Do 600 Million Cellphone Accounts Make India a Rich Country? A Lesson in Economics for Mr. Chidambaram

May 23, 2010

A note prepared by Sanhati members

Speaking at a meeting in Jawaharlal Nehru University (JNU) organized by the NSUI, the student wing of the Congress Party, the home minister of India, Mr. P. Chidambaram, shared, among other things, his remarkable understanding about poverty and inequality in India. If there are 60 crores (1 crore=10 millions) wireless subscription accounts in India today, he asked, how can we square that with the oft-quoted figure that 77 per cent of Indians spend Rs. 20 a day or less (i.e., about Rs. 600 per month)?

This “Rs. 20 a day or less” figure was brought to the attention of the world by a 2006 report prepared by the National Commission of Enterprises in the Unorganized Sector of the Government of India. How did the NCEUS arrive at this figure? By carefully studying consumption expenditure data released by the National Sample Survey Organization (NSSO) of the Government of India. Mr. Chidambaram, we guess, might have felt gleeful that by a flash of brilliance he had considerably damaged the credibility of this dismal picture. The truth, unfortunately for Mr. Chidambaram, seems quite the contrary as we show below.

Ever since the publication of the above-mentioned report and a research paper in the Economic and Political Weekly based on the data collected during that research, this figure has become the bane of all supporters of neoliberalism in India. This is because, this figure, arising from the research of a bona fide government agency, has demonstrated that the so-called economic reforms have been a total failure so far as the poor people of this country are concerned. It has dramatically shown that social degradation, economic inequality and abysmal poverty continue to be the lot of the vast majority of the Indian population.

The findings of the NCEUS report are also strongly supported by other indicators of poverty and social deprivation. Even the Indian government recognizes that not just income, but factors like access to health-care and sanitation are also important in determining poverty. A recent UN report pointed out that less than 37 crore people in India have access to even basic toilet facilities. Different health indicators as studied in a recent survey reveal an equally bleak picture: 79% of children in India below the age of 3 years suffer from anaemia and more than 40% of the children below the age of 5 are undernourished. A comparative study of nations (Click here, [PDF]) facing widespread hunger showed that India ranks 65 among the 88 countries. Inter-country analyses indicate that mobile phone ownership, Mr. Chidambaram’s favourite poverty indicator, however, does not figure as a relevant parameter for estimating poverty in a country like India.

Mr. Chidambaram seemed proud to have put up this argument. He wanted to teach a truant student in JNU some Economics by doing so. “I am sure I can help you being a better economist”, he boasted. We decide to take him seriously. In other words, below we study whether the 60 crore mobile phone subscriptions do reflect that poverty has gone down or whether this very feature reflects something quite opposite, in fact, something quite sinister for the poor people of India.

Summary:

A sizeable section of the poor, predominantly the urban section, does own mobile phones. A mobile phone has become a necessity for the poor because of their very vulnerability and the precariousness of their employment in an unorganized and informal labour market. The very recent surge in poor people acquiring mobile phones has been facilitated by the dramatic reduction in the prices of such services and even a minor increase in prices may drive a lot of such users to give up using them.

As asides, we mention that bizarre anomalies arise if one uses mobile phones as markers of affluence – for example, one concludes that there is no poverty in Delhi. And finally: land-lines are probably a more plausible indicator of middle class status.

Is a mobile phone a luxury item for the poor in India?

This very question has been taken up in a recent paper by Aguero and de Silva (“Bottom of the Pyramid Expenditure Patterns on Mobile Phone Services in Selected Emerging Asian Countries” (2009), published in the PTC’10 conference proceedings (Click here [PDF, 0.1 MB]). They used data obtained from direct surveys (of 2008-2009) from representative samples of population in India (and data of some other less developed countries as well) and statistically measured the relation between the monthly share of expenditure on mobile phones and monthly income. They obtained the income elasticity of demand for mobile phones in India which gives, for example, by how much would the share of a random person’s expenditure on mobile phones fall, if her income falls by, say, 1 percent. Their findings show that far from being a luxury, a mobile phone is what in Economics is called a necessity for the poor in India. This implies that the poor can hardly do without mobile phones even if their income falls (just as they cannot do without a little bit of food or drinking water) and if their income rises, their usage of mobile phone would not go up very much.

The questions then arise: can she do so and why would she have to do so ?

Is it realistic that a very poor person in India can afford a mobile connection?

To answer this question, let us take a closer look at the phenomenon of rapid expansion of the mobile phone subscriptions.

