An Absent Consumer Expenditure Survey: What It Means For Economic Policy Making

Senior economists said Indian government’s decision to withhold a consumption expenditure survey was “unwarranted”. Here’s why...

A man holds Indian twenty rupee banknotes at a shop in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg) 
A man holds Indian twenty rupee banknotes at a shop in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg) 

The Indian government’s decision to withhold a consumption expenditure survey conducted every five years is being seen by economists as another example of increased political intervention in economic statistics. Senior economists who spoke to BloombergQuint said the decision was unwarranted and the absence of the survey could impact policy decisions, which rely on inputs from the survey.

On Friday, Business Standard reported that the consumer expenditure survey had shown a 3.7 percent fall in monthly per capita consumption expenditure between 2011-12 and 2017-18. The survey was conducted between July 2017 and June 2018, after demonetisation and during the implementation of the goods and services tax. BloombergQuint could not independently verify the findings of the survey.

The government, in a statement, said it had decided not to release the results of the survey as “there was a significant increase in divergence in not only the levels in the consumption pattern but also the direction of the change when compared to the other administrative data sources like the actual production of goods and services”.

Pronab Sen, Former Chief Statistician

According to Pronab Sen, former chief statistician of India, the survey reflects the consumption trends in the year it is conducted and is crucial for several reasons.

“It gives us a source by which we calculate poverty in the country. It gives us a measure of what is the nutritional intake of India’s households. It is an important input into the GDP calculations,” Sen said. The methodology of the survey, according to him, has been consistent since 1972 and that there is no reason to believe that the 2017-18 survey was any different from the previous one done in 2011-12.

Sen said the data may be consistent with the narrative that demonetisation and GST impacted the informal sector most.

Whether it squares with other data points, is a legitimate question. The point there is you can either say this data is wrong or the other data is wrong... If the narrative is that both GST and demonetisation affected the informal sector much more than the corporates, then this data squares off quite well.
Pronab Sen, Former Chief Statistician of India

The government, in its statement on Friday, had said that following its decision to scrap the consumption expenditure survey, India’s GDP would not be re-based on 2017-18 as the base year and that the survey may be conducted again in 2020-21.

Sen agreed that 2017-18 should not be used as the base year for GDP since it was an unusual year. “If they wish to change the base year, they will have to do the survey again... The gap of nearly a decade is an issue but given the circumstances that’s not so bad,” Sen said.

Maitreesh Ghatak, London School Of Economics

Maitreesh Ghatak, professor of economics at the London School of Economics, said the government could have released the data and then pointed out any issues that may have cropped up during the course of the survey. That would have led to a more open discussion, Ghatak said.

“This gives an undeniable impression that the decision to release the survey results had to do with the results and that if the data showed improvements as opposed to deterioration in average consumption levels, the report would have been released.”

Ghatak, too, said it will be tough to re-base the GDP data and update the CPI index, “if we don’t have the consumption survey data”. “This will compound the debates about the GDP numbers and create more confusion about the true state of the economy.”

As much as to have proper treatment of a patient, reliable medical reports are essential, to deal with the economy, we need reliable data.
Maitreesh Ghatak, London School Of Economics

R Nagaraj, Indira Gandhi Institute Of Development Research

According to R Nagaraj of IGIDR, the government could have allowed independent and transparent verification of the competing data sets.

“Release of the administrative data, as well as the NSSO survey results (along with the underlying methods of collecting them), would allow for public verification by means of informed debate and discussions,” Nagraj said.

He said prima facie the results of the survey may not be completely inconsistent with other available data. Nagraj pointed to the findings of the Periodic Labour Force Survey, which was also delayed by the government. That survey had shown that the unemployment rate in India, across urban and rural areas, stood at 6.1 percent between July 2017 and June 2018.

“To me this is a story of not only jobless growth but job-loss growth,” Nagraj said in an interview with BloombergQuint. The findings, he said, are also consistent with the weak rural demand picture being painted by the GDP data.

Credible, independently verifiable and timely availability of statistics is a necessity for sound policy-making, as with any modern nation. In a democracy, its significance is all the greater as it would allow for a healthy, informed debate and discussion on public policy.
R Nagaraj, Indira Gandhi Institute Of Development Research

Amiya Bagchi, Institute Of Development Studies

Amiya Bagchi, professor emeritus at the Institute of Development Studies, Kolkata, said there have been other recent instances of delays and deferrals in release of economic data. This is another such example.

The government “scrapped the GDP data produced by NITI Aayog. Two experts resigned when the government refused to publish an official labour survey. Of course, none of these actions, including the refusal to publish the consumption survey, are justified”, Bagchi said.

Apart from the delay in re-basing of the GDP data, the absence of the consumption expenditure survey will also impact the understanding of inequality in India, he said.

The income class distribution of consumption  provides the Gini coefficient, which augmented with data on wealth distribution published by Credit Suisse and other international bodies provide the picture of income inequality in the country. Now the latter estimates will be hanging in the air, and the government will claim that the wealth distribution figures have no validity.
Amiya Bagchi, Institute Of Development Studies

Moreover, consumption data provides a guide to the business community as to where to invest and when to invest. Now they will have to fork out money to conduct their more limited surveys, Bagchi said.