Mint Explainer: What the latest survey of household consumption spending reveals

The results of the last survey, conducted in 2017-18, were withheld over what the government described as “data quality issues”, though many believe an uncomfortable fall in average consumption was the real reason for that decision. Photo: Mint
The results of the last survey, conducted in 2017-18, were withheld over what the government described as “data quality issues”, though many believe an uncomfortable fall in average consumption was the real reason for that decision. Photo: Mint

Summary

  • Significantly, the share of spending on food has fallen below 50% for the first time in rural India.

A person living in rural India spent 3,773 a month on average as consumption expenditure in 2022-23 while her urban counterpart spent 6,459, the Ministry of Statistics and Programme Implementation’s (MOSPI’s) National Sample Survey Office (NSSO) estimated after a nationwide study of households’ spending patterns.

Of this, consumers in rural India spent about 46% on food and those in urban areas about 39%. Other expenses include health, education, rent, clothing and conveyance. Significantly, the share of spending on food has fallen below 50% for the first time in rural India.

The NSSO has been conducting household consumption expenditure surveys once every five years since 1972-73. The results of the last survey, conducted in 2017-18, were withheld over what the government described as “data quality issues", though many believe an uncomfortable fall in average consumption was the real reason for that decision.

The findings of the survey conducted in 2011-12 are thus the ministry’s last published report on consumption expenditure patterns of households. These surveys serve a variety of purposes – they aid policymaking, are used for weighting diagrams to construct the consumer price index (CPI), and also to estimate the country’s GDP. The survey is keenly followed by industry, which uses it to draw up medium-to-long-term growth strategies.

So far MOSPI has published only a factsheet of the survey’s findings. It intends to publish a detailed report based on data – collected from 2.62 lakh households (1.55 lakh in rural areas and 1.07 lakh in urban areas) between August 2022 and July 2023 – at a later date.

What does the latest survey reveal?

The factsheet estimates that monthly per-capita consumption expenditure rose 164% in rural India compared to 146% in urban India. This narrowed the gap in per-capita spending between rural and urban India by nearly 13 percentage points over 11 years, a period that was marked by disruptions such as demonetisation, implementation of the Goods and Service Tax, and the covid pandemic, all of which affected household incomes.

The survey does not provide any answers for uneven growth in spending between rural and urban areas. Migration of workers to urban areas, resulting in an increase in remittances to rural areas, could be one of the reasons for faster spending growth in villages.

The proportion of spending on food fell in both rural and urban areas, driven by lower expenditure on cereals. This is a natural process ― as incomes rise, the share of expenditure on food falls. Also, with higher incomes and more spending power, households tend to reduce their consumption of cereals and increase their intake of protein. The magnitude of that change will be known only once the NSSO publishes the detailed report. Subsidised and free foodgrain schemes under the National Food Security Act and Pradhan Mantri Garib Kalyan Anna Yojna also contributed to lower household expenditure on cereals.

Milk and milk products accounted for the largest share of spending on food, at over 8% in rural areas and over 7% in urban areas. In both rural and urban areas, households spend nearly as much on eggs, fish and meat as they did on vegetables.

An increase in spending on processed food, takeaway and dining outside was seen across rural and urban India. The share of spending on toiletries and other household consumables and durables has also increased over the past 11 years. This is reflected in the top line growth of FMCG and durable-goods companies over the years.

Other significant changes include an increase in the spending share on conveyance across the country and a rise in spending on consumer services (which includes personal grooming) in rural India.

What does the data show on income disparity?

While the big picture shows that the spending gap between rural and urban India has narrowed, there remains a wide intra-state and inter-state disparity in spending.

There is also a huge disparity between the spending of the bottom and top fractiles. The average monthly per-capita consumption expenditure (MPCE) of the bottom 5% was 1,373 and 2,001 in rural and urban areas, respectively. In comparison, the average MPCE of the top 5% in rural and urban areas was 10,501 and 20,824, respectively.

In other words, the MPCE of the top 5% in rural areas was 665% more than that of the bottom 5%. The contrast was starker in urban areas, where the MPCE of the top 5% was 941% of that of the bottom 5%.

Also noteworthy is the wide gap in the spending of the top 5% compared to the next 5%. This difference was 58% and 68% in rural and urban areas, respectively.

Why is the household consumption expenditure survey important for the government and industry?

The survey reveals what households spend, what they consume, where they consume, and their shift in consumer behaviour over time. It also shines light on the impact of various social schemes of the government, allowing them to be fine-tuned.

Consider, for instance, household spending on healthcare. Data is collected on where people seek treatment and their out-of-pocket expenses. High out-of-pocket spending usually means that access to public healthcare is limited or there is a preference for private consultations. Similarly, household expenditure on education can reveal trends such as the rising preference for private school education, and spending on school fees and after-school tuition.

Shifting food habits can provide clues as to what changes are required in the agriculture policy. There has been a reduction in the intake of carbohydrates (cereals) and an increase in the consumption of proteins and other nutritious food (milk, pulses, eggs, meat) over the years. This is seen in the rising demand for protein-rich food, which has also necessitated higher imports of pulses in recent years.

For companies that manufacture goods and provide services, these surveys are important to understand changing consumer behaviour and to tap new markets. For instance, an increase in spending on processed food and dining out could be a cue for quick-service restaurants to consider outlets closer to emerging markets.

The surveys also shine a light on the living standards and poverty levels of various socio-economic classes. India does not collect income data, so consumption expenditure surveys serve as a proxy for income surveys.

What has been the fallout of the delay in conducting this survey?

The survey gives policymakers an understanding of the ever-changing basket of goods and services that a typical household consumes. An insight into its composition is necessary to determine how changes in their prices affect a household.

Similarly, statisticians need this data to estimate private consumption expenditure when calculating the GDP of the country. If the basket of goods and services used for statistical purposes differs from actual consumption, measurements of inflation and GDP will be inaccurate. India is still using the 2011-12 basket of goods and services for calculating various indices such as consumer price index.

Many policymakers and statisticians say that the basket must be updated once every five years. If things had gone as originally planned, India would have been using 2017-18 as the base year.

Base years for GDP, inflation and other indices are chosen carefully. They need to be a “normal year", meaning the consumption behaviour and the economy should not have been adversely affected by natural calamities or man-made disasters. A drought year or a pandemic year are never used as the base.

Such a situation forced the NSSO to recommission a quinquennial survey over a decade ago. The government decided against using the results of the 2009-10 survey for rebasing GDP or inflation as 2009 was a drought year and its effect was visible in consumption patterns in rural India. The report was published and remains in the public domain, but another survey was carried out in 2011-12 when the effect of the drought had worn off, and the results of that survey were used in the weighting diagram for the new CPI.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App