Number Theory: Tracking household accounts in last 5 years

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Going by the headline GDP numbers, the Indian economy has fully recovered from the shock of the pandemic, but is the average Indian household better off today than it was five years ago? India does not have official high-frequency income and consumption data at the household level. But inflation-adjusted quarterly data from the Consumer Pyramids Household Survey (CPHS), conducted by the Centre for Monitoring the Indian Economy (CMIE) can be used to answer this question. While the CPHS data has

Representational. (AFP)

Tracking household accounts in last 5 years

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  Household incomes took longer than per capita GDP to recover to pre-Covid levels

  A comparison of quarterly data for per capita household income and per capita GDP from quarter ending March 2019 to December 2023 – CPHS data for the last quarter does not have number for the month of December – shows that both per capita GDP and household incomes fell during the pandemic. Values for quarter ending March 2019 have been indexed to one to make this comparison. By the end of 2021 per capita GDP had exceeded the pre-Covid levels. Real household per capita incomes took till 2023 to exceed pre-pandemic levels. This discrepancy between GDP and household income recovery could be due to many reasons. One reason worth noting is that survey data likely excludes the richest 10% or so of households and also does not account for undistributed profits (retained earnings of companies). So, to the extent that the past few years have been better for those with higher incomes and for corporate profits, we expect to see a faster recovery in the GDP numbers.
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  Post-Covid consumption growth has been higher than income growth, putting a strain on savings

  One aspect of the post-Covid period that has received attention recently is that household net financial savings to GDP ratio is at an all-time low. There has also been a shift in the composition of savings at the macroeconomic level, away from households towards corporations. What does the household survey data tell us about trends in consumption and savings? The pandemic led to a dip in both income and consumption, and an accompanying spike in savings as consumption fell more than income. After Covid, both income and consumption remain depressed for some time. The cumulative loss of income over this entire period, compared to pre-Covid levels, is around ₹33,000 per person. The deficit for consumption is around ₹19,000. Consumption recovered steadily and exceeded pre-Covid levels by the end of 2022, while recovery for income was slower. This has resulted in savings remaining stuck at lower than pre-Covid levels for the entire post-Covid period, with a further dip around the Jul-Sep 2022 quarter. Though this cannot be directly compared to the macroeconomic data on the savings to GDP ratio referred to earlier together, the two point to a concerning trend as far as household balance sheets are concerned.
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  The difference in rural and urban household balance sheets

  If we look at urban and rural India separately, we find the stories to be quite different. In urban India, income, consumption and savings were already declining before Covid, and the Covid impact itself was far greater. The average urban household’s per capita income is stuck at 85% of pre-Covid levels in real terms, and does not show any signs of recovering. But consumption has been growing and hence savings have seen a further dip from even the 80% level they were at immediately after Covid. The rural story is more positive, although the income data might have more noise due to seasonality. The impact of Covid on income and consumption was smaller. And after Covid, both income and consumption have been on a recovery path with consumption increasing faster. Savings too seem to be hovering around the pre-Covid levels. The difference in the Covid impact between urban and rural India is likely due to the effect of stringent lockdown measures that were implemented far more strictly in urban areas.
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  The poorest 10% have seen the biggest rise in income-consumption mismatch

  Is there a class-aspect to the post-pandemic income-consumption mismatch? By the end of 2023, incomes had recovered to almost 90% of pre-Covid value in real terms for nearly all the deciles, but for the bottom decile they remained only at 68% of their pre-Covid level. At the same time, consumption reached its pre-Covid levels for all deciles. Hence, the consumption to income ratio (C/Y) has registered an increase for all deciles. The rise in the ratio is most worrying for the poorest 10% and it falls steadily as we move towards the richer parts of the income distribution. If we recall that the CPHS data has been criticised for missing the poorest of Indian households, then this trend becomes even more worrying. Amit Basole and Anand Shrivastava teach economics at Azim Premji University. M.K. Shravan And Zico Dasgupta assisted with data work and comments.