The Household Consumption Expenditure Survey (2022-23) has been conducted after a decade. On the basis of these results, it is claimed that there has been a significant improvement in monthly per capita consumption expenditure (MPCE) in both rural and urban areas and a sizeable decline in the poverty in the country (lowest since Independence).
The questions that arise are: Is the rural economy is catching up with the urban one? Also, has the MPCE really gone up significantly? Regular estimation of rural GDP/rural PCI (per capita income) is important order to understand whether the Engel’s law is prevailing in the rural India.
Rural-Urban Gap
The level of household consumption expenditure, as measured by average MPCE, is estimated to be ₹3,773 and ₹6,459 during 2022-23 for rural and urban India, respectively, as compared to ₹1,430 and ₹2,630 for 2011-12. Although the rural and urban gap is widening in an absolute sense if we look at ratio of rural to urban, it shows convergence in consumption expenditure. Rural consumption expenditure is rising faster than the urban one. The long-term trend suggests that consumption in both rural and urban India has gone up at the same pace — a little over six times since 2004-05.
After release of the fact-sheet on consumption expenditure based on the 2022-23 survey by the MoSPI, it has been claimed that India has experienced the highest rise in MPCE since the beginning of consumption surveys. The government has also claimed to have brought down poverty from 23 per cent (based on 2011-12 consumption data) to below 8 per cent in 2022-23. This was mainly claimed on the basis of nominal prices.
The MPCE has more than doubled in rural as well as urban areas as compared to previous rounds based on current prices. However, analysing the average MPCE at constant prices, the average annual change is lower than the previous time period increment. The rural MPCE rose by 3.67 per cent in average annual terms between 2011-12 and 2022-23 (3.85 per cent from 1999-00 to 2011-12).
On the other hand, urban MPCE rose by 3.04 per cent in average annual terms (3.69 per cent). Another noticeable point is the gap between growth in MPCE at current and constant prices (see Tables 1 and 2). This indicates that consumers faced a high burden of price rise during the last decade.
Food vs non-food
Since decades, urban India has exhibited a higher share of consumer expenditure on non-food items. For the first time, there has been a notable shift in consumption pattern of rural India (see Table 3) with increased consumption of non-food items (53.62 per cent) over food items (46.38 per cent).
The share of non-food expenditure in urban areas also witnessed a small rise of 3.45 per cent. This reflects that rural-urban divide in the consumption of non-food items has narrowed. This implies that rural prosperity is on the rise. The Engel (1857) law says that income elasticity of non-food items tends to be greater than one, which means that with the rise in income consumption of non-food items tends to rise faster than the food items. We can say that rural income has increased to the point that people have started spending more of their income on non-food items.
The emerging pattern implies that demand for manufactured goods and services is high at higher levels of income. Given the evidence of income data at the aggregate level, this seems to be true as the GDP of India has shown a significant rise over the years and also in terms of per capita GDP/income (PCI) at constant prices (2011-12) — it rose form ₹71,609 to ₹1,15,746 during 2011-12 to 2022-23 as reported in RBI’s Handbook of Statistics on Indian Economy (see Table 4).
However, no recent estimates of income are available for rural and urban areas separately, to help us in saying that Engel’s law is applicable for rural areas. There is a need of policy decision for estimation of rural GDP on a regular basis for a better understanding about the relationship between rural consumption and income.
If the rural GDP or per capita income had been available, we could have known in a better way the source of increased consumption expenditure. Is it coming from rising income levels or is it credit-driven consumption, leading to loss of wealth or assets (as research reports claim that economic inequality in India is on the rise)? This question is also important from the viewpoint that the government is claiming a significant decline in poverty. It also claims providing around 80 crore Indians free rations. This is a perplexing reality.
Maurya is Assistant Professor, University of Lucknow, and Shrivastav is Assistant Director, NILERD, Delhi. Views are personal