Using Expectation Data to Model Expected Income and Expenditures in Rural India

This paper uses unique primary data to analyse household income of rural poor in India, comparing those that engage in dairy as an extra income generating activity to those that do not receive income from this livelihood strategy. The households studied live in the second most drought prone area of India, where diversification of income, away from pure dependence on the traditional primary activity of direct or indirect agriculture is seen as detrimental to lift people out of poverty. The study looks into whether this idea can objectively be supported but also looked into what the households think themselves. The first part of the study does a thorough analysis of the data on subjective expectations collected by the author. All validity checks give confidence as to answers provided conforming to the basic laws of probability and reflecting respondents’ beliefs. By comparing these expectations to realizations support is found for the idea that engaging in dairy will improve the households’ livelihoods: Respondents who derive part of their income from selling milk had, typically have and also expect a significantly higher overall income stream. In addition, their expected standard deviation in income is significantly lower. Furthermore, looking at measured of inequality it is found that households that have no income from dairy experience greater inequality and this difference is more pronounced in expectations than in realizations.