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Mainstream, VOL 62 No 15, April 13, 2024

Household Consumption Expenditure Survey (HCES): Resolving Income Disparity Concerns | S N Tripathy

Friday 12 April 2024, by S N Tripathy


The release of the Household Consumption Expenditure Survey (HCES) from August 2022 to July 2023 has sparked discussions and raised eyebrows across the nation. While the survey aims to provide insights into households’ Monthly Per Capita Consumption Expenditure (MPCE) and distribution, concerns about timing, selective data release, and potential manipulation have emerged.

The Household Consumption Expenditure Survey (HCES) is a valuable tool for researching income disparity between rural and urban households in India. HCES provides detailed information on household spending patterns. Researchers can analyze expenditures on various goods and services to understand the lifestyle and standard of living in both rural and urban areas. By examining the expenditure patterns, researchers can reasonably estimate the income levels in rural and urban households, which helps understand their economic well-being.

The survey can be used to assess poverty levels in both rural and urban settings. Researchers can gain insights into the economic disparities between the two regions by identifying the percentage of households falling below the poverty line. HCES can help calculate inequality measures such as the Gini coefficient or quintile ratios. These measures provide a quantitative assessment of income distribution and help understand the extent of disparity.

The survey data can be used to analyze the sources of income in rural and urban areas. Understanding the contribution of different sectors to household income can highlight economic structural differences. HCES often includes geographical identifiers. Researchers can use this information to compare income levels and disparity across various states, regions, or districts within India. Insights from HCES can inform policy decisions aimed at reducing income disparities.

Understanding the specific needs and challenges rural and urban households face can guide the formulation of targeted policies. If HCES data is collected over multiple years, researchers can conduct longitudinal analyses to track changes in income disparity trends. This helps identify the impact of economic policies over time.

HCES often includes demographic and social information about households. Researchers can incorporate these factors into their analysis to explore how education, age, and family structure contribute to income disparities. HCES data can be correlated with other economic indices, such as employment rates, education levels, and health indicators. This multi-dimensional approach provides a comprehensive understanding of income disparities.

Notably, the release of the HCES report comes after a significant hiatus since 2011-12, with the 2017-18 survey report needing to be published due to alleged discrepancies that did not align with the government’s narrative. This selective release pattern has raised suspicions about data collection and presentation integrity.

One of the highlights of the current HCES report is the apparent rise in consumption levels across rural and urban areas, suggesting a decline in poverty rates to less than 5% of the population. However, a closer examination reveals a different description. While average consumption figures have surged, much of this growth can be attributed to inflation. Adjusting for inflation, the actual increase in consumption stands at a modest 40% and 33.5% for rural and urban areas, respectively, over the past 11 years.

Crucially, this consumption growth lags significantly behind the increase in national income, indicating widening income inequality. The discrepancy between consumption and income growth suggests that the benefits of economic growth have disproportionately favoured the affluent segments of society, exacerbating inequality. Moreover, while the HCES data sheds light on consumption inequality, the more pertinent issue of income inequality remains unresolved. High-income individuals save a considerable portion of their earnings, further widening the income gap.

This trend aligns with the observation that the organized sector of the economy is thriving at the expense of the unorganized sector, comprising agriculture and micro and small enterprises. The stagnation and decline in these sectors, evident since at least 2016, reflect a concerning pattern of K-shaped economic growth, exacerbating disparities.

Further analysis of taxation data corroborates these findings. The organized sector, primarily comprised of higher-income individuals and large corporations, contributes the bulk of taxes. This disparity highlights the widening gulf between society’s affluent and marginalized sections.

The government’s assertion of declining poverty rates based on reduced food expenditures warrants scrutiny. Engel’s Law, which postulates that the percentage of income spent on food decreases as household income rises, suggests a nuanced understanding of consumption patterns. Moreover, without considering the consumption volume, claims of reduced poverty may be premature, as increased expenditure on food could reflect inflationary pressures rather than improved living standards.

Moreover, the determination of the poverty line itself remains contentious. Poverty, defined as ’minimum socially necessary consumption,’ is variable over time and space. Recent adjustments to the poverty line by international organizations underscore the need for a dynamic and context-specific approach to poverty estimation, which may yield higher poverty rates than the 5% touted by officials. Recent statistics from the e-ashram portal, where 300 million individuals have registered, reveal that 90% earn less than Rs 10,000 monthly. This staggering figure hints at a vast segment of the population teetering on the brink of poverty, exacerbated by high unemployment rates.

Moreover, shifts in expenditure patterns, such as increased spending on health and transportation, paint a nuanced picture of economic conditions. For many, rising transportation costs are essential for livelihoods, while higher health expenditures may signify struggles rather than improved well-being, especially in the aftermath of the pandemic.

The surge in demand for work under programs like MGNREGS highlights the persistent economic challenges encountered by millions, with incomes failing to recover to pre-pandemic levels. Furthermore, despite purported improvements in consumption, indicators like high levels of malnourishment among women raise questions about the quality and sustainability of increased consumption. The prevalence of underemployment and low labour force participation rates further dampen hopes of substantial economic recovery.

While intended to alleviate poverty, government welfare measures may not be reaching those most in need, as evidenced by minimal increases in consumption among the poorest sections of society. This raises doubts about the effectiveness of existing social support systems.

While the release of the HCES report provides valuable insights into consumption patterns, its implications extend beyond surface-level interpretations. The discrepancies between consumption and income growth, coupled with widening inequality and nuanced poverty assessments, emphasize the need for comprehensive and transparent data analysis to inform effective policymaking and resolve the systemic challenges of economic disparity.

To sum up, while releasing consumption data is a step forward, its interpretation requires caution. Data collection methodology changes and economic realities’ complexity make direct comparisons challenging. Moreover, disparities in response rates among different income groups complicate measuring pragmatic inequality.

Comprehensive and transparent data analysis, including follow-up surveys to validate findings, is essential to resolve doubts and uncertainties surrounding poverty and consumption assessments. Only with rigorous analysis can policymakers develop targeted interventions to resolve the multifaceted challenges facing vulnerable populations. To re-emphasize the point, while the data provides valuable insights, it also highlights the need for continued scrutiny and refinement to ensure accurate and meaningful assessments of poverty and consumption dynamics in India.

(Author: Prof S N Tripathy, Former Professor of Economics, Gokhale Institute of Politics and Economics, Pune, currently at Berhampur, Odisha)

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