The Propensity to Consume Permanent Income in India.

It is generally agreed that the marginal propensity to consume obtained from cross-section data pertaining to a single year may be seriously underestimated. To the extent that we need such estimates for the purpose of planning economic development, their accuracy becomes of crucial importance. Mayer has shown for developed societies, over a wide spectrum of dates and countries, that a permanent-income-type problem does exist; that is, the strict permanent-income theory is wrong in asserting that the marginal propensity to consume is equal to the average propensity, but it is right in suggesting that the marginal propensity to consume permanent income is greater than the marginal propensity to consume measured income, though even for permanent income the marginal propensity is less than the average propensity. It is the purpose of this paper to (1) extend these considerations to developing countries by looking at the available data on India, and (2) evaluate the effect of these considerations on the estimates of the marginal propensity to consume. The formulation suggested in the following sections has been applied to data collected by the National Council of Applied Economic Research, New Delhi. These include: (1) the Delhi Survey, 1959; (2) the Urban Income and Saving Survey, 1960; (3) the All-India Rural Household Survey, 1962; and (4) the All-India Consumer Survey, 1964. [ABSTRACT FROM AUTHOR]