Did demonetisation really hit consumption? Here’s what leaked NSS report may have got wrong

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Published: January 28, 2020 1:15:54 PM

The after-effects of demonetisation might not have been as severe as projected by the leaked NSS report after all. While the NSS report claimed that the household consumption in rural Rajasthan and Bihar saw sharp drop, a study claims otherwise.

retail, kiranaThe slight fall in consumption following demonetisation was witnessed in items such as TVs, cars and motorcycles, travel, social functions and entertainment. (Image: Bloomberg)

The after-effects of demonetisation might not have been as severe as projected by the leaked NSS report after all. While the NSS report claimed that the household consumption in rural Rajasthan and Bihar saw sharp drop, a latest independent study claims otherwise. People’s incomes continued to rise in the six months after demonetisation, albeit at a slower pace, the survey says. “In the immediate aftermath of demonetisation, real consumption declined slightly and income growth slowed down substantially but both rebounded after six months,” an India Human Development Survey report curated by NCAER and the University of Maryland said recently.

Further, the slight fall in consumption following demonetisation was witnessed in items such as TVs, cars and motorcycles, travel, social functions and entertainment, according to the study by University of Maryland. “Most of the consumption decline following demonetisation took place for discretionary items,” the report said. The drop was reported to be at 8.4% during February to April.

“The post-demonetisation drop must have been significantly large to cause about an average 8.4% drop over the preceding period. The effect on discretionary expenditure is visible even six months after demonetisation, with growth in discretionary items slowing from 9% to 3.8%,” the report added.

However, in certain areas, consumption expenditure went northwards. These areas include food, education and health. The report maintained that its own results should be analysed with caution “due to the relatively small size of the sample and limited geographic coverage”.

The government had drawn much criticism on the National Sample Survey (NSS) consumption expenditure report as the same was withheld by the government citing quality issues. While critics said that the government is hiding the report because of a fall in consumption, the National Statistical Office (NSO) claimed that the data in the report was unreliable. A Business Standard report also said that consumer spending dropped to four decades low.

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