Measuring household income is tricky and expensive. In a country where the majority of people are self-employed, and have multiple sources of sustenance, coming in lumpy and unpredictable flows, the very idea of income varies from person to person. Even among salaried people, the net income is usually considered as income and not the gross income including provident fund, gratuity, etc.
Further complicating this is that the easily accessible household member, usually the housewife, typically does not know what the actual household income is. Often, even the Chief Wage Earner (CWE) does not know either. For example, if the son is the Chief Wage Earner and the father is the “head of the household’, he will most likely be the one who knows what income is accruing from other sources like, say, agriculture or remittance to run the household from the son in the city.
Income measurement in India therefore has two problems:
We have chosen to undertake the arduous and expensive task of rigorous household income estimation using the Canberra Group Guidelines of 1998 (See Canberra Group Handbook on Household Income Statistics, 2011 edition), a United Nations effort.
It identifies over 100 elements of income of which about 36 are essential. The ICE 360 survey captures 60 components. It assists elicitation of income from respondents, tailored for 9 occupation categories and 26 sources of income with active engagement between the interviewer and respondent.
Ask people what their household income is, and they will answer. But the errors either in distribution of income or in the absolute number are not known. Broadly the categorization of households usually remains the same as in lower income households are unlikely to report income that classifies them as upper income households. Hence customer sentiment or employment tracking type studies that only need to categorize respondents by income don’t need more rigorous income measurement (however, they do need more rigorous sampling both in terms of geographic spread and occupational representation given how economic growth and development and political environment factors are).
In our view to report absolute incomes without the rigour or opine on India’s income distribution and inequality (for policy makers) or extent of opportunity (for business people) can lead to incorrect conclusions and investments.
Borrowing distributions from analogous countries begs the question of what an analogous country is to India where the heterogeneity between states on politics and policy are ever increasing and complicating the dynamics of income generation and distribution.
ICE 360 2016 survey captured 56.9% of household personal disposal income (which is the parameter it measures), reported by National Accounts Statistics and which is the government source of data. In comparison to NSS and other hallmark surveys this is as good if not better.
Rajesh and Rama have diametrically opposite views on this! Rajesh believes that household income as measured by the survey is what should be reported. Just as NSS reports expenditure data exactly as captured from the survey.
Rama feels that we should take the distribution of income from ICE 360 survey in each decile (or 10% slabs based on income) and apply the percentage to the official total Household Personal Income number reported by the government. Thus, from our survey if the richest 10% of households have 20% of India’s household incomes, then 20% of total income (as reported by the government statistics should be allotted to it). So if government reported household personal disposable income is 100, our survey captures 54.9% the absolute number for each decile must be adjusted upwards to 100%. This effectively pushes up the income number for everyone, and it is obvious that we are making assumptions that we have not captured total income across rich and poor households to the same tune.
Where absolute income numbers are mentioned in all ICE 360 survey outputs and reports, we ensure that a footnote states “adjusted” or “observed” survey estimates.
All labels of Upper / Middle / Lower Middle etc. income groups that are often reported have arbitrary cut offs with no real stated logic for them. Worse still are labels of strivers / aspirers / rich and so on. For all ICE 360 analysis and reporting, we have decided to stick to income percentiles of population, quintiles usually, deciles sometimes, of households.
We arrange all surveyed households in ascending order of their income and mark off equal slabs of population (20% slabs based on quintiles) and we find that these offer very good ‘natural’ thresholds for analyzing consumption as well.
In certain analyses, we do this “quintiling” separately for urban India and separately for rural India.