March 4, 2024


Does the latest HCES signal a poverty reduction?

One way to know how an economy is doing is to see how much money people are spending and what they’re spending it on. Household consumption expenditure, as it’s commonly known, gives us a window into consumption patterns, trends, preferences, etc.

After over a decade, results of the latest Household Consumption Expenditure Survey (HCES) were released for 2022-23. Broadly, the survey showed the monthly per capita consumption expenditure (MPCE) for rural and urban India to be ₹3,773 and ₹6,459, respectively. Does the data indicate the economy’s general health in terms of poverty reduction?


The last time the HCES was done was in 2011. The government didn’t release the 2017-18 survey due to “data quality issues.” The history of the HCES can be traced back to the National Sample Surveys, where household expenditure data has been collected since 1950-51. From 1972-73, quinquennial surveys were collected with a larger sample size.

Let’s tackle a few basic questions. Why have a consumption survey? Consumption of households gives us a good picture of the standard of living and demand dynamics in the economy. It’s also a way to see how many people are below the poverty line. What’s being surveyed is the final expenditure on goods and services for everyday needs like food, housing, energy, clothing, etc.

How’s it done? The survey period is divided into 10 panels, each of three months duration. The first month includes questions on food items, consumables, services, and durable items. In the second month, any of the two data points not taken in the first month will be included. The survey questions are updated to include changing consumption patterns. For example, spending on e-commerce and OTT subscriptions have been included.

What’s its use? Household consumption data is essential for many stakeholders. Producers and suppliers of goods will know if consumers are shifting their priorities. The government uses the data to help revise the base years for GDP and other macroeconomic indicators.

One important use is to revise Consumer Price Inflation (CPI). The current CPI index has been used by the RBI for over a decade now without any revision. It’s usually a good idea to revise the CPI and Wholesale Price Index (WPI) every five years. As income distribution changes, spending patterns follow suit. For example, post-pandemic spending patterns gravitated toward higher-income groups. The current CPI gives a lot of weightage to food, but non-food items have also affected inflation.

Here’s the gist of what the latest survey has shown. The MPCE has increased over different rounds of the survey, which is expected given the economy’s growth. However, its annual growth rate has decreased compared to previous years. The urban MPCE rate has been lower compared to the rural MPCE. Sikkim has the highest rural and urban MPCE at ₹7,731 and ₹12,105, respectively.

Broadly speaking, the HCES showed consumption patterns are changing in urban and rural India. However, as far as the overall health of the economy is concerned, does it mean more people have moved out of poverty?

VIEW: A mistake in determining poverty rates

NITI Aayog Chief’s claim that poverty has declined in India by 5% by comparing the latest HCES results to previous editions is an incorrect assessment. The latest data can’t be compared to previous editions due to a change in methodology. There’s also no current poverty line determined by NITI Aayog, unlike the Planning Commission, for example. In fact, the fact sheet doesn’t mention anything about poverty estimation.

The sampling methodology has changed for rural and urban areas. On the rural side, there are just two strata – villages within 5 km from the district headquarters, and the second is all the remaining ones. On the urban side, previously, divisions were made based on monthly per-capita income. Now, the strata include population and ‘affluence’ status.

Poverty can be quite a tricky concept to clearly define. There isn’t a uniform formula of measurement over time. Even the World Bank’s definition of $1.9 a day is debatable since it can’t be applied to all countries the same way. The 5% claim can be valid only if the NREGA’s base of around ₹250 a day for a family of five is taken, where the monthly per-capita income would be about ₹1,500.

COUNTERVIEW: Positive signs of poverty reduction

It should be noted that inequality hasn’t been eradicated. That still exists. We’re only dealing with poverty rates seeing a steady decline. The government has indicated that Indians are eating better and have more disposable incomes. Extreme poverty is declining across vast swaths of the country. A better definition of the poverty line is also clearly needed to determine how many people can’t afford basic services.

Based on the consumption patterns outlined in the HCES, it’s possible for the government to gradually withdraw free benefits, which will help release a large amount of resources that can be used for other development purposes. It’s good to know that rural and urban consumption has increased about 2.5 times. A SBI report estimated that rural and urban poverty declined to 7.2% and 4.6%, respectively.

The consumption data has some encouraging news on equality. The survey stated that the urban-rural consumption divide has reduced from 91% in 2004-05 to 71% in 2022-23. This means that the HCES data has clearly shown a steady growth in both rural and urban consumption at the household level. The closing difference between the two is a good sign, resulting in lower rural-urban inequality over the past decade.

Reference Links:

  • Explainer: Mapping household consumption – The Financial Express
  • New Household Consumption Survey: High time we released new CPI data – Moneycontrol
  • Household Consumption Expenditure Survey 2022-23: In 11 years, rural consumption spend rises more sharply than urban; share on food falls – The Indian Express
  • Why the 2023 Consumption Survey Is Not Comparable with Previous Rounds – The Wire
  • Economists divided over poverty decline claims by SBI, Niti Aayog – Business Standard
  • The Truth Behind the Government’s Claim That Poverty Has Fallen to Just 5% – The Wire
  • Does the consumption data say anything on poverty? – Forbes India

What is your opinion on this?
(Only subscribers can participate in polls)

a) The latest HCES doesn’t show poverty reduction.

b) The latest HCES does show poverty reduction.


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