India’s household consumption survey doesn’t feed public policy all that well
- The country’s latest survey of household spending on consumption picks up significant trends, but unfortunately offers an unclear snapshot of upper-end expenses. Since all its data isn’t equally reliable, policy cues should be taken only selectively.
India’s government recently released the findings of its 2023-24 survey of household consumption expenditure and expressed satisfaction at the seeming narrowing of spending gaps in society at large and between rural and urban populations. Such changes would, of course, be desirable.
However, we must not set too much store by the monthly per capita consumption expenditure (MPCE) figures of this sample survey. The aggregate consumption computed from these estimates does not add up to the annual private consumption expenditure logged in national income accounts.
The shortfall is around 50% of the national income data. While the latter would cover groups excluded from household surveys, such as prisoners and armed forces, that cannot explain the large gap between the two sets of data. There is a simpler explanation.
Those at lower income levels tend to be more transparent about their consumption patterns with people who come around with survey questions than people who struggle to find time to fill their Instagram feeds with the destination weddings they have attended or the difference they noticed between the club scenes of Bangkok and Berlin.
What the country’s well-off spend cannot be gleaned from the information they deign to give surveyors.
Also read: New consumption survey reveals the cracks in the economy
The survey found that the top five percentiles of the MPCE distribution have an average MPCE of less than ₹21,000 in urban India and less than ₹11,000 in rural areas.
With the top percentile’s data likely to be the least reliable, we should view these figures as underestimates, given the scale of spending visible at high-end shopping malls, fancy restaurants, jewellery stores, holiday spots, music concerts and other sites of self-indulgence.
The top fractile’s average MPCE for 2023-24 is a tad lower than in 2022-23. This might reflect a slump, which is plausible in the context of stagnancy observed in some market categories, but the survey’s input frailties mean we cannot be sure. Other conclusions are also difficult to draw.
For example, the numbers show a reducing gap between urban and rural expenditure, expressed as a proportion of rural spending, but we cannot conclude that the rural-urban income gap is narrowing. What’s more likely is that better-off city folks reveal less than we would like.
Also read: Vivek Kaul: The Union budget should focus on reviving private consumption
Yet, these numbers are useful in tracking the direction of change. For instance, a decline in the share of cereals in both urban and rural consumption baskets is notable. The share of food has been declining as well, but more slowly.
While the share of cereals has fallen by half, the share of food has come down moderately. India’s free foodgrain scheme may explain some of it, as also homes diversifying away from calorie-dense cereals to superior food for better nutrition. Yet another reliable indicator relates to regional disparities.
Some small states like Sikkim and Goa apart, South Indian states lead in per capita consumption. Kerala is notable for both high consumption and a low urban-rural difference. Abysmal levels in Chhattisgarh expose claims of rapid progress.
The latest data on imputed consumption, which factors in government transfers, shows a rise in such handouts across rural and urban India in 2023-24 over the previous year. However, the political economy of freebies is inimical to governance if it’s not supported by an expanded tax base.
Overall, household spending still doesn’t seem robust enough to spur private investment in consumer-product capacity addition. The state as our big investor seems here to stay.
Also read: Mint Primer | Private consumption returns, boosted by rural demand
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