Engel’s Law and the pandemic’s impact on our food expenditure

Deprivation takes many forms: lack of access to food, education and healthcare. The covid pandemic aggravated all these deprivations and, worse, mortality too. Our focus here is on food deprivation. The 19th century German statistician and economist Ernst Engel observed that “the poorer a family, the greater the proportion of its total expenditure that must be devoted to the provision of food”. Based on this law, we examine changes in the share of food expenditure during the pandemic.

We use Centre for Monitoring Indian Economy monthly data on household consumption expenditures in India from its Consumer Pyramids Household Survey between January 2019 and August 2021. We examine what happened to food expenditure shares in both rural and urban areas, and among various income deciles, during the two waves of the pandemic, relative to a pre-pandemic period. To get insights into changes in food composition, we disaggregate food expenditure into amount spent on cereals and non-cereals.

Nutritional disruptions emanated from both the production side (food production, processing and distribution) and demand side (economic and physical access to food) during the pandemic. Food supply chains were interrupted by restrictions on the movement of food and closure of wholesale and retail outlets. The consequent hikes in food prices, along with unemployment and loss of incomes, constrained demand. However, demand for essentials such as cereals remained largely unchanged during lockdowns. Food supply-chain breakdowns could have been averted if wholesale mandis within a state were better integrated in the sense that food products could be transferred from surplus to deficit areas. And, on the demand side, substitutions within and between commodity groups would have been smoother but for ‘panic’ buying by some households.

Pandemic-induced lockdowns resulted in a sharp increase in the share of food in total expenditure across rural and urban India. The share of food in total expenditure in rural India ranged from 45% to 50%, and, in urban India, from 41% to 45% in the 14 months preceding March 2020. However, the corresponding shares rose to 61% in rural India and 59% in urban India in April 2020, a period that coincided with a stringent nationwide lockdown. Movement restrictions at the onset of the pandemic acted more like a temporary shock than a permanent one, which resulted in declining shares of food in total expenditure. But a slight increase (to 53% in rural areas and 51% in urban areas) occurred during the more deadly second wave (April-May 2021), when some Indian states used closures and containment zones as measures to control the spread of the novel coronavirus, but no nationwide restrictions were imposed. This phenomenon is observed among households across income levels.

The Engel curves for food, which show how household expenditure on it varies with household income, shifted upwards between January and April 2020. In urban areas, before-versus-after gaps in food-budget shares in this period were wider for higher-income deciles than for lower- income deciles. This may partly be attributed to higher expenses on food sourced from outside, ready-to-cook/eat meals and consumption of more expensive foods as people worked from home. In rural areas, the gap was widest for the lowest decile, with a narrowing for middle deciles and widening at higher deciles. That the poorest in rural areas were worst affected by the lockdown is not surprising. While the overall Engel curve shifted downward once lockdown restrictions were lifted, it remained above the pre-pandemic levels even after the fierce second wave subsided.

A general trend of a declining share of food expenditure on cereals is observed in both rural and urban India. Two findings are striking. First, while the urban trend of decline has been relatively smooth, the rural trend shows jumps, and three peaks observed in rural areas after the onset of the pandemic in India coincide with the nationwide lockdown (April 2020), the first wave’s peