COVID-19 had an unprecedented impact on Indian Economy, resulting in one of the worst crises that India faced in the recent past. The pandemic and the subsequent containment measures had seriously affected both the aggregate demand and aggregate supply. Therefore, there was a significant reduction in household consumption. In this study, we try to estimate the impact of COVID-19 on consumption for major Indian states. We employ CMIE CPHS data on consumption and income from January 2019 to June 2021 for the purpose of our analysis. We explore disparity consumption based on some socio-economic dimensions. Our results show that gaps across socio-economic groups  increased during the pandemic period. Our results show that sustained State intervention was the only thing that could rein in the increased inequality. Using the household consumption data, we identify vulnerable sections based on their industry and occupation so that targeted assistance programs could be formulated to lift the aggregate demand.

Introduction

Despite income being a less direct of measure of well-being, developed countries usually use income as the main indicator of well-being.  This is because, in formal settings, it is easier to get data on income with greater accuracy compared to consumption (Noll and Weick 2015).  However, in the case of developing countries, the same logic may not apply as informal structures and institutions dominate the economy (La Porta and Shliefer 2014). In such situations, surveys may capture information on consumption with greater accuracy as compared to income. Moreover, since one of the objectives of the current study is to understand the impact of the pandemic shock on well-being in developing country context, consumption certainly takes precedence over income.  This is because of several reasons.  Firstly, in times of pandemic, income loss may be huge, but families may be able to sustain their minimum consumption based on their savings, accumulated assets and by accessing credit (Deaton 1989).  Secondly, insurance provided to households and individuals through welfare programmes in the form of in-kind and cash transfer programs is more likely to reflect in consumption than in income (Noll and Weick 2015).  In the context of the ongoing pandemic, such transfers become critical for the lower economic strata.  For example, if an in-kind transfer is a valuable source of insurance for low-income families during the pandemic, it would not be reflected in their income. However, that would show up in their consumption.

Therefore, the overarching objective of this article is to thoroughly examine changes in consumption of various sub-groups of population based on different dimensions of socio-economic classifications to examine the differentiated impacts of pandemic. This is particularly relevant at this juncture to identify the most vulnerable groups in the economy. While we delve deeper insights into the situation of consumption in Kerala, we do so in a comparative perspective to examine Kerala's relative resilience in maintaining the well-being of population measured in terms of consumption in times of pandemic. In this article, we examine the trends and patterns of consumption expenditure among Indian states with special reference to Kerala. We employ household level monthly time series of consumption expenditure data collected by Centre for Monitoring Indian Economy (CMIE) through their Consumer Pyramid Household Survey (CPHS) between January 2019 to June 2021. CPHS tracked nationally representative sample of close to 175,000 households for this period resulting in longitudinal data for a period of 30 months.  For the purpose of the analysis, we study 18 major Indian states. We split the states into two categories based on the 2018-19 per-capita income, i.e. High income and low income states. We compare Kerala’s performance with each of these state groups to arrive at a conclusion. We present the state classification in Table 1. Here, HIS stands for high income state and LIS stands for low-income state.  We compare Kerala’s performance with HIS, LIS and all-India average.

Interstate comparison of consumption shocks during the pandemic

We observe a decisive, historic, and abrupt dip in monthly per capita consumption expenditure (MPCE) at the start of lockdown across all the states of India, irrespective of pre-existing economic positioning of states. States with better economic status and consumption levels tended to experience the brunt of the pandemic, for example, states like Punjab, Kerala, Tamil Nadu, Haryana etc. The depth of the impact is much higher in these states compared to other states like Assam, Bihar, Madhya Pradesh, Odisha and Uttar Pradesh (Figure 1).

When it comes to Kerala, the average MPCE before the lockdown was at Rs. 5,004.3 (All India average being Rs 3526.5) and it hit the rock-bottom at 2,546.8 (All India average of Rs. 2,194.3) during the peak of the lockdown, indicating almost 50 per cent decline in Kerala as compared to a lower decline (37%) at the national level to eventually recover to Rs 3845.2 (All India average of Rs. 3,120.7) in the post-lockdown period, which deteriorated again to Rs. 3427.9 (All India average of Rs. 3,139.02) as the second wave began in May 2021. Thus, we observe a stunted V-shape kind of recovery and a stable level of consumption post June 2020. This pattern gets replicated for almost all high-income states, with the notable exception of Punjab and Gujrat, where the reported MPCE has almost reached the pre-pandemic levels. 

Figure 1: MPCE for major states since January 2019 to June 2021

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