#NSOReport: 5 takeaways on Modi government’s latest trickery with economic data

Of course, all the spin, will not change the real state of the Indian economy.

WrittenBy:Vivek Kaul
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I Never Believe Anything Until It Is Officially Denied – often attributed to Otto von Bismarck.

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Somesh Jha writing in the Business Standard on November 15, 2019, reported: “Consumer spending fell for the first time in more than four decades in 2017-18, primarily driven by slackening rural demand, according to the latest consumption expenditure survey by the National Statistical Office (NSO).”

As per the Key Indicators: Household Consumer Expenditure in India, the average amount of money spent by an individual during the course of a month in 2017-2018 was at Rs 1,446. This was 3.7% lower than the average amount of money spent in 2011-2012, when the per-capita consumption expenditure was at Rs 1,501. The average per capita expenditure numbers are in real terms, which means they have been adjusted for inflation.

This survey was carried out between July 2017 and June 2018, in the aftermath of demonetisation and around the time, the Goods and Services Tax (GST) came into force. Interestingly, the report was approved for release by a committee in June 2019. The report clearly does not show the economic policies of the Modi government in good light. And given this, the government was sitting on the report until someone leaked it to Jha and the Business Standard.

By the end of the day yesterday, the government had junked the survey and the report, saying that the report had data quality issues and hence, the results of the survey would not be released. The fact that the government waited until the leak to junk the survey report tells us how seriously we should take the reason offered for junking the report.

This junking raises several points, which we shall deal with one by one:

1) This is the first time the government has junked such a big survey and not released the collected data. The first question that arises here is if consumer expenditure fell between 2011-2012 and 2017-2018, how did the Indian economy keep growing during the period. Consumption forms around 55-57% of the real gross domestic product, adjusted for inflation.

This survey was conducted between July 2017 and June 2018. The survey before this was conducted in 2011-2012. Hence, we have consumer expenditure data for two years, and nothing in between. This shows that average amount of money spent by individual fell by 3.7% in real terms, between 2011-2012 and 2017-2018. In rural India, consumption was down by 8.8% during the period. It was up by 2% in urban India.

It could have very well happened that the average consumer expenditure kept growing between 2011-2012 and 2016-2017, only to fall in 2017-2018. The reason for that is very simple. In November 2016, the Modi government unleashed demonetisation and in July 2017, the GST, came into existence.

The hairbrained demonetisation and the badly designed GST have had a huge-negative impact on the country’s large informal sector in particular and the overall economy in general. The consumer expenditure survey does a much better job of capturing the state of the informal sector than the GDP calculation does.

Given the survey was carried out in the aftermath of demonetisation and after GST came into force, the fall in average consumer expenditure is hardly surprising. This is another piece of evidence that tells you how demonetisation and GST have hurt the Indian economy.

2) The bad state of the informal sector has seeped into the formal sector as well from the beginning of this year. A whole host of economic indicators show that consumption and investment across different sectors, have either been contracting or not growing as fast they had been growing in the past. Hence, to that extent, the NSO’s Household Consumption Expenditure Survey was only stating the obvious.

3) For a government which believes in 24 by 7 propaganda, letting the report out, would have meant admitting that it screwed up majorly by unleashing demonetisation and badly implementing GST. Hence, it is not surprising that the report has been held back due to “data quality issues”.

4) The bigger question is what does this mean for the economic data published by the current Indian government. In the last few years, things on this front have gone the Chinese way, with the reliability of Indian economic data being questioned repeatedly. With the consumer expenditure survey being junked, there is bound to be even more scepticism regarding any future economic data released by the current Indian government.

In this scenario, it is time for those who follow the Indian economy closely to look at the Indian version of the Li Keqiang index. According to a memo released by WikiLeaks, Li Keqiang, the current premier of China, told a US ambassador in 2007 that the GDP figures in China weren’t reliable. Given this, Keqiang looked at three economic indicators, the railway cargo volume, electricity consumption and loans disbursed by banks, to figure out the state of the economy.

Looking at high-frequency economic indicators has now become even more important to figure out the real state of the Indian economy than was the case in the past. I recently wrote one piece for the Mint newspaper, where I looked at 17 economic indicators, to figure out the  real state of the Indian economy. In short, all is not well on the economic front.

5) The funny thing is that the government has been sitting on the survey for close to six months. What this tells us clearly is that as soon as it was re-elected the Modi government had access to reliable information which told them that consumption, which had been driving the Indian economy over the last few years, was in doldrums. It was an excellent opportunity for the government to implement, what the economists like to call, evidence-based policy. What was required was to put more money in the hands of the average Indian. What we got was a corporate income tax cut, benefitting the fatcats. This makes me go back to what I keep saying, how do you solve a problem without acknowledging that it exists.

A few years back I happened to see a Hindi film titled Ek Thi Daayan. As often happens with Hindi movies, the film had a great first half, but it went totally haywire in the second half. The only saving grace was a great song titled Yaaram, written by Gulzar. A line from the song was: “Koi khabar aayi na pasand to end badal denge”. (You can watch the song here).

This is something that the Modi government has come to specialise in. Of course, all the spin, will not change the real state of the Indian economy. And that’s the sad part.

Vivek Kaul is the author of the Easy Money trilogy.

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