Concerns over slump in consumer expenditure

Leaked reports over estimates of consumer spending is sending shockwaves across the economy and the political spectrum. A report that consumer spending has fallen in 2017-18 compared with 2011-12 has created serious concerns. Monthly consumption expenditure of the average rural household has fallen to Rs 1446 in 2017-18 from Rs 1501 in 2011-12. More poignantly, expenditure on food has fallen from Rs 643 in 2011-12 to Rs 580 in 2017-18. Consumption expenditure in urban areas have increased but only marginally. It is one thing that consumption expenditure has not risen. But to have fallen in absolute terms is sheer horror for a developing economy like India’s. Overall, deprivation is widespread, that only hefty rises In consumption could be fitting in all fairness.

It is taken to be the ultimate vindication of the deepening slow down in the economy for the last couple of years and since these things do not change overnight the slowdown might just as well mutate into a full-blown recession, unless reversed with policy interventions or through some ambient dynamics.

Consumer expenditure surveys are conducted every six years and the last one was done for the period July 2017 and June 2018. These are basically sample surveys and based on interviewing a small number of people across the country. The framing of the sample surveys is a rigorous process and generally overseen by some senior economists and leading statisticians.

The veracity of the sample survey results depend on the architecture of the sample frame. These are fairly accurate in capturing the underlying reality even though the actual numbers surveyed are very small proportion of the overall population. There is hardly any reason to now suddenly undermine their veracity and these have traditionally been taken as benchmark data for policy making.

It has become an established practice nowadays to run down the “quality” of data. That is done by the establishment, when the data goes against a idyllic picture perfect story of well-being and progress. These are then run down by those outside of establishment who want to airbrush the establishment according to their own position, either politically or numerous other grouses.

This time, the survey has reportedly been withheld from release although it has been approved. It has therefore been inferred that because of the adverse implications of the survey findings the government has kept it from being public. As usual, the data quality has been the avowed objection.

Many others have quoted figures put out by private agencies doing surveys to prove dismal economic situation, as if those confer greater veracity. However, little is it realised that for better or worse it is the official statistical agencies which alone produce the basic data on which any meaningful conversation could be conducted.

First of all, no one else there than the official data collections agencies — like CSO, NSSO and overall the NSO — have the organisational strength to collect these data on a national scale. They have numerous data collectors and agents who alone churn out the primary raw data. Not a single other agency or institution can claim to have this massive national network for data collection.

Secondly, and more profoundly, no one else has the sheer knowledge base of these agencies. They are manned by some of the most brilliant statisticians of the country and they are name- and faceless, but inno way not fully knowledgeable. In this instance, the fall in consumption expenditure, in absolute terms and extent, cannot be fictitious.

Whatever could be the reason, the cause of the fall in real consumption income could be because of the sheer contraction of the income stream in the rural areas. The reason for this could be the sluggishness in the farm goods prices observed over the last four to five years. Last year, even during the summer season — traditionally the period during which vegetable and farm goods prices used to shoot up — these prices remained stable and sometimes falling.

Secondly, the situation was further compounded by the government’s emphasis on digitalisation and formalisation of the informal sector. Trading in farm goods are generally done in cash. Suddenly if you start insisting on formal cashless transactions, the trading gets affected. Lower trading in farm goods would depress prices. Besides, to clamp down on so-called black money transactions, there has been new rules on cash withdrawals from banks as well. And these restrictions were enough throttle activity.

As if to complicate matters further, the demonetisation and withdrawal of cash from the system had brought trading to a halt. No wonder that consumption expenditure would have fallen in the face of adverse overall conditions, shrinkage of income stream and then the new rules and impounding of currency.

At the end of the day, what is needed is to correct these aberrations. It is imperative now to reverse the trends. These can be done by vigorously pursuing the income supplement schemes like MNREGA and other incomecreation programmes. This is urgently needed.