methodological differences between how consumption is measured across the two sources of data. For example, consumption in national accounts, HFCE, is often derived as a residual from GDP. Second, even if they followed the same methodologies, the two series do not have the same scope. In addition to the consumption from households that is captured in the surveys, HFCE includes consumption from non-profit institutions (such as charities, religious organizations, trade unions, and political parties), consumption of financial service intermediaries, and imputed rents for housing (Datt and Ravallion 2002).

For India in particular, researchers have documented a third source of differences. They have noted that the gap between the two sources of data was small during the 1950s and 1960s, but the divergence between the series has grown since. For instance, Kulsehrestha and Kar (2005) note that the gap between the two sources of consumption data was 5 percent (with mean consumption from surveys being lower than that from national accounts) for fiscal year 1957/58, however, this gap had grown to 38 percent by 1993/94. The authors also note that the source of the increase in the discrepancy between consumption in national accounts and consumption in surveys are nonfood items. Similarly, Mukherjee and Chatterjhee (1974) find small differences between the two sources of data in the decade leading up to 1963/64, with consumption in surveys on average lower than consumption in national accounts. They also note that the surveys record a lower share of non-food items relative to national accounts. For food items the difference in consumption between the national accounts and surveys has been relatively small (Kulsehrestha and Kar (2005), Sundaram and Tendulkar (2003), Minhas (1988)).

Following the recommendations of the UN System of National Accounts starting in 1993, the CSO in India added a new item to consumption in national accounts, financial intermediation services indirectly measured (FISIM). FISIM is a measure of the value of financial intermediation. It is calculated as the difference between the interest paid by borrowers to banks and the interest received by lenders from banks. Deaton and Kozel (2005) find that the value of FISIM in consumption in national accounts was close to zero percent in 1983/84, but its share had increased to 2.5 percent by 1993/94. They attribute a quarter of the gap in the two series to FISIM. Datt and Ravallion (2002) similarly finds that the discrepancies between national accounts and surveys increase when using the post-1993 definition of consumption in national accounts relative to the pre-1993 definition. They find that consumption in national accounts grew 0.55 percentage points faster annually than the consumption in surveys between 1972 and 1997, while using the newer series, they find a difference of 0.74 percentage points for the same period. While FISIM has added to the discrepancy in the value of consumption between surveys and national accounts, it is less likely to directly affect the living standards of the poor. Hence, when calculating welfare of the poor, it would be ideal to discount the effect of these variables which make consumption larger in national accounts relative to surveys.

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