Household consumption report points to steady growth; gives pointer to reforms, getting workers off the farm key to economic growth

Indeed, the data indicates that all social groups are doing better than in 2011-12.

Recent macroeconomic discourse has been dominated by a fusillade of large numbers, mostly concerning the size of GDP and market capitalization. These numbers are indeed impressive.

India’s GDP, currently at $3.7 trillion, is projected by the finance ministry to reach $5 trillion by 2026-27, overtaking Germany and Japan. India’s stock market capitalization, at $4,5 trillion, is also within striking distance of Hong Kong’s.

On Saturday evening, the Ministry of Statistics released a different sort of number, the long-awaited household expenditure survey, providing granular information about India’s consumption habits, including those at the bottom of the pyramid. As the 2017-18 survey results were withheld, this is the first since 2011-12.

The big picture is that of steady progress over the decade. It certainly does not support any narrative of immiseration on account of so-called ‘crony capitalism’, something which will help the government in the upcoming elections. Indeed, the data indicates that all social groups are doing better than in 2011-12.

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The data also provides pointers to the reforms that must be carried out. The lowest monthly spending in India is by those who are self-employed in agriculture or working as casual labourers. Significantly, those working in rural areas outside of agriculture, in both the self-employed and labourer categories, spend more.

The solution, as a recent piece on Moneycontrol on February 19 argues, is to move people away from agriculture as soon as possible into more productive areas.

This involves relaxing, if not repealing, land ceiling laws to allow consolidation of holdings and implementation of the three scrapped farm laws rather than demands such as enshrining MSP in law. Currently, close to 46percent of the workforce is in agriculture, which needs to decline drastically.

SC, ST, OBCs have done better than average

Given the demands for caste census, the data will also be heartening for the government. According to data compiled by The Economic Times, Scheduled Castes (SCs), Scheduled Tribes (STs), and Other Backward Classes (OBCs) experienced a faster growth in daily consumption between 2011-12 and 2022-23 compared to others (a euphemism for upper castes). Further, these social groups saw their consumption grow faster than the average growth. Again, the data does not support the narrative of SC, ST, and OBC communities falling behind.

Engel’s Curve

The data indicates a classic Engel’s curve pattern- that is, consumption of food as a proportion of expenditure is going down. Further, within the food category, the consumption of items such as milk, meat, fish, and eggs is rising faster than that of cereals. All this indicates a rise in living standards, albeit from a low base. Also, state governments cracking down on the consumption of non-vegetarian foods need to take a less puritanical attitude.

In comments on Sunday, Niti Aayog CEO BVR Subrahmanyam said that the data indicated that poverty levels were about 5 percent. Subrahmanyam’s remarks drew upon the factsheet released by the statistics ministry, which indicated that the bottom 5 percent of India’s rural population had an average monthly per capita consumption of Rs 1,407 while the number for the bottom 5 percent in urban areas was Rs 2,087. These are higher than the cut-off thresholds for multidimensional poverty calculated by a panel headed by Dr C Rangarajan in 2014, which defined poverty as spending below Rs 972 in rural areas and Rs 1,407 in urban areas.

According to the survey, the average monthly per capita rural consumption was Rs 3,773 in 2022-23 compared to Rs 1,430 in 2011-12, a rise of 164 percent, while the average monthly per capita urban consumption, at Rs 6,459 is 146 percent higher than the 2011-12 figure of Rs 2,630.

Thus, rural consumption has grown faster, indicating a reduction, albeit of a minor nature, in urban-rural differentials. These are nominal numbers, that is, not adjusted for inflation.

The overall growth rate of expenditure has declined compared to the period between 1999-2000 and 2011-12, but that’s a function of the base effect.

It’s worth noting that the annual consumption figures are Rs 45,726 in rural areas and Rs 77,508 in urban areas. Faster economic growth and rapid urbanization are clearly the need of the hour if these rather low numbers are to grow fast.