inadequate sanitation, to the fact that women often do not get enough to eat when they are pregnant, and to (in many areas) poor maternal and infant health services.

Another strand of my work is about the strengths and weaknesses of randomized controlled trials and their use for policy development. My main message here is not to claim too much. These tools are not magic. For example, if we want to think about using cash transfers instead of the Public Distribution System, we have to consider all of the subsequent changes, what would happen to procurement and storage, and what would happen to the free market prices of grains. An experiment can be useful for part of this, but only a part, and without all the parts we cannot judge what to do. I worry too that experiments are technical solutions to political problems, that really ought to be decided by democratic discussion; that experiments are often done on the poor and not by the poor is hardly an encouraging sign.

Finally, I have written about inequality, and about the threat that extreme inequality poses to democracy. India has been hugely successful in building a better life for many. Some of them now have consumption patterns that look like those of Americans or Western Europeans, and not a few have become fabulously rich. In an ideal world, the gap that has opened up between them and those left behind can help pull up others in an ideal world. Poor people can see the new opportunities, and understand that, with education and luck, their sons and daughters can prosper too. But there are also terrible dangers of inequality, if those who have escaped from destitution use their wealth to block those who are still imprisoned by it. Decent education, available and effective healthcare, and functioning sanitation are goods that benefit everyone, and the new middle class should be more than happy to pay the taxes that help others share their good fortune. Adam Smith said that “Every tax is to the person who pays it a badge, not of slavery, but of liberty.” And if taxes are spent wisely, liberty can be widely shared.

Angus Deaton
Professor of Economics and International Affairs
Princeton University

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