How India Spends on Consumption

Background

The National Sample Survey Office (NSSO) has been conducting household surveys on consumption/consumer expenditure at regular intervals. The latest one is released after a gap of 11 years and shows interesting patterns.

About the Survey

-??????? The Household Consumption Expenditure Survey (HCES) is designed to collect information on consumption of goods and services by the households

-??????? Information in the survey has been collected from 8,723 villages and 6,115 urban blocks spread over the entire country covering 2,61,746 households (1,55,014 in rural areas and 1,06,732 in urban areas

-??????? Rigorous survey with multiple visits and CAPI method

-??????? The consumption basket of items has been divided into three broad categories, namely, (i) Food items, (ii) Consumables and Services items, and (iii) Durable goods

-??????? Separate estimation also done for received and consumed by the households free of cost

through various social welfare programmes

Key Facts (Data without imputation of welfare benefits)

·??????? Average estimated Monthly personal consumption expenditure (MPCE) is Rs. 3,773 in rural India and Rs. 6,459 in urban India. The divide is 1.7X

·??????? MPCE has grown 7.7X from Rs. 486 in ’99-00 to Rs. 3773 in ‘22-23 for rural

·??????? MPCE has grown 7.6X from Rs. 855 in ’99-00 to Rs. 6459 in ’22-23 for urban

·??????? The bottom 5% of India’s rural population, ranked by MPCE, has an average MPCE of Rs. 1,373 while it is Rs. 2,001 for the same category of population in the urban areas.

·??????? The top 5% of India’s rural and urban population, ranked by MPCE, has an average MPCE of Rs. 10,501 and Rs. 20,824, respectively.

·??????? So, the consumption divide between top 5% and bottom 5% 7.5X ?for rural and 10X for urban respectively.

·??????? Among the states, MPCE is the highest in Sikkim for both rural and urban areas (Rural – Rs. 7,731 and Urban – Rs. 12,105). It is the lowest in Chhattisgarh (Rural – Rs. 2,466 and Urban – Rs. 4,483).

·??????? The rural-urban difference in average MPCE, among the states is the highest in Meghalaya (83%) followed by Chhattisgarh (82%).

·??????? Overall share of food and cereals in total spends has reduced over last 3 decades, but within foods, the share of processed foods and beverages has increased more than 2X.

·??????? Among non-food items, the share of Durable goods and Conveyance has increased substantially

·??????? In urban India, the top 3 spend areas are: Processed foods and beverages (10.6%), Conveyance (8.6%) and Milk products (7.2%)

·??????? Interestingly, in rural India, the top 3 spend areas are: Processed foods and beverages (9.6%), Milk products (8.3%) and Conveyance (7.6%).

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Key Takeaways

·??????? Urban-rural divide does not seem to be increasing in terms of ratio as feared; though absolute divide has increased

·??????? The growth of expenditure is real and significantly higher than actual inflation growth over? the last 10 or even 20 years; especially given that population has also grown substantially in the same period

·??????? Aspirations of rural India are clearly visible; Product-Market-Fit for rural will be critical. Corporate and start-ups need to design for rural and urban poor differently

·??????? Premiumization in spend category will perhaps be more broad-based; since aspiration values are linked to it

·??????? It will be worth checking; how much of incremental spends are paid through debt; given that HH: GDP ratio has grown over the last 2 decades

·??????? Overall, the annual personal consumption spends of only 2.5 Lacs by top 5% of urban spenders looks suppressed; but it also alludes to the fact that India is still a low income country. This reflects in our tax collection data as well.

Reference: Fact Sheet on HCES: 2022-23, M/o S&PI, GoI