Why the 2023 Consumption Survey Is Not Comparable with Previous Rounds

The government of India has finally conducted and released the Household Consumption Expenditure Survey of 2022-23 after more than a decade.

Earlier, a Household Consumer Expenditure Survey (denoted as CES) was undertaken every five years. The last was in 2011-12. The current survey’s factsheet, published yesterday, is the 10th CES. However, it should first be noted that the current CES 2022-23 cannot be compared with the earlier CES rounds on account of a change in methodology.

Second, the National Survey Organisation (NSO), which conducts these always, has personally informed one of the authors that these are not comparable.

The HCES 2022-23 reports also clearly 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.” and should not be compared with the earlier CES rounds.

Still, the NITI Aayog chief has claimed that India’s poverty has declined to below 5%, inferring that the HCES 2022 is comparable to CES 2011-12; it is not.

Third, there is no current poverty line determined by NITI Aayog unlike the erstwhile Planning Commission. Thus it cannot be assumed that the HCES 2022-23 indicates that the poverty is down to below 5%. It is prudent to state that the whole 27-page HCES factsheet remains silent on poverty estimation. 

Several changes in methodology make HCES non-comparable to earlier CES.

In HCES 2022-23, sampling methodology has undergone significant change including stratum, and second-stage stratum. The ‘rural’ stratum for HCES 2022-23 consists of just two strata, the first, comprising of the villages within a distance of 5 kilometres from the district headquarters and the rest are in the other strata. The ‘urban’ strata are classified based on ‘population’ as well as ‘affluence’ status. The second-stage stratum classification is now made on land for rural areas and car availability for urban areas, unlike the previous survey where the divisions were made based on household status and household activity for rural areas and monthly per-capita income for urban areas.

For the rural second-stage stratum, rural households were classified into three categories based on land availability based on state-level cut-off points as per the ‘Situation Assessment Survey of Agricultural Households 2019’. In a country where agricultural labourers outnumber cultivators, access to land remains limited let alone possession of land amongst the ‘highest order’ as classified in the top two second-stage stratum. Land remains a leading factor in determining socio-economic well-being, and ought to be very well-off thereby having a higher consumption. For the urban areas, households were classified based on the availability of four-wheeler cars for non-commercial use, with price of more than Rs 10 lakh, price less than Rs 10 lakh and other households without cars. In a country where 8% of the households own a car, the urban top two second stage stratum will be among the wealthiest households having higher consumption.

Sampling is done to ensure proper representation of households of different economic categories; however, there seems to be a higher representation of the well-off groups in the HCES 2022-23 sampling approach, thereby resulting in higher consumption expenditure.

HCES 2022-23 factsheet lists out various methodological changes as well.

First, there is change in item coverage with inclusion of new items and merging some of the obsolete items. Overall, the number of items covered has increased from 347 to 405 items.

Secondly, there have been changes in the questionnaire of the survey. Instead of a single questionnaire as used in earlier surveys, HCES 2022-23 uses four separate questionnaires for food, consumables and services items, and durable goods, apart from a separate questionnaire for canvassing household characteristics to be used in three separate monthly visits in a quarter. Thus, there have been multiple visits for data collection instead of the usual practice of a single visit in the earlier surveys.

Therefore, the results of the current HCES cannot be strictly comparable with the 2011-12 CES or the earlier CES.

HCES 2022-23 states that the average monthly per-capita consumption expenditure (MPCE) at current prices (without imputing value figures of the items received free by the households through various social welfare programmes) has increased to Rs 3,773 for rural households (from Rs 1,430 in 2011-12) and Rs 6,459 for urban households (from Rs 2,630 in 2011-12). 

These numbers have been used in order to claim that poverty in India has been eradicated to just 5%. However, the factsheet does not make any reference to poverty eradication. Nor is there any poverty line given by the HCES. So how is this value judgment made – that poverty has fallen?

The whole 27-page factsheet is based on ratios and proportions. There are only a handful comparisons of actual numbers. These  numbers too are not comparisons with real numbers. For the comparative perspective, a Consumer Price Index (CPI) ought to be used to deflate the current expenditure to arrive at the real consumption expenditure. Without using CPI, any meaningful comparison should not be drawn. Just having a narrative with comparing numbers will add little value for want of data pertaining to quantity consumed and the expenditure incurred thereon.

Also for the current HCES 2022-23, imputed cost for items received free of cost by the households through various social welfare programmes has been included, but the same is not undertaken for the earlier years in comparison. Thus, without parity, a comparison should not be drawn between 2011-12 and 2022-23.

