Himanshu: What consumption data reveals of India’s economy
Summary
- Recent rounds of the Household Consumption Expenditure Survey (HCES) don’t let us track poverty-level trends, but they do confirm a livelihood crisis. For a clearer picture of deprivation, the Niti Aayog should work out a new poverty line.
Earlier this year, the National Statistical Office (NSO) released the report for the Household Consumption Expenditure Survey (HCES) for the period August 2023 to July 2024. This is the second in the series of HCES data after the HCES 2022-23, for which a fact sheet was released just before the announcement of general elections in 2024. Its findings led to claims by the Niti Aayog that India had eliminated extreme poverty. Similar claims have been made after the release of HCES 2023-24.
The two back-to-back surveys are important data sources, with the HCES being a necessary input for India’s statistical system. Two of our most important indicators of economic activity—National Accounts and price indices—are revised using the HCES. However, the NSO, which produces the HCES data, has never released estimates of poverty. That responsibility always lay with the Planning Commission (and now Niti Aayog). This body was also tasked with official releases of poverty lines to be used for estimating poverty.
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Unfortunately, India does not have an official poverty line that can be applied to HCES data. The last official poverty line was set by the Tendulkar committee, but it was meant to be applied to an estimate of consumption expenditure that is conceptually, statistically and methodologically different from what HCES 2022-23 and 2023-24 have given us.
The only poverty line that could be applied to the latest HCES data is the poverty line suggested by the Rangarajan committee in 2014, which was never accepted officially. But even with this poverty line, changes in sampling, data- collection methodology and coverage of items make HCES 2022-23 and 2023-24 non-comparable with earlier rounds. The last official poverty lines were based on 2004-05 consumption data , which is two decades old now.
India, like many other countries, has always revised its poverty lines after a decade to reflect changes in living and consumption patterns. Thus, the urgency to define the poverty line has never been so great. The Niti Aayog should be setting up a committee to redefine the poverty line, which could then be applied to the HCES data. Until then, all estimates of poverty are guesstimates and nothing else.
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Claiming that India has eliminated extreme poverty seems like a cruel joke in a country where 30% of rural households are working in back-breaking conditions under the rural employment guarantee scheme at wages significantly lower than market levels. HCES 2023-24 also reports that more than half of all Indians queue up at public distribution system stores for monthly free foodgrain worth ₹117 in rural areas and ₹76 in urban areas (a daily benefit of ₹4 and ₹2.5, respectively).
Setting up a new panel to define the country’s poverty line is necessary to measure levels of poverty more accurately. But even with a new poverty line, making inter-temporal comparisons and estimating the extent of poverty reduction may not be possible anymore, given the differences in the 2022-23 and 2023-24 surveys from the earlier ones.
However, the two recent rounds of the HCES offer data that is mutually comparable, providing us some insights into consumption patterns in the economy as well as the country’s trajectory of economic growth. First, the annual growth rate of consumption expenditure in constant prices has increased by 2.3 percentage points in rural areas but only by 0.94 in urban areas, averaging 1.6 percentage points for the country. This confirms the earnings and livelihood crisis that multiple other sources have revealed. It also raises concern over the 5.6% growth in private final consumption expenditure reported last month by the National Accounts.
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The 2023-24 HCES data also shows that the share of food in total consumption has increased from 2022-23 for rural as well as urban areas. Usually, when incomes rise, the share of expenditure on food declines. While HCES data is not comparable with National Accounts, it shows a more modest recovery in consumption than the latter. Also, an increase in the share of food consumption is a sign of persistent distress.
Determining the level of poverty or whether it has reduced since 2011-12 may not be possible without comparability being ensured and a poverty line set. That said, HCES data is useful for revising National Accounts and price data, both of which are based on 2011-12 numbers right now. This raises questions on the robustness of both estimates. Still, at least the HCES gives us a realistic, reliable and robust picture of the state of India’s economy.
The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.
