That the poverty puzzle is about real and not nominal consumption leads immediately to the conclusion that what is of central importance are the price deflators used to move from nominal to real consumption. As Chart 6 shows, the deflator used by the World Bank researchers has indeed increased much more sharply upwards during the 1990s than those implicit in the NAS estimates. The implicit deflators from the NAS relate to the consumption basket of the nation as a whole, while the deflators for poverty calculations are expected to reflect more closely the consumption basket of the poor. In practice, the deflators used to convert NSS rural and urban nominal expenditures into real trends are based on the official consumer price indices for agricultural labourers (CPIAL) and industrial workers (CPI-IW).

Chart 6 >> Click to Enlarge
 
Both these consumer price indices have increased faster than the implicit NAS consumption deflators during the 1990s, and, given the weight of the rural sector, the CPIAL dominates in the implicit deflator for NSS consumer expenditure in the World Bank's real consumption series. Unlike this latter implicit deflator, which is available only by NSS rounds, both the CPIAL and the implicit NAS deflators are available over the entire period 1972-97, and their ratio is plotted in Chart 7. It is evident that the CPIAL increased much less than the NAS deflator in the 70s and 80s but has increased much more in the 1990's.

Chart 7 >> Click to Enlarge
 
It must be noted that food items have a large weight in the indices of consumer prices for industrial workers and agricultural labourers, especially the latter. The faster rise in these indices are therefore likely to be the result of the observed tendency in recent years of a faster increase in the prices of various food items, particularly cereals, than of other items consumed by the rich.
 
Thus what emerges is that one of the reasons for the stagnation in real per capita consumption and therefore of the incidence of rural poverty during the 1990s is the adverse consequence that rising food prices have had for the poorer sections of India's population. Clearly, the rise in the relative food price during the 1990s has hurt the poor hard, even at a time of relatively high income growth which itself, as noted earlier, was accompanied by some increase in the inequalities in nominal consumption expenditures.
 
Trends in Rural Incomes
A noteworthy feature of the trend in the incidence of poverty during the 1990s is the fact that the absence of any reduction in poverty has been more true of rural than urban areas. Does this have anything to do with the changes in the structure and volume of rural incomes? Unfortunately, the CSO does not give a break up of sectoral and total incomes by rural and urban areas respectively, excepting for the two base years 1980-91 and 1993-94. However, the NSS gives figures on employment by sectors for all years. Using this we have computed two series on sectoral incomes with 1980-81 as base for the years 1977-78 to 1996-97 and with 1993-94 as base for the period 1993-94 to 1997-98.
 
The method adopted for this is as follows. Since we have both sectoral employment and income figures for rural and urban areas for 1980-81 and 1993-94, it is possible to compute sectoral productivities for the primary, secondary and tertiary sectors in the rural areas and urban areas for that year. This allows us to compute the ratio of urban to rural productivities for each sector for that year.
 
We assume that this ratio remains constant in all subsequent or previous years, i.e. that in the case of each series the rates of growth of productivities are the same so that the ratio of productivities do not change. Based on this assumption, and using the overall GDP figures and the figures on rural and urban sectoral employment from the NSS, the level of rural and urban sectoral incomes is estimated for the remaining years. It should be obvious that assuming that rural productivities in different sectors grow at the same rate as urban productivities would if anything exaggerate the growth of rural income.

Chart 8 >> Click to Enlarge