Economy
New consumption survey reveals the cracks in the economy
Summary
Ideally, as an economy progresses, households’ share of expenditure on food goes down. But high food prices in 2023-24 led to a different trend across India, as the share of food in per capita spending increased.
The Indian economy has grown steadily, but the lack of momentum in consumption and the impact of high food inflation have not gone unnoticed. The fact sheet of the latest Household Consumption Expenditure Survey (HCES), conducted between August 2023 and July 2024, confirms the lacklustre growth in consumption spending and a marginal shift from non-food items to food items due to high prices.
An average rural Indian consumed goods and services worth ₹4,122 per month, up 9.3% over the preceding 12-month period. For urban Indians, this monthly per capita expenditure (MPCE) was ₹6,996, up 8.3%. Food spending grew faster, at 10.8% and 9.7%, respectively.
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But after adjusting for inflation, the MPCE grew just 3.5% in both rural and urban areas, and even slower for food MPCE (2.5% and 1.2%), a Mint analysis showed. This is broadly in line with the 4% growth in private final consumption expenditure, as shown from the national accounts data, in the fiscal year 2023-24.
A marker of an economy’s progress is a decline in food’s share in household budgets. That was the case between 2011-12 and 2022-23, when food’s share fell from 52.9% to 46.4% in rural areas and from 42.6% to 39.2% in urban areas. But in 2023-24, this rose by 0.66 percentage points (pp) and 0.51pp, respectively, as food inflation averaged 8.2% during the survey period, even as non-food inflation cooled.
Spending pattern
Vegetables contributed the biggest jump in spending in rural areas, with their share in monthly per capita spending rising from 5.4% in 2022-23 to 6% in 2023-24. Spices and the category of beverages and processed food also saw big jumps. In urban areas, too, these three were the items with the biggest increases in their share of overall spending.
As a result, the share of non-food items in overall spending declined from 53.6% to 53% in rural areas and from 60.8% to 60.3% in urban areas. But where this decline came from was different for the two demographies. While in rural India, the share increased on clothing and bedding (0.43pp), consumer services (0.17pp) and footwear (0.1pp), in urban areas, the share increased the most for entertainment (0.19pp), education (0.19pp) and toilet articles and other household consumables (0.17pp).
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A closer look at the different sections of the population reveals that while consumption expenditure grew rapidly for the poorest segment of the population at current prices (possibly due to a greater share of spending on food), the pace slowed down for the middle segment. The top 5% spenders in both rural and urban areas even cut their expenditures.
After the pandemic, the pent-up demand had led to a rapid rise in consumption of high-end products. However, there were signs of normalization already in the economy and the latest survey shows the top 5% may have reached saturation level in its consumption spending. If this trend sustains, the pace of expansion in the economy can take a hit.
Welfare woes
Several economists and corporate heads, especially those from the consumer goods segment, had highlighted the slowdown in rural consumption in the previous fiscal year and indicated that the slowdown may be visible for even the better-earning population this fiscal as the rising cost of food and education takes a toll on non-discretionary spending.
Rural consumption may be improving now, following a good agricultural cycle this year. However, the worry over urban consumption demand persists, with the overall economy having slowed down in the July-September quarter. There have been calls for a fiscal boost to consumers to revive consumption, but the major welfare schemes announced by central and state governments have had limited impact on urban consumption spending, an analysis of the new data shows.
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To find this out, the survey derives an additional figure for expenditure after ‘imputing’ the value of items received free of cost by households through social welfare schemes. This can be a rough indicator of the extra spending power that households get due to welfare goods. In urban areas, this additional impact was less than 2.2% in all but one state. The impact in rural areas was more visible. Some of the states with the highest impact were those with stronger presence of parties other than the ruling Bharatiya Janata Party (BJP), signalling greater influence of what economists have often described as “competitive populism".
While poor states like Bihar, Uttar Pradesh and Jharkhand also received the benefits of the welfare schemes, the impact was moderate compared to other states. Overall, the welfare schemes could only boost average consumption expenditure by a maximum of 6.9% (in rural Chhattisgarh). Whether the welfare impact is greater for the poorer segment of the population can only be ascertained when the statistics ministry releases the detailed data for the survey. An earlier Plain Facts analysis of the 2022-23 data showed that this impact was not as evident as would be expected.