Although consumption out of (i) home-grown/home-produced stock, and (ii) gifts, loans, free collection and goods received in exchange of goods and services has been undertaken for the previous years, it has not been made explicit so to what is their proportion in the household consumption expenditure.

Any durable or non-durable taken on bank loans, equal monthly instalments or EMIs, or Kisan Credit Cards would eventually form part of consumption but will also add to the debt of the households. National Accounts Statistics are clearly stating that household consumption share is dropping since 2016, and household debt is increasing; at the same time, savings as a share of GDP have fallen under the current government.

Above all, how is poverty supposed to have fallen, when both job growth has come down despite a larger number of school or university leavers enter the labour market. The real wages have stagnated between 2013 and 2017, while the NSO Employment-Unemployment Round between 2004-5 and 2011-12 had shown an unmistakable and sustained rise in real wages. The graph below shows us trends in the real wages as per the broad sector and type of employment.

Graph: Real wages (in Rs at 2011 price) by the sector and type of employment, 2018-2022

Source: Estimates by Santosh Mehrotra & J. Parida (forthcoming) and plot using PLFS unit level data.

It will be curious  to argue that the consumption expenditure would be rising when the real wages are rising and would be stagnating in the period of stagnant real wages; yet that is exactly what representatives of government have used HCES 2023 data to argue.

Additionally, joblessness had already reached a 45 year high in 2017-18 itself; with the continuous slowdown in the economy, joblessness continued to increase. The total number of unemployed was 10 million 2011-12; it rose to 30 million by 2018-19, before COVID-19 broke.

Also read: India Out of Work

If real wages fell or stagnated, as joblessness grew further to nearly 38 million in 2022, it is not surprising. At the same time, CMIE rightly reported that workers were falling out of the labour force, i.e. had stopped looking for work. The employment rate (or worker participation rate, which is the share of working age in the population with work) fell from 43% in 2016 to 36% in 2022, and has only just climbed back to 37%.

Youth unemployment had already doubled or tripled, depending on your level of education between 2012 and 2020-22. The table below shows the number of working poor and vulnerable in India.

Table: Poor, Non-Poor and Vulnerable Workforce in India 

Source: Estimates by Santosh Mehrotra and J. Parida

Moreover, a huge chunk of Indian workers (about 151 million workers) are earning upto Rs 100 (in real terms at 2010 prices) as in 2017-18. If we deduct the number of poor (94.1 million) workers from this number, about 57 million non-poor workers live above the poverty line, whose earning is just below Rs 100. As per Tendulkar’s MRP line, they could still be classified as poor. But we are not doing any direct comparison here to avoid confusion.  

Most of these poor workers are engaged as self-employed or casual labour. During 2020-21, the workers earning (in real terms) upto Rs 100 increased to 204 million. That means an additional 5 million rise in vulnerable workforce only from 57 million to 62 million, because the number of poor workers increased massively during this period (Table 2). These facts imply that among those who were living just above the poverty line, most of them have fallen below it during the COVID-19 pandemic. Hence, the number of poor workers increased enormously to from 94 million to 142 million between 2017-18 and 2020-21. 

The number of workers, whose daily real earning or wage is between Rs 100 and Rs 200 and between Rs 200 and Rs 300, can also be considered as ‘poor’ and ‘non-poor vulnerable’ workers, respectively. It is noteworthy that single-bread winner families with an average family size of 4.5 members are more likely to fall below the poverty line. 

The claim of the NITI Aayog on growth being inclusive and broad-based with shrinking inequality – at the same time dismissing rural economic distress – must also be taken into perspective with the labour market outcomes. The number of working poor and the decline in the real wages indicate the need for interrogating the labour market conditions in India, before jumping to the conclusion that India has been able to end its poverty.

It is well understood concept in economics that with economic growth and progress, the share of food consumption expenditure in the total household expenditure is bound to come down. 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%. This must be taken cautiously when it comes to indicating economic progress.

Food as share of total consumer expenditure is just 6.4% for USA (2018), 6.9% for Singapore (2018), 7.9% for United Kingdom (2019) and 8.9% for Switzerland (2019). Our shares of food expenditure with respect to other developed countries remains high, and we have a long way till we reach the level of consumption expenditure of USA (US $ 45,898 per person, 2021) and Switzerland (US $ 45,257 per person, 2019). The CES 2022-23 is being read to mean what cannot be found in it, nor inferred from it either.

Santosh Mehrotra is Visiting Prof of Development Economics, Centre for Development Studies, University of Bath, UK.

Rakesh Ranjan Kumar is Visiting Fellow, Institute of International Migration, Trivandrum.