India has to wait for more than one decade to have a Household Consumption Expenditure Survey (CES). Earlier, every five years the CES were to be conducted, providing crucial information about the standard of living and well-being of households.
Whether the previous unreleased HCES was junked for “data quality” reasons or for revealing the truth about the economy remains unknown. At least those who rejected it could care to elaborate further on the technical part. In a democracy, transparency forms the foundation of good governance, and the people are yet to know the reasons and specifics behind the so-called issues in data quality. There are still other survey data that have not yet been released. Data already in the public domain such as the Socio-Economic Caste Census, central to beneficiary targeting for key central welfare programmes, has now been withheld. The official SECC site which was revamped not long ago has been down for a long time, perhaps on account of the upcoming elections or also on the pretext of data quality!
The current HCES 2022-23 could have provided us with the opportunity to compare the poverty decline had there been methodological consistency. But HCES 2022-23 reports point out “Issues related to Comparability” and state that “HCES: 2022-23 has undergone some changes as compared to the previous surveys on consumption expenditures.” Thus on account of HCES 2022-23 not being comparable, any comparative result drawn must also be taken with a caveat. Acknowledging this, we do attempt to outline some basic trends and patterns of average household consumption expenditure, given a detailed analysis cannot be undertaken without the unit-level data.
First, we would again like to reiterate that while the HCES 2022-23 remains silent on poverty reduction, still comparison has been made for HCES 2022-23 to the earlier CES without methodological concerns. Above all, there is no current poverty line by NITI Aayog, unlike the erstwhile Planning Commission. Detailed poverty estimates would have to wait until the unit-level data comes out and a new poverty line drawn relevant to contemporary times; data will still remain non-comparable to earlier rounds. Meanwhile, NITI has built a narrative around multi-dimensional poverty having been reduced very sharply, with 250 million pulled above the MPI poverty – despite the fact that MPI is a flawed concept.
Real wages have stagnated
There is little basis for the logic that poverty has been reduced as much as they say (the claim, in fact, is that it has been eliminated). There was a basis for poverty falling earlier during 2004 and 2012, because non-farm jobs grew, workers were pulled out of agriculture, and real wages rose. For these consumption expenditure had risen and poverty fallen. But the current government claims are hard to explain. After all, the real wage has stagnated between 2013 and 2017 which has resulted in the subdued rise in household consumption expenditure. It will be contrary to the general understanding that when the real wage and income have stagnated there would be a rise in consumption expenditure. Especially if there is simultaneous evidence from household savings data from the same Central Statistical Organisation that that household savings as a proportion of GDP have fallen.
There ought to be some economic source which could enable the surge in household consumption expenditure in the last 10 years. The total number of unemployed was 10 million 2011-12 and rose to 30 million by 2018-19, before Covid broke. Along with real wages stagnating, joblessness grew further. The number of young Not in Education, Employment or Training shot up to over 100 mn. At the same time, CMIE rightly reported that workers were falling out of the labour force, i.e. had stopped looking for work. Youth unemployment had already doubled or tripled, depending on your level of education between 2012 and 2020-22.
There is a massive number of poor workers in India. According to the PLFS 2022-23, 24.6% of the rural workforce (of 430 mn) earns less than Rs 100 a day (nominal), a staggering proportion of the population. This grim reality is further compounded by the plight of urban workforce (138 mn), of whom about 10% face similar circumstances (Figure 1). These figures underscore the persistent and widespread nature of poverty, debunking the notion of its eradication.
Delving deeper into the PLFS (2022-23) wage data, another concerning trend emerges: a significant portion of the workforce falls within the precarious wage bracket of Rs 100 to 200 per day. Shockingly, 17% of rural self-employed (own A/C workers) and 12% of regular salaried workers earn wages within this range, highlighting their precarity. For them the spectre of poverty looms large, casting doubt on claims of widespread prosperity.
Moreover, the workforce, particularly in rural areas, continues to grapple with the burden of unpaid family labour (which constitutes about 22% and 6.6% in rural and urban workforces respectively). While till 2019 the absolute number of unpaid family labour was dropping, 40 mn were added to the unpaid family worker category of workers in just three years (2020 to 2023) in rural areas, and another 2 mn were added in urban areas.
Figure 1: Daily Earning/wage (Nominal) of the workers in India, 2022-23. Source: Authors’ estimation using PLFS (2022-23) unit-level data.
Inequality
The current HCES 2022-23 is compared with the Consumption Expenditure Survey (CES) 2011-12 to understand the rural-urban consumption expenditure inequality. The table below indicates a rising rural-urban consumption expenditure inequality in India amongst the economically weaker sections. In the lowest consumption group 0-5%, the rural-urban difference was 34% in 2011-12, and has now increased to 46% in 2022-23. A similar trend is seen in the 5-10% consumption group where the rural-urban difference of 34% in 2011-12 now increases to 46% in 2022-23. Also, there has been an increase in rural-urban inequality in the 10-20% and 20-30% consumption groups albeit to a lower extent.
