India Human Development Survey

A new study by the India Human Development Survey (IHDS) suggests consumption growth may have moderated in recent years but may not have declined.

• NSS report: Leaked portions National Sample Survey (NSS) on consumption expenditure suggested that consumption declined in real terms between 2011-12 and 2017-18.
• • The results were held back by the National Statistical Office (NSO).
  • NSO claims that there were serious data quality issues with the 2017-18 survey.
• IHDS report: A study by researchers from the National Council of Applied Economic Research (NCAER) and the University of Maryland show findings contrary to NSS.
  • Consumption spending has grown between 2011-12 and 2017.
  • Yet, the pace of growth is significantly lower (in real per capita terms) compared to the growth between 2004-05 and 2011-12.

IHDS study

• Assessment of living standards: IHDS provides an independent assessment of changes in living standards for a panel of 4828 households across Rajasthan, Bihar and Uttarakhand.
• Per capita incomes grew: Per capita incomes grew by 3.5% per annum between 2011-12 and 2017.
  • The same households experienced per capita income growth of 7.2% per annum between 2004-5 and 2011-12.
• Per capita consumption expenditure grew: Per capita consumption expenditure grew by 2.7% per annum over the same period.
  • The same households experienced and per capita consumption growth of 4% per annum between 2004-5 and 2011-12.
• Increase in ownership of vehicles: There is a consistent increase in ownership of vehicles over the two time-periods.
  • While ownership of cars and motorcycles rose 11 percentage points to 22 percent between 2004-05 and 2011-12, the same figure went up 10 percentage points between 2011-12 and 2017

Consumption spending

• Whether consumption spending has grown fast, grown slowly, or actually declined has huge implications for economic policy-making.
  • And in the absence of data, it is difficult to design a sound economic policy.
• The spurt in consumption may not indicate a boom though. This could well be due to catch up consumption for items families were unable to buy during the cash crunch created by demonetization.
  • Or it could be purchases taking place to avert paying Goods and Services Tax (GST).

Demonetisation impact

• Demonetisation shock: One of the challenges facing the interpretation of consumption data stems from short-term shock caused by demonetization.
• Cash crunch: The demonetization of high-value currency notes, implemented in November 2016, led to a tremendous cash crunch.
• Low purchasing power: It adversely affected the purchasing power of consumers and incomes of small businesses and informal workers.
• Temporary in nature: The cash crunch affected how much money households could spend, but it was temporary in nature.
  • Families made adjustments by reducing discretionary expenditure without affecting expenditure on food, health and education.

Caution

• Small sample: IHDS study is based on a relatively small sample of 4828 households across three states interviewed in 2004-5, 2011-12, and 2017.
• No subsequent interviews: Only 81% of the households initially interviewed in 2004-5 could be contacted for subsequent interviews.
• More urban households lost: While the sample was randomly drawn in 2004-5, more urban households were lost than rural households, making this a selective sample.
• Small coverage: Unlike NSS which collects detailed data on over 500 consumption items, the IHDS groups these items into 52 categories providing a somewhat rough estimate of consumption expendit

Conclusion

• IHDS study indicates that India’s growth story may not have collapsed altogether.
• Consumption has also witnessed a similar slowdown but it has not declined in absolute terms.
• The boom phase of 7-8% growth in household incomes was over by 2011-12 and has moderated since then.
• The study suggests modest growth, and highlights the need to ensure credible survey data to guide public policies.