Amravati: Data opacity and a lack of accountability have been the two glaring leitmotifs of the statistical ecosystem in India during the rule of the Narendra Modi government. The Consumer Expenditure Survey data last released – officially – in 2011 has left behind a gaping void, forcing researchers to devise novel ways to fill in the data gap and deliver estimates on larger macroeconomic issues.
This is best evidenced in the two new working papers that have been released this month under the aegis of the World Bank and the International Monetary Fund.
Both the working papers weigh in on the great Indian poverty debate and deliver estimates of the extant levels of poverty in India. Which working paper does get it bang on can only be verified by the Consumer Expenditure Survey data – but until it comes to the fore, these reports would have to perforce suffice in the long-winded discussion over whether India has managed to limit poverty over the years.
However, before we dive into what the papers are about, a quick recap is necessary on the data controversy that doggedly continues to sully India’s data credibility to date.
In November 2019, media stories leaked the Consumer Expenditure Survey data for 2017-2018, highlighting a dramatic fall in the monthly per capita consumption expenditure (MPCE), the first such drop in MPCE levels since 1972-73. In response to the stories, the government quickly switched to firefighting mode and tasked the Ministry of Statistics and Programme Implementation to open an offensive against the reports that had evoked a strong response from economic, academic and policy circles. Parrying off the media attacks, the ministry dubbed the leaked report as “draft in nature” and also raised data quality concerns about the survey.
The issue was neatly wrapped up with a bow on top by the ministry, which declared that it won’t be unveiling the actual report given that a committee of experts had noted divergences in consumption pattern levels between the survey data and other administrative data viz the actual production of goods and services. In a press release, the ministry categorically shifted the spotlight to the future, stating that it is “examining the feasibility of conducting the next Consumer Expenditure Survey in 2020-2021 and 2021-22 after incorporating all data quality refinements in the survey process.”
Now, let’s get back to the working papers.
The World Bank group paper
Authored by Sutirtha Sinha Roy and Roy van der Weide, the World Bank paper titled “Poverty in India Has Declined over the Last Decade But Not As Much As Previously Thought” rely on data from the Consumer Pyramid Household Survey (CPHS) released by the Centre for Monitoring the Indian Economy to deliver a new estimate on Indian poverty levels.
The results of the investigation by the two authors reveal that:
- extreme poverty is 12.3 percentage points lower in 2019 than in 2011, with greater poverty reductions in rural areas;
- urban poverty rose by 2 percentage points in 2016 (coinciding with the demonetisation event) and rural poverty reduction stalled by 2019 (coinciding with a slowdown in the economy);
- poverty is estimated to be considerably higher than earlier projections based on consumption growth observed in national accounts;
- consumption inequality in India has moderated since 2011.
One key qualification here: The collection of CPHS data started in 2014 whereas the last Consumer Expenditure Survey data was released in 2011. The authors have reweighed the CPHS data so that it can be compared with the NSS series. Having said that, Justin Sandefur, a senior fellow at the Center for Global Development, points out in his blog that consumption growth in CPHS data has been “surprisingly high” in the last few years, especially in 2019-20.
“That year the index of industrial production for consumer goods registered an absolute decline of 3.8% (even more in per capita terms), real rural wages declined, and real urban wages grew less than 2%—meanwhile the CPHS showed growth in real per capita consumption of 6.2%.” Sandefur states in his blog casting doubts that the poverty estimate in the World Bank paper could be “mildly optimistic”.
The IMF working paper
If the World Bank paper paints a “mildly optimistic” picture of poverty levels, the IMF paper contends that extreme poverty has been nearly eliminated. The IMF paper – authored by Surjit Bhalla, Arvind Virmani and Karan Bhasin – presents a consistent time series of inequality and poverty levels for both the extreme poverty PPP$1.9 and low middle-income poverty (PPP$ 3.2) levels for each of the years 2004-5 to 2020-21.
“These estimates include, for the first time, the effect of in-kind food subsidies on poverty and inequality. Extreme poverty was as low as 0.8% in the pre-pandemic year 2019, and food transfers were instrumental in ensuring that it remained at that low level in the pandemic year 2020.” the working paper states. The paper also claims that consumption inequality was its lowest in the past four decades in 2020-21.
Where the papers could go wrong?
Sandefur makes the case that both working papers fail to account for the arguments raised by one section of economists – led from the front by former chief economic advisor Arvind Subramanian – who have been contending that the Modi government has been overstating GDP growth rates. If hindsight is to prove Subramanian right, then both the working papers and their poverty estimates will fall way short of the actual poverty levels on the ground.
Secondly, Sandefur also raises concerns with the IMF paper extrapolating survey consumption from 2011 by assuming nominal consumption growth in national accounts passes through to growth in the survey mean, one for one. He points towards World Bank research which concludes the most plausible rate of pass through for India from real consumption in national accounts to surveys is 0.67. Going by the World bank pass through rate, the poverty levels as estimated in the IMF study will be far too low.
The way forward
In the absence of official, reliable expenditure data, such research works are to be welcomed for their earnest attempts to shed some light in a data-opaque environment, notwithstanding whatever reservations one might have against their research methodologies.
Whatever blame that lies here, lies with the BJP government. Its data evasion has helped it take down two birds with one stone: Firstly, it has scuttled government accountability on the cardinal issue of consumption levels at the bottom of the pyramid, and secondly, it has produced enough smoke so that a discussion as fundamental and important as poverty levels remains ensnared in confusion.