On a positive note, in the rest of the consumption group, there is a reduction of the rural-urban inequality reduction. The rural-urban difference between the highest consumption classes and a reduction in inequality is seen from 109% in 2011-12 to 79% in 2022-23. Overall, the change in consumption expenditure indicates a divergence in rural-urban inequality in the lower consumption group but convergence in the higher consumption groups.
Table 1: Rural-Urban Inequality in the Households MPCE across Fractile Classes
State level consumption differentials
From 2011-12 to 2022-23, at the state level, the trend in average MPCE shows almost an unchanging picture. The states at the bottom of the pyramid still remain at the bottom to a large extent. Above all, it is the smaller-sized states that have outperformed the larger states in terms of household MPCE ranking.
In the table below the average MPCE for rural households has been presented for 2011-12 and 2022-23.
Table 2: Average MPCE Rural Households
In 2011-12 West Bengal, Assam, Uttar Pradesh, Madhya Pradesh, Bihar, Chhattisgarh, Jharkhand and Odisha were at the bottom In 2022-23 almost the same states with limited reordering were still at the bottom, Assam, Bihar, West Bengal, Uttar Pradesh, Madhya Pradesh, Odisha, Jharkhand, and Chhattisgarh. At the same time, Rajasthan which was higher up in average consumption has come down. Similarly economically developed states such as Gujarat have also slipped in the consumption ranking.
Table 3: Average MPCE Urban Households
As in the table above west Bengal and Rajasthan have slipped in the ranking significantly. Again, it is the smaller-sized states that have outperformed the larger states in terms of household MPCE ranking. In 2022-23, Assam, Rajasthan, West Bengal, Odisha, Uttar Pradesh, Madhya Pradesh, Jharkhand, Manipur, Bihar and Chhattisgarh remain at the bottom.
All states except for Assam and Manipur all other states are from Northern India and most of them except for West Bengal and Orissa are Hindi-speaking states. The consumption in the Hindi heartland remains below that of developed states and shows an unchanging picture, even though in the absolute amount the average consumption has doubled.
Uttar Pradesh’s “Double Engine Ki Sarkar” has led nowhere in terms of household consumption expenditure. In terms of urban households MPCE, MPCE was ranked 23 in 2011-12 and still ranks 23 in 2022-23. For the rural households MPCE, Uttar Pradesh ranked 23 in 2011-12, it now ranks 24.
Gujarat Model has also failed to impress. Its rank has slipped from 17 to 19 in terms of rural household MPCE, and from 14 to 16 in terms of urban household MPCE.
A question also ought to be asked regarding the “Good Governance Model” of Bihar, given it ranks 27 out of 28 states in urban households MPCE thus unchanging ground reality. Bihar’s Household consumption indicating economic well-being has remained amongst the lowest in the country even after nearly two decades of the “Sushanan Raj”. For rural households, there has been a slight improvement in the MPCE rankings from 25 to 22, hardly enough to make any significant changes in the rural household’s economic well-being.
Overall, apart from the smaller states, there is a strong north-south divide that is to be seen in terms of households’ MPCE ranking. Southern states were amongst the first to work on the human development front, and thus reaping the benefits in terms of higher household well-being. It is human development that should precede economic development.
Engels’ Law states that with economic growth and progress, the share of food consumption expenditure in the total household expenditure is bound to come down. Our declining food share in the consumption basket need not be taken as an indicator of development. Our food consumption as a percentage of total household consumption remains very high as compared to other developed countries. The graph below presents per-capita annual food expenditure in total consumption expenditure and the total consumption expenditure for India and other developed countries and Asian peers. Although the data estimation is for 2021, and as always in international comparisons, there are methodological constraints and comparability issues, and thus should be inferred as an indicative of the relative levels.
The key takeaways are that our total consumption expenditure remains low as compared to developed countries, and our food expenditure as a percentage of total consumption expenditure remains very high as compared to other developing countries.
Graph: Per-Capita Annual Consumption Expenditure and Share of Food Expenditure in Total Consumption Expenditure 2021 for Select Asian Countries and Other Developed Countries
Food expenditure in total expenditure in rural households has come down from 52.90% in 2011-12 to 46.38% in 2022-23, and for urban households from 42.62% in 2011-12 to 39.17% must be taken cautiously indicating economic progress. Food as a share of total consumer expenditure is just 6.4% for the USA (2018), 6.9% for Singapore (2018), 7.9% for the United Kingdom (2019) and 8.9% for Switzerland (2019).
Santosh Mehrotra is a Research Fellow at IZA Institute of Labour Economics, Bonn and Rakesh Ranjan Kumar is a Senior Research Fellow at the International Institute for Migration and Development, Kerala.