Various data from the financial to the corporate sector over the last two months are confirming the worst fears of a sharp decline in demand in the economy. With stagnant investment and exports, there are clear signs of a sustained slowdown. Most of this was well known to anybody following the Indian economy, barring the government, which kept ignoring warning signs of an impending crisis.

The first sign of growing distress was the slowdown in casual wages. Data from the Labour Bureau was clearly pointing to deceleration in wage rate growth over the last five years. Second, with the terms of trade moving against agriculture and last year’s decline in farm output prices, cultivators have fared worse than casual wage workers. Casual wage workers and self-employed account for almost 90% of all workers in rural areas, and it is no surprise that rural demand has collapsed in the last five years. This was bound to spill over to other sectors of the economy, and the recent indicators of falling consumption demand only confirm the distress in the economy in the last five years. Third, worsening agricultural incomes and stagnant wage growth was bound to give rise to unemployment. The recent report of the Periodic Labour Force Survey (PLFS) has only confirmed what was known through other measures such as the Labour Bureau reports.

The slowdown has certainly raised questions on the claims of economic growth and job creation put out by the government. But a more important question is what happened to household consumption and poverty? Surely, the nature of distress driven by declining purchasing power for a majority of households would give rise to poverty. Like many other official statistics, this government has remained silent on poverty. The fate of the last panel of experts, the Rangarajan committee, that examined the issue of poverty measurement is unknown. The consumption expenditure surveys, which were canvassed along with the PLFS, have not been released, even though the PLFS report was ready for release eight months ago.

Fortunately, a gist of what happened to consumption expenditure during the term of the previous government can be gleaned from the data on consumption expenditure collected by the National Sample Survey Office (NSSO), as part of the other socioeconomic surveys, including the PLFS. These surveys do have single questions on usual consumer expenditure, even if they are not as detailed as the quinquennial consumption surveys. However, these are available for 2014 (January-June 2014), 2014-15 (July 2014-June 2015) and 2017-18 (July 2017-June 2018). The first one is just before the Modi government took charge, and the last one is for the fourth year of its first term. What do these comparable consumption expenditure estimates show?

In 2018, prices, average consumption expenditure in rural areas declined from ₹1,587 per person per month (ppm) in 2014 to ₹1,524 ppm in 2017-18. The decline in urban areas was from ₹2,926 ppm in 2014 to ₹2,909 ppm in 2017-18. It did increase marginally in 2014-15, the first year of the Modi government, to ₹1,667 ppm in rural areas and ₹3,212 ppm in urban areas at 2018 prices. But after 2015-16, it has declined at 4.4% per annum in rural areas and 4.8% per annum in urban areas. From the time that NSSO consumption expenditure figures have been available, there has never been such a sharp decline.

These are not surprising, given the evidence on wages and incomes from other sources. They are also consistent with the broad story of rising joblessness. While it is difficult to estimate the exact incidence of poverty without data from the quinquennial consumption survey of 2017-18, these confirm the fear that poverty may have risen during the first term of the Modi government.

Most observers of the Indian economy have realized the gravity of the current situation, even though rather late in the day. The slowdown is clearly not cyclical and any explanation which seeks to blame the financial sector or the global economy for it is not just diversionary, but also betrays a basic lack of understanding of the Indian economy. Any recovery has to start by recognizing the distress in the rural economy. This will require the government to spend more in rural areas and create an enabling framework to raise wages. While it does require the government to move away from its fiscal deficit targets, it also requires it to create enabling structures—strengthening the rural employment guarantee programme, for example.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.

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