than average chances of downward mobility. For example, the likelihood of upward mobility is significantly higher and that of downward mobility lower when the household head has secondary or higher level education as opposed to education at middle‐school or lower levels.

# Data uncertainties cloud the assessment of poverty, shared prosperity, and (especially) inequality

Important caveats apply to India’s estimates of inequality: when income rather than NSS consumption data are used, inequality in India appears to be lower than high‐inequality countries like South Africa, Brazil and Colombia, but comparable with income inequality in Peru and Ecuador, and higher than in the Russian Federation, Turkey, and the United States.<sup>13</sup> Why the gap between India’s income and consumption Gini measures of inequality is so large remains to be explained, but this at a minimum casts doubt on the oft‐rehearsed notion that inequality is low in India. In addition, it is likely that income (or consumption) distribution from household surveys can underestimate the true extent of inequality due to under‐reporting of top incomes (or consumption). Research using Indian tax return data over the period 1922‐2000 shows a rising share of top income earners in total income from the mid‐1980s to 2000.<sup>14</sup> This would have led to greater underestimation of inequality over time if top income earners are insufficiently captured in the NSS data. Under‐reporting of top incomes, however, is likely to have less bearing on the lower end of the distribution and therefore on poverty and shared prosperity estimates and trends.

One symptom of under‐reporting is the large gap in levels and growth rates of mean consumption per person from the NSS and the private consumption component of the National Accounts Statistics (NAS), which have been diverging since the early 1990s (the 2010 to 2012 period is an exception). In levels, aggregate household consumption implied by the NSS is less than half that of the household component of the NAS. Such a gap is unusually large by international standards. The extent of bias in poverty, shared prosperity and inequality estimates depends on how much of the discrepancy is attributed to the NSS or the NAS. It is notable that changes in recall period for collecting consumption data – from URP to MRP and now MMRP – have helped close the gap between the NSS and NAS consumption aggregates.<sup>15</sup> However, some of the gap in consumption is due to errors in NAS consumption (which is determined residually in India). Choosing between the NSS and NAS is not easy 13 Using IHDS data, Gini of household income per‐capita in India is estimated to be 45.3 for 2005 and 45.9 for 2012. The income Ginis for South Africa, Brazil and Colombia are 63.4 (2011), 52.9 and 52.5 (2013), respectively. Countries with income Ginis close to India’s include Peru and Ecuador, while Russia, Turkey and United States had income Ginis between 40 and 42 (2012 or 2013) (all figures other than India’s are from the WDI database, accessed March 21, 2016).

14 See Banerjee & Piketty (2005), who find that the shares of the top 0.01 percent, 0.1 percent, and 1 percent in total income shrank substantially from the 1950s to the early to mid‐1980s but then rose again, with some impact on the overall income distribution. The estimated impact is also large enough to explain 20‐40 percent of the gap observed during the 1990s between average consumption growth in NSS data and national accounts data.

15 URP, or uniform reference period, is collected for a 30‐day recall period for all consumption items. MRP, or mixed reference period, records consumption by combining a 30 day recall period for most items and a 365 day recall for items that are purchased with a lower frequency. The MMRP (modified‐mixed reference period) aggregate introduced in 2009‐10 and 2011‐12 has further closed the gap. The MMRP method which reduces the recall period for some food items to a 7‐day recall (compared to a 30‐day recall in MRP) brings NSSO’s methods closer to the more common practice of a two week or less recall period for food items in other countries.

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