Vulnerability of Consumption Growth in Rural India

The fragility of livelihoods and hence the vulnerability of consumption growth due to aggregate shocks in the Indian rural sector have been highlighted recently. However, as yet there exist no estimates of the vulnerability of consumption growth in rural India. This paper attempts to fill this lacuna by providing certainty equivalent growth of consumption in 14 major states of India over the period 1958-1997, corresponding to NSS Rounds 13 to 53. The extant debates around poverty-growth elasticities are premised on the assumption of a state of world without any risks and uncertainties. In the real world in which the poor actually live they are subject to risks – both general and idiosyncratic – which affect their welfare. Thus poverty should not be viewed in static terms but within a framework that allows for changing states of the world. This paper shows that certainty equivalent consumption growth in rural India has been much lower than average real per capita consumption growth indeed, in some cases, it has been negative. This points to the poor performance of consumer-perceived average welfare in India’s rural sector and should be a matter of urgent policy concern. ASARC Working Paper 2006/04