YearMobile (Crores of people)Landline (Crores of people) 
20031.34.148
20043.3604.258
20055.2214.591
20069.0004.975
200716.2534.039
200826.1093.942
200939.1763.796
201058.4323.696

Table 1: Ownership of phones in India since 2003

Table one reports data on the ownership of mobile phones in India, as reported in various releases from the Telecom Regulatory Authority of India (TRAI).

The table shows that the usage of mobile phones has gone up considerably from around 2006-2007. The factors behind this recent explosion in mobile phone ownership in India has been analyzed in a recent report by Vodafone hereafter referred to as the Vodafone report (Click here [PDF, 2.7 MB]). According to this report, there one of the triggers for “the massive increase in mobile penetration” has been the “enormous decline in prices” (see p.9). The report goes on to say:

The effective price per minute for an outgoing mobile call has dropped from Rs. 15.30 in 1998 to Rs. 0.68 today. This 98% decline would be much higher in real terms… The launch of micro pre-paid and handsets priced at less than Rs.1,000 (US$20) have further reduced entry cost to the subscriber and extended demand. In addition, consumer financing of handsets, facilitated by declining interest rates, allows spreading the cost over manageable monthly instalments. Micro pre-paid allows recharge options for as low as Rs. 10 (US$0.20). Other features of pre-paid reducing subscribers’ entry costs include ‘lifetime validity’, full value recharge and special ‘on-net’ or ‘within network’ tariffs. Not surprisingly therefore, 95% of new subscriptions are pre-paid, lifting the total number of subscribers on pre-paid from 76% in 2007 to about 85% at the end of 2008. (Vodafone Report, p.9).

What are the implications of the Vodafone report and the numbers shown in the table? The numbers given in the report could be used to figure out roughly the cost of holding a very ordinary pre-paid mobile connection in India. The phone and the life-time validity could be bought for less than Rs. 1000 (payable in monthly installments) and the recurring monthly costs could be as low as Rs. 10 (according to the Vodafone report the average revenue per person per month is around Rs. 250 at present) or even zero if the phone owner decides to receive calls only. Such a phone connection can certainly be held by one (or even two) member(s) of a family spending Rs. 20 per capita per day for purposes of consumption. This analysis can be further refined by breaking up the cellphone ownership data according to the rural-urban divide, income levels and personal vis-a-vis employer ownership. For instance, the density of mobile phones in rural India is 6 times smaller than in the urban areas according to the Vodafone report. This means that urban India accounts for nearly 80% of mobile phone ownership. And a large fraction of the population spending less than Rs. 20 per day per capita resides in rural areas.

However, our estimates already strongly suggest that cell-phone ownership cannot be taken to mean upward mobility even in rural India. In fact, exactly the opposite appears to be the case: the cell phone markets have successfully penetrated the vulnerable sections of the society. This view is further supported by an aggregate estimate of the own-price-elasticity of mobile phone ownership, which shows that a 10% price increase would reduce the demand by roughly 21% (Vodafone Report, p.14). This means that even though some of the poor are using mobile connections (as a necessity), their usage may fall quite sharply if the price goes up even a little bit.

To conclude: a very poor person still can afford a mobile phone connection, even by cutting down her consumption of some other necessities, but a slight rise in the price of mobile connections might force her to leave it.

Why has mobile connection become a crucial necessity for a very poor person ?

The above facts very strongly suggest that access and usage of mobile phone is not a sign a prosperity but rather a result of affordability and work related utility. One aspect of this is to be sought in the fact that most of the workforce in India (around 93%) are in the unorganized sector and the overwhelming majority of them have extremely precarious economic position apart from their being poor. A section of them has also started using mobile phones, once such services have become considerably cheap, to get work related information. This has been noted by several commentators and has been mentioned in a recent report on the conditions of informal workers in Gurgaon (http://sanhati.com/excerpted/2320/).

The fact that informal sector workers have to use mobile phones only means that the precarious nature of their employment forces them to spend a substantial amount on mobile phones to mitigate uncertainty; It does not mean that workers are having a good time talking to each other over their mobile phones and that this is an indicator of the growing wealth among the working class in India. It is merely an indicator of the growing costs of obtaining and retaining a job in a scenario marked by growing informalization.

A similar example can be given from the U.S., where employment opportunities are seriously circumscribed for individuals who do not have access to private modes of transport, especially in places with little or no access to public transport. In theses situations, ownership or access to a car is not a luxury; it has become a necessity expenditure for the average working class person. Similarly, a cell phone in India today is no longer a luxury item as Chidambaram would like to suggest; it has become one more item that a worker needs to spend on if she/he has to cope with the work-lives in the rapidly expanding informal economy. Incidentally, and along similar lines, expenditures on health care and education are also eating into the meagre incomes of working class households as a result of privatization of these services. This just underscores the perverse nature of the growth process underway in the Indian economy today.

Mr. Chidambaram’s imaginary workers are neither having a good time talking to each other over their mobile phones nor is mobile phone ownership an indicator of the growing wealth among the poor in India. His claim evaporates into thin air. In its place a frightening picture emerges. Consider a family consisting, say, of five in an urban slum, that is, a woman, a man, two children and one elder grandparent. The family is earning around Rs. 2000 per month. There are two mobile phones in the family: one for the man and the other for the woman. The family has to spend Rs. 200 per month for their mobiles. The woman perhaps waits at the phone for information about prospective domestic labour on offer by a middle-class homeowner (e.g., washing or house-cleaning). The man, too, waits perhaps for information about work that has become available. And for retaining this connection, they are having to cut down their expenses on food further.

Thus, research has shown that a mobile phone is a necessity rather than a luxury for the poor in India. Given the low cost of buying a mobile phone and cheap tarrif, it is possible for a person living on Rs. 20 a day or less to own and use a mobile phone. A mobile phone is a necessity possibly because it is a means of coping with an increasingly uncertain labour market.

Land-lines a more plausible indicator of middle class

If at all one chooses to estimate the size of the middle class population based on phone usage then a more plausible indicator of middle class status would be a land-line subscription. Since it is rare to have two land-line subscriptions for the same household, this figure would also avoid the problem of multiple subscriptions per individual or household. What figure do we arrive at
when we focus on land-line subscriptions? Note that around 50 percent of the land-line connections are reserved for government office and business firms. The number of families who use land-line is around 2 crores. Taking an average household to be populated by five individuals, we arrive at a figure of about 10 crore land-line users.

One arrives at a similar conclusion by counting the post-paid wireless connections, which constitute roughly 15% of the total subscription. And indeed this rough estimate is consistent with the more detailed and systematic estimate of the upper/middle class in the country (see for instance the 2006 NCEUS report and Arjun Sengupta et. al.)

Some bizarre anomalies of using mobile phone as an indicator of affluence

It is also worthwhile to point out some of the rather bizarre anomalies which will arise if one is to take seriously the naive implication of equating mobile phone subscription with general affluence of the users.

For instance, as late as in 2007, Pakistan had a mobile subscription rate of roughly 50 per 100 and more than the double the rate of mobile subscription in India for the corresponding period. Are we to suppose then, following Mr. Chidambaram, that Pakistan was already quite more prosperous than India and we are just about catching up with them now? Or, perhaps in the euphoria surrounding the 60 crore mobile subscriptions, we should forget that both India with a human development index (HDI) rank of 134 and Pakistan with a HDI rank of 141 are languishing at the bottom end of Human Development ranking among nations.

Or, if one looks at the mobile subscriptions in metros like Delhi, one finds that the wireless subscriber base exceeds the entire population of the place. Should we then, following Mr. Chidambaram, conclude that poverty has been eradicated in Delhi?

[Several other additional explanations (on the basis of ownership of multiple mobile phones, imitation effect, etc) refuting Mr. Chidambaram’s contention are possible. However, we have concentrated on what we considered to be the most serious one.]

8 Comments »

8 Responses to “Do 600 Million Cellphone Accounts Make India a Rich Country? A Lesson in Economics for Mr. Chidambaram”

  1. RUPE Says:
    May 24th, 2010 at 09:08

    Thanks to the sanhati team for a very useful article. — Research Unit for Political Economy

  2. Rajendran Says:
    May 28th, 2010 at 12:03

    Great article – Extremely incisive. I am tired of presenting this picture to my neo-liberal friends and acquaintances. I have a more coherent and structured story to explain now. Thanks for this.

  3. S V RAJADURAI Says:
    May 31st, 2010 at 03:25

    Excellent article.Chidambarams of the world must hang their heads in shame.

  4. pattabi secretary NFTE BSNL Says:
    June 4th, 2010 at 22:09

    Thanks to your hard work.. we the telecom trade unionists failed to awaken about the myth telecom explosion.. you did it my wishes

  5. Anandi Says:
    June 10th, 2010 at 14:00

    Excellent article. By chance I too wrote about mobile phones today. Combined with recent news about enormous health hazards of mobile phones plus massive danger from exploding diesel tanks balanced precariously on roofs etc and we must repeat that continued and continuous destruction by the elites of alternative modes of livelihood other than the development mode is taking its toll on everyone. My friend Mohan could not think of what to say about his village. As an afterthought he said: “There is fluoride in the water. It is very bad. The people cannot get up in the morning and they cannot work.Their bones and bodies are full of aches and pains.” But getting rid of fluoride is not India’s priority. Nor any of the other dozens of hardships the poor suffer from due to elite oppression and negligence and worse. Instead global development is the USA’s new foreign policy priority higher even than military security and their mobile phone companies and mobile tower landrights are defended with highest level of foreign policy delegations, as if they were land rights for missile bases. I went to Delhi and presented my views on this nonsense. By plane. If I had planned better I could have gone by train but by the time I had overcome my scruples after debate and decided I should participate, overcrowding meant no train ticket. Why did I go? The strange phenomenon today is that it is possible to earn money from biting the hand that feeds us, … that hand seems to like it…. The destruction by the elites of all forms of non-destructive livelihoods of the poor and the absolute inability of the democratic forces to control global money power, of which Indian money power is a part that cannot be disentangled, has ruined the country irreversibly; and yet the forces of destruction must, I suppose, calculate that it is prudent to dish out some money to keep the citizens quiet – so that their dishes can stay on top of their towers. In this country the money elites are designed by generations of violent greed to act inequitably and unfairly. Development is the process of landgrabbing, destruction of skills, the throwing of women and children and their men onto the scrap heap. No skills replace the skills that can no longer be used when land and soil and forest and water are destroyed. The elites in the glass houses that have taken the place of trees fob off the masses with mobile phones – to use one we do not need skills. A thumb twitch will do. Have a mobile phone and we will have your land, this is what is going on. And then a thumb twitch is supposed magically to put the problem of fluorosis in Kadirannagarihalli Kote right and activate our new Unique Identification Number all in one. The economic forces call politics a luxury to be practiced by the children of the well to do. The poor are supposed to toil and suffer and shut up and not eat. A Right to Food Act is required because the state has destroyed its own country. A few alibi NGOs are there to speak on behalf of the poor – the poor themselves are never listened to. This crushing of poor people under foot by the elites makes climate change one of their chosen weapons of mass destruction along with all the other ones they use daily with full knowledge of the horrors – the assembling and deployment of the array of weapons of mass development goes on daily, and the elites do not blink for one second as the people die of starvation as a consequence. Numbers are fudged and truth denied and the courts neutered and the police is in the hands of the mafia. This is what India is today. A dump full of impoverished people and mobile phones and mobile phone towers interspersed with cars and deserts. Let us see whether we can introduce a unilateral carbon tax in our country to pay for doubling our forest cover. Today there is a Rs 50 per tonne cess on coal. It should be one hundred times that. But in any case most of the coal is coming from Australia. We will get our coal from Australia. Let Australia pollute their country, the Indian elites say, and laugh uproariously. The false notion that a developing country can continue polluting or by some wierd convoluted logic get others to pollute on its behalf is the new wine in the old bottle of right to development, invented by India under Article 39 of the Constitution, and now being used by India to destroy itself, notwithstanding that this so-called right to development is supposed to be construed in harmony with Article 21 the right to life and right to clean air etc etc etc. The entire system is dying along with the people. Meanwhile Mohan’s family cannot get up in the morning because of fluorosis in the water that bothers no one but him and his fellow villagers. They too are dying. This is how it is.

    And I think your analysis is 100% correct.

  6. Vivek Says:
    June 19th, 2010 at 02:13

    I was’t knowing about the comment made by Chidamabaram at JNU, connecting the cellphone uses of poor to their (invisible) prosperity. If his understanding of the India’s poor is based on such a weak and ridiculous economic theories, he has no right to be at a position where he is.

    Thanks for a such an excellent analysis.

  7. Rahul Goswami Says:
    August 5th, 2010 at 14:18

    Thank you for a first rate article on a grossly misunderstood trend. I quite agree about the mobile phone being an indicator of the dreadful uncertainty of modern jobbing, rather than of some form of prosperity. The mobile phone used in this way – by tens of thousands of informal workers in towns and cities – functions as a cheap alert for where the next 50 or 100 rupees can be earned. The clearly staggering number of pre-paid mobile phones being used in this way is in fact a sad appendix to the NCEUS report, for it shows how the informal worker tries to do her best to adapt to increasing uncertainty of both work and wage.

  8. mathew Says:
    September 14th, 2010 at 10:58

    the biggest issue is that many middle class people and the elite have more than one cell phone. Second sale of sim cards (cellphone connections) is not equal to number of mobile phones. Since 2004 I have purchased close to 15 sim cards of various operators(prepaid and postpaid). Does that mean i have 15 mobile phones? Kindly clarify Mr Chidambaram

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