Appendix to "India's K-Shaped Recovery - An Analysis"

Section 1: HCES Survey 2022-23

• In the original article, I had mentioned: “The Government of India has conducted the 2022-23 consumption expenditure survey (results are awaited). This would give the poverty rates for 2022-23, but with that we would not be able to know how it trended just before the pandemic.” I was of the opinion that the survey results would not suggest anything on the K-Shaped recovery. However, post the release of HCES 2022-23, a quick analysis shows that it poses a strong argument against the K-shaped recovery narrative. Let me explain.

• Key assumptions:

• There has been no recovery among the poorer sections since 2018-19 (consumption surveys are generally conducted from July to June and hence, taking 2019-20 would not be appropriate due to lockdowns in June 2020 quarter).
• Consumption expenditure surveys of 2011-12 and 2022-23 are comparable and hence one can calculate growth rates in consumption from 2011-12 to 2022-23.

• As per HCES 2022-23, the real growth in consumption expenditure (Source: S1) in rural areas is ~44% and in urban areas is ~35%. 
• Given the aforesaid assumptions, it would mean that in real terms the consumption expenditure would not have grown since 2018-19. So, we can assume all the real growth in consumption expenditure happened between 2011-12 and 2018-19 and inflate it using CPI (Source: S2) till 2018-19. This would give a CAGR (compounded annual growth rate) for per capita consumption from 2011-12 to 2018-19 in nominal terms. This can be compared with the nominal per-capita PFCE growth (Private Final Consumption Expenditure) as per National Account Statistics (used in GDP calculation) for the same period (Source: S3). And we get the chart shown below.
• In the scenario where there is no growth in consumption since 2018-19, it is quite clear that for the bottom 50% of the population (both rural and urban) CAGR would have been higher than the growth in PFCE by ~1% on average. The same difference would appear in real terms as well. So, if the PFCE per capita grew by 5% in real terms, the consumption expenditure of the bottom 50% would have grown by around 6% (which is 20% higher). Most people would not agree to this view including those who argued that the new system of National Accounts overestimates growth (that’s a different debate though). In a way, it is ironic that many of the same people argued for a K-shaped recovery post COVID.  

• Please note that for the purposes of this article, K-shaped recovery refers to the view that incomes/ consumption expenditures of the poorer segment has not recovered yet to Pre-COVID levels (in real terms).

Section 2: Comparability issues between HCES 2011-12 and 2022-23

• While the comparability issues should be looked into in detail, here are some preliminary thoughts. I shall look at some of the criticisms made by Dr. Santosh Mehrotra et al in The Wire.
• Quote: There seems to be a higher representation of the well-off groups in the HCES 2022-23 sampling approach, thereby resulting in higher consumption expenditure.
• If we had used a similar sampling approach as HCES 2011-12, we may have gotten results like we got in HCES 2017-18 (which got junked) due to bad data quality. To quote a few anomalies in HCES 2017-18:

• From my earlier article titled, “Missing the Rich - Analysis of NSSO Data”: “In the pic below, we have shown the monthly per capita consumption of the top decile (rural-urban combined) in FY12 and FY18 (both in 2011-12 prices) and the incomes of the protected regular wage earners for the same period. As one can note, the consumption expenditure fell by almost 12% in real terms and the earnings of protected regular wage earners also declined by 16%. Both seem to show a very similar trend.” This is opposite to the narrative of demonetization-GST which are used to hearing.

• Consumption of cereals, pulses fell by 15-20% per capita (in real terms)
• Medical expenses fell by 26% and 44% in urban and rural areas respectively
• Expenditure on sugar, salt and spices fell by ~15%
• Do those things represent something which is reflective of what was really happening? I am not surprised why it was rejected.
• So, changing times may require changing the sampling methodology to stay relevant.
• Quote: Moreover, 190 million workers (2021-22) in India are earning just up to Rs. 100 per day (in real terms at 2010 prices) which can be categorised as absolute poor, as compared to just 106.1 million workers in 2011-12. There has been a massive surge in the number of poor workers in recent times. There are 144.0 million workers (2021-22) that are earning between Rs 100 and Rs 200 per day which can be categorised as poor and vulnerable. Additionally, there are still 127.5 million workers (2021-22) who earn between Rs 200 and Rs 300 per day, which can be categorised as non-poor but definitely vulnerable.
• This is a sensational claim. If really true, one will have to conclude that the HCES 2022-23 is not comparable to earlier rounds and also that poverty has gone up. To get more clues into this, I referred to one of the debates on Mirror Now (Source: S9) wherein Dr. Mehrotra mentions that in 2018-19, as per PLFS, the number of workers who earned less than INR 100 a day (I am sure he meant in Real prices with 2010 year as base) is at 15.2 cr. To corroborate these, I was able to find another study by Amit Basole et.al. (Source: S10) whose Appendix gave important insights on 2018-19 PLFS data. I personally think they understate the monthly wages of casual labourers, but that's more of a quibble. 
• Anyway, after factoring inflation, INR 5,000 per month would roughly translate to INR 100 per day real wages in 2010 prices. So, as per Amit Basole et al's study and author's simple extrapolations, around 11% of regular wage earners, 24% of the Self-Employed and 42% of casual wage earners earn less than INR 100 per day (in 2010 prices). Considering Current Weekly Status based employment measurement, almost 25% or roughly 10 crore paid workers earn less than INR 100 per day (in 2010 prices). Where did the rest 5 crore go (since Dr. Mehrotra's figure is ~15 cr)? Well, they are unpaid family workers who are not included in Amit Basole et al's study since they don't earn by definition. So, we have broadly matched the 2018-19 numbers.
• Now, coming to 2011-12 earnings, we did not have earnings of self-employed (who constitute almost 50% of the workforce) in the Employment unemployment surveys of 2011-12 and earlier. Plus it seems like Dr. Mehrotra (my inference) did not add the crores of unpaid family workers in his calculation of 10.4 crores in 2011-12. So, the 10.4 crore number for 2011-12 would only include Regular plus Casual workers and does not include Self-Employed and unpaid family workers. On the other hand, his number for 2018-19 includes all workers (including unpaid workers). So, the comparison is between apples and oranges. 
• Nevertheless, since the wages of regular employees in the informal sector have remained stagnant since 2011-12 to 2018-19 as per an ILO Study (Source: S11), one can assume that the proportion of regular wage earners earning below INR 100 per day (in 2010 prices) has remained the same at about 11%. However, basis the methodology used by Amit Basole et al. for calculating wages of casual labourers, one can say that more than 50% earned less than INR 100 per day (in 2010 prices) in 2011-12. Further, between 2011-12 and 2018-19, the number of casual workers reduced and regular workers increased. So, a rough calculation after combining regular and casual workers suggests that around 36% earned less than INR 100 per day in 2011-12 which reduced to 27% in 2018-19. This is a clear indication of increase in incomes/ consumption post 2011-12 (in real terms). The numbers for 2022-23 (as a proportion of total paid workforce) would also not be way different compared to 2018-19.
• As a side note, as per Amit Basole et al's study, the number of salaried workers earning more than INR 5.5 lakhs per annum as per PLFS would be ~65 lakhs while as per IT Return filing data (Source: S12), the number is close to 1.4 cr which is more than double. This shows that PLFS data understates the incomes of richer decile of the population (as also shown in detail in my article titled: "Missing the Rich - Analysis of NSSO Data"). 
• Quote: In fact, the National Survey Organisation (NSO), which conducts these surveys, has personally informed one of the authors that the HCES is not comparable with the earlier CES…. Additionally, it would be curious to argue that consumption expenditure is rising when real wages have been stagnating in recent years;
• So, here the author is suggesting that poverty has increased from 2011-12 to 2022-23. Well, it means the real per capita consumption expenditure increase of ~40% from 2011-12 to 2022-23 is completely explained by the change in methodology alone and the actual increase is either 0 or negative. 
• Here’s some evidence to the contrary:
• During 2011-12, Employment-Unemployment survey (EUS) also had a shorter questionnaire of ~40 questions on consumption expenditure vs the HCES 2011-12 of 400+ questions on consumption. Similar, was the case with EUS 2004-05 and HCES 2004-05 where the difference was around 5%. EUS 2004-05 also states: “The abridged worksheet that was used to reduce the respondent fatigue is known to understate the level of consumer expenditure in comparison with the detailed schedule.” Any NSO statistician would have also said that the consumption expenditure as per EUS and HCES are not comparable even though the difference is less than 10%.
• So, even with 10x increase in number of questions the consumption expenditure was higher by just 5-7% in HCES (Source: S6) which clearly suggests that the change in survey methodology or slightly increasing the questionnaire length or splitting the questionnaire would not lead to more than 40% increase in consumption expenditure.
• Even the PLFS is using a different sampling methodology compared to the earlier Employment-Unemployment surveys. This was highlighted by NSO in the PLFS report just like it has been done in HCES 2022-23. But academics (critics and supporters alike) don't have much issues in comparing PLFS with the earlier Employment-Unemployment surveys.
• Dr. Santosh Mehrotra had used consumption expenditure in the PLFS (with a single question on consumption vs 400+ in HCES) to estimate poverty rates with suitable adjustments (Source: S8) even though the PLFS report clearly says "Information on household Usual Monthly Consumer Expenditure (UMPCE) was collected in PLFS only to classify the households in different UMPCE classes and it cannot be used to estimate the household consumer expenditure which is generally estimated based on detailed survey". Here, PLFS makes it categorically clear that the consumption expenditure as per PLFS is not comparable with HCES.
• HCES 2022-23 factsheet lists out the changes in the methodology and finally says "These are required to be noted while comparing the results of HCES:2022-23 with those of the previous surveys." It does not say they are not comparable with the earlier rounds.
• These points would suggest even if there is an overestimation, it may not be much (lesser than 10% in all probability). Further, Dr. Pronab Sen, former Chief Statistician, in a recent interview with The Print said that even though there may be issues with comparability, the differences are not likely to be large. 

Sources:

S1: https://www.mospi.gov.in/sites/default/files/press_release/Version_2_press_note_hces2022-23_24022024.pdf

S2: RBI, Handbook of Statistics of Indian economy

S3: National accounts statistics

S4: https://thewire.in/economy/the-truth-behind-the-governments-claim-that-poverty-has-fallen-to-just-5

S5: Household Consumption of Various Goods and Services in India, 2017-18 – Leaked report

S6: https://www.financialexpress.com/opinion/is-poverty-really-rising-since-2012-comparing-plfs-data-with-ces-data-is-flawed-poverty-assessment/2362148/

S7: Employment-Unemployment Surveys

S8: https://www.thehindu.com/opinion/lead/poverty-in-india-is-on-the-rise-again/article35709263.ece

S9: https://www.youtube.com/watch?v=itm9ez9z8oE

S10: https://publications.azimpremjiuniversity.edu.in/4308/1/Jha_Basole_PLFS_CPHS_Labour_Incomes.pdf

S11: https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---sro-new_delhi/documents/publication/wcms_775940.pdf

S12: https://incometaxindia.gov.in/Pages/Direct-Taxes-Data.aspx