Does the consumption data say anything on poverty?

The consumption data of survey gives a very encouraging statistic relating to equality. Image: Shutterstock

The National Sample Survey Office’s (NSSO) presentation on patterns of household consumption expenditure has quite expectedly led to a variety of interpretations and takeaways. While the survey results are objective in terms of putting together consumption patterns in rural and urban areas over a period of time, analysts have delved deeper into the numbers. A logical hypothesis here is whether these changes in patterns can be used to construct new price indices which are more contemporary. This can be debated. However, one interesting conclusion drawn is that it does show that poverty levels have come down sharply over time.

Poverty is globally defined as an income of $1.9 a day which will work out to around Rs160 a day. On a monthly basis, this will be Rs4,800. As consumption ratios are around 60 percent of total income, this would mean that the cutoff threshold should be around Rs2,880 per month. Given that the NSSO data says that the lowest 5 percent of rural population has consumption of Rs1,441 monthly, while the urban bottom 5 percent spends Rs2,087 per month, the reference could be to this segment. However, as can be seen from the numbers, the gap is still quite stark. In fact, the NSSO data also provides the MPCE (monthly per capita consumption expenditure) for different fractile classes and the bottom 30 to 40 percent group would touch this level in rural areas, while it would be the 10 to 20 percent group for urban areas. Hence, the World Bank criteria cannot be used here as a benchmark.

Interestingly, the Niti Aayog had worked out the multi-dimensional poverty ratios for India. According to a Discussion Paper, India had registered a significant decline in multidimensional poverty in the country—from 29.2 percent in 2013-14 to 11.4 percent in 2022-23, that is a reduction of 17.9 percentage points. This, however, never looked at income, but at 12 variables, as it was believed that what matters more is not just income but access to health, home, fuel, water, power etc. A large part of this access was provided through special schemes by the government that brought about reduction in multi-dimensional poverty. Hence the poverty ratio of less than 5 percent would not fit in with this criteria again.

The complexity here is that the issue of poverty is quite an amorphous concept as there is no uniform way of measuring the same. Even the World Bank criteria can be debated as the number of $1.9 a day cannot be a yardstick across all countries given the differing purchasing power of various currencies. The 5 percent figure would work only if one goes by the NREGA wage which is around Rs250 a day for a family of five where a monthly per capita income would be around Rs1,500.

Also read: International Day Of Eradication Of Poverty: Is A Poverty-free Country Possible?

Here one can look at the factual to understand the high level of dependence on the state for support. The government has been providing free food to over 800 million people which will continue for the next five years. This means that there are these many needy people who require support from the government. While they may not be on the roads and would also not be multi-dimensionally poor given the access to fuel, housing, bank account, health, sanitation etc through a plethora of state schemes, they still require a lot of support from the top. A possible conclusion that can be drawn is that this number needs to come down to at least half if individuals are able to earn an income to sustain their consumption patterns.

The question really is whether or not the level of poverty has come down to very low levels of 5 percent which is what it is in almost all developed economies? Based on the consumption patterns, is it possible for the government to gradually withdraw the free benefits which will, in turn, release a large amount of resources that can be used for other development purposes? This can be known only over a period of time.

The consumption data, however, gives a very encouraging statistic relating to equality. It is shown that the difference in the per capita consumption expenditure between rural and urban households as a proportion of rural consumption has come down sharply from 83.9 percent to 68.9 percent between FY12 and FY23. However, if the FY23 numbers are reckoned without taking into account the free goods and services that are provided to the people, the difference would be slightly higher at 71.2 percent. This is definitely indicative of the steps taken to stabilise the rural economy given that the farm sector still remains vulnerable to monsoon failure.

The consumption differential can also be seen in terms of the multiple of the top 5 percent and bottom 5 percent in both the regions. In case of the rural households, the multiple was 7.34 times in 2022-23 while it was 9.98 times in urban areas. Clearly the rich have substantially higher consumption baskets compared with the lower income groups.

The MPCE data definitely does show that there has been steady growth in both rural and urban consumption at the household level. The difference between the two is closing which is a good sign and would provide encouragement to the FMCG companies, in particular, which will take heart from the changing consumption pattern away from food items. However, it is still not clear whether it can be concluded that poverty ratio has come down sharply given that there is still a lot of aggressive state support to ensure that people have access to all basic goods and services.

(The writer is chief economist, Bank of Baroda)

Views are personal