NSO's junked consumer expenditure survey shows inequality gap declining

Ratio of top and bottom 10% declined sharply to 5% in 2017-18 from 5.9% in 2011-12 in rural areas

Top income earners cut down sharply on their expenditure, dragging consumer spending down for the first time in India in over four decades, leading to a decrease in income inequality.

A class-wise analysis of the National Statistical Office’s (NSO’s) consumer expenditure survey showed the gap between the rich and the poor coming down in the six-year period till 2017-18.

The government on Friday termed the NSO’s survey report “Key Indicators: Household Consumer Expenditure in India” “draft” and said it had decided not to release it owing to “data quality” issues. This was after the findings of the survey report were made public by Business Standard on Friday.

The survey was conducted between July 2017 and June last year and was approved by a National Statistical Commission-appointed committee for “immediate” release on July 19 this year.

It showed the ratio of the top and bottom 10 per cent of the economic group declined sharply to 5 per cent in 2017-18 from 5.9 per cent in 2011-12 in rural parts of the country — it was mainly because of a sharp decline in expenditure by the relatively affluent class. In 2009-10, the ratio stood at 5.6 per cent.

In rural areas, the bottom 10 per cent of income earners spent Rs 500, on average, in a month in 2017-18 — 1 per cent less than six years ago. This was mainly because of a dip in expenditure on food items even as the non-food overheads rose. Spending cuts grew proportionately as one moved up the income ladder in villages. The top 10 per cent earners cut down on spending by 17 per cent to Rs 2,478 a month, on average, as they spent equally less on both food and non-food items. Overall, consumer spending in rural areas declined 9 per cent in 2017-18 over 2011-12.

“Rich farmers were the most impacted by demonetisation and that’s one reason why their expenditure cut is relatively sharp. The rural poor are mostly landless labourers, who were paid in kind in the aftermath of demonetisation and were less impacted because their overall consumption basket is mostly food items,” former chief statistician Pronab Sen said.

In urban areas, the story was different and experts found the trend perplexing. While those belonging to the bottom of the income pyramid spent a lot more in 2017-18 than they did in 2011-12 (when the previous round of the NSO survey was conducted), the affluent section cut down on their expenses sharply. As a result, the income gap shrank more in urban areas and the ratio of top 10 per cent of the economic group to the bottom 10 per cent fell to 7.9 in 2017-18 from 9.7 in 2011-12 and 9.8 in 2009-10.

It was only the top 10 per cent of earners who saw a fall in consumer spending due to less expenditure on non-food items, such as clothing, conveyance, and durable goods. It was exactly the opposite in the case of comparatively low-paid groups. People belonging to the bottom 30 per cent of the economic group saw an increase in spending in the range of 11-13 per cent as their non-food expenses grew by around 20 per cent between 2011-12 and 2017-18. “Looking at these numbers, rural distress is quite evident. The impact of demonetisation on the rural poor was less than on the richer ones as the former usually spends less and the trend is on expected lines. But it’s difficult to give a coherent explanation as to what may have triggered a divergent trend among rich and poor in urban areas,” said Amit Basole, associate professor of economics at Azim Premji University. He added the NSO surveys did not capture the top income earners as well, as they mapped the lower-income groups. 

The survey showed the average amount spent by a person in a month fell by 3.7 per cent to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12.  The figures for monthly per capita consumption expenditure (MPCE) are in real terms, meaning it has been adjusted for inflation keeping 2009-10 as base year. In 2011-12, the real MPCE had risen 13 per cent over two years.