THE CONTEXT: The government recently released the broad findings of the All-India Household Consumption Expenditure Survey carried out between August 2022 and July 2023. These surveys inform about changes in household consumption expenditure patterns and also form the basis of poverty and inequality estimation.
HOUSEHOLD CONSUMPTION EXPENDITURE SURVEY (HCES)
- The National Sample Survey Office conducts large-scale surveys on household consumption expenditure in the country, typically once every five years.
- This survey provides detailed information on how households allocate their financial resources across various categories such as food, housing, education, healthcare, and transportation.
- It is a critical statistical tool used by governments, policy analysts, and researchers to collect data on the spending habits of households within a country.
- It is used for understanding economic behaviour, assessing living standards, and formulating policies aimed at economic development and poverty alleviation.
Methodology
- It adopts a stratified multistage sampling design to ensure representativeness across urban and rural areas.
- The survey covers a wide range of expenditure items, from necessities like food, clothing, and housing to discretionary spending on education, healthcare, and entertainment.
- Households are usually selected through a random sampling method, and data are collected through personal interviews and expenditure diaries.
OBJECTIVES OF HCES
- Measuring Living Standards: It helps in assessing the living standards and quality of life of the population by examining how households spend their income.
- Policy Development: It helps government to design and implement effective social, economic, and fiscal policies for various social welfare programs.
- Economic Analysis: It aims to analyze consumption patterns, which are key indicators of economic stability, growth, and the distribution of wealth within a society.
- Poverty and Inequality Assessment: It provides essential data for measuring poverty levels, identifying vulnerable groups, and understanding income inequality.
- Inflation and Cost of Living: It calculates inflation rates and cost of living indexes to help central banks and governments in monetary policy formulation.
OUTCOMES OF THE SURVEY:
- Rise in household expenditure: There is a rise in household expenditure. In rural areas, household consumption expenditure has risen from Rs 1,430 in 2011-12 to Rs 3,773 in 2022-23, and in urban areas from Rs 2,630 to Rs 6,459. At 2011-12 prices, this translates to an increase of 3.1 per cent per year in rural areas, and 2.7 per cent in urban areas.
- Fall in expenditure on food: As household incomes have continued to grow, expenditure on food has continued to fall. In rural areas, the share of food in the spending basket has declined from 52.9 per cent in 2011-12 to 46.4 per cent in 2022-23, while in urban areas it has fallen from 42.6 per cent to 39.2 per cent.
- Greater allocation for share on nutritional foods: Households are now allocating a greater share for nutritional items such as eggs, fish and meat, milk and fruits, as well as on beverages, refreshments and processed foods. Milk and milk products are now the second highest item in the consumption basket.
- Rise in discretionary spending: A greater share of spending is also now being directed towards education, health and conveyance and on consumer durables and services. As household incomes rise and expenditure on essential items falls, discretionary spending will rise further.
- Less income disparity: The factsheet estimates that monthly per-capita consumption expenditure rose 164% in rural India compared to 146% in urban India. This narrowed the gap in per-capita spending between rural and urban India by nearly 13% over 11 years. The survey shows that the spending gap between rural and urban India has narrowed, there remains a wide intra-state and inter-state disparity in spending.
- Huge disparity in top and bottom layer: There is also a huge disparity between the spending of the bottom and top layer of the society. As, there is a noted wide gap in the spending of the top 5% compared to the next 5%. This difference was 58% and 68% in rural and urban areas, respectively.
CHALLENGES RELATED TO HCES
- Underreporting: There is an issue of inaccurate reporting of consumption which often leads to underestimation or recall bias.
- Sample Representativeness: It is a difficult task to make sure the sample fairly represents the diverse population of India with a range of socioeconomic and cultural backgrounds.
- Temporal and Regional Variability: There are more difficulties in capturing the seasonal variations in spending and the regional differences.
SIGNIFICANCE OF HCES
Despite challenges, the HCES remains a vital tool for economic and social planning in India. Its data are extensively used for:
- Policy Making: It helps in taking informed decisions in policy making regarding subsidies, social welfare schemes, and taxation policies.
- Academic Research: It serves as a primary source for studies on consumption patterns, poverty, and socio-economic status.
- International Comparisons: It facilitates comparisons with other countries on economic welfare and living standards.
- Understanding poverty and inequality: With the release of the detailed survey data, it will now be possible to arrive at an understanding of the trends in poverty and inequality in India over the past decade.
- Updating consumer price index: This survey data will also help in updating the consumer price index, which is a valuable input for monetary policy.
- Filling the data vacuum: The release of this survey also marks an important step towards filling the data vacuum in the country. The government should take this forward, initiate the much-delayed census exercise and take steps to strengthen the country’s statistical system.
THE CONCLUSION:
The Household Consumption Expenditure Survey (HCES) in India is a critical source of data that provides insights into the spending patterns of Indian households. It plays a pivotal role in understanding the socio-economic fabric of the country, guiding policy formulation, and assessing the impact of economic reforms on different segments of the population. Despite the challenges associated with data collection and interpretation, the HCES is instrumental in guiding the nation’s socio-economic policies and addressing the needs of its citizens. As India continues to evolve, the significance of accurate, transparent, and comprehensive consumption data cannot be overstated for shaping a more inclusive and equitable society.
UPSC PREVIOUS YEAR QUESTIONS
Q.1 Among several factors for India’s potential growth, the savings rate is the most effective one. Do you agree? What are the other factors available for growth potential? (2017)
Q.2 Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (2019)
MAINS PRACTICE QUESTIONS
Q.1 The Household Consumption Expenditure Survey plays significant role not only about changes in household consumption expenditure patterns but also form the basis of poverty and inequality estimation. Comment.
Q.2 What is Household Consumption Expenditure Survey and how is it calculated? Discuss its role in measuring retail inflation and for deriving other macroeconomic indicators.
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