Consumption shift

Regular updates will better inform policy

The government last week released some findings from the Household Consumption Expenditure Survey. The National Statistical Office conducted a broad survey on consumption in over 260,000 households between August 2022 and July 2023. This was the first such survey with findings that have been made public in over a decade. Although such a survey was indeed conducted in 2017-18, the results have not been made public owing to issues related to data quality. The comparisons with the decade-old figures have made some headlines. For example, the proportion of rural households’ expenditure that goes on food has dropped from 53 per cent in 2011-12 to 46 per cent in 2022-23. The exact impact of the increased grain allocation from the government on this proportion is uncertain, so it may not be safe to draw any policy-relevant inference from this figure.

More interestingly, rural households saw their consumption expenditure increase by 40 per cent, and urban households by a third. While these are solid figures, it should be noted that the general growth rate of consumption does seem to be lower than the growth rate of nominal gross domestic product by a significant amount. This raises questions: Is India shifting to public investment- or state-driven growth, while compressing household expenditure? The national accounts estimate of private consumption expenditure per capita is about double the amount that emerges from the consumption survey. While this gap is not unusual, it does not help explain the broader macroeconomic question of whether consumption can still be classified as the driver of Indian growth. In general, comparisons with the previously released edition of the survey should be avoided, since the methodological changes between the two versions have been significant. The previous round asked questions about spending on fewer items; the newer version used digital methods of interviewing households and included more items.

While it may not be entirely sensible or easy to compare the results of this survey with one conducted over a decade ago, the decomposed data from this particular round will nevertheless be closely studied. For example, there are some disturbing results about inequality in expenditure. The bottom 5 per cent of India’s population in terms of consumption expenditure spend about a tenth of what the top 5 per cent do. The overall distribution is also skewed, with the median well below the mean. Geographical differences between states in terms of consumption expenditure are also marked. The dates of the survey — in post-Covid months, as consumption surged — have, however, led some analysts to suggest that its conclusions be taken with caution. If anything, the lesson the government should take is this survey needs to be made more regular so that it can better inform policy.

Thus, there is a need to increase the frequency of such surveys. Consumption patterns are changing fast enough that policymakers need more rapid and granular data in order to make the right decisions. Consumption surveys are used, for example, to rework the basket of goods relevant for the consumer price index. The next logical step thus would be to update the index to better inform the monetary policy. Besides, the changes in the consumption pattern suggest that even within the food basket, household spending on cereals is declining. The change in the consumption basket is a signal for producers. Instead of demanding guaranteed support prices, farmers should focus on items where consumer spending is increasing.