An unpleasant validation

Leaked reports over the 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 1,446 in 2017-18 from Rs 1,501 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 has 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.

It is taken to be the ultimate vindication of the deepening slowdown in the economy for the last couple of years and since these things do no 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 of 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 depends 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 policymaking.

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 an idyllic picture-perfect story of well being and progress. These are then run down by those outside of establishment who wants to airbrush the establishment according to 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 it is realised that for good 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, none 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, none else have 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 no 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 sheer 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 is 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 have been new rules on cash withdrawals from banks as well. And, these restrictions were enough throttle activity.

As if to complicate the matter 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 MGNREGA and other income creation programmes. This is urgently needed. IPA

Views expressed are strictly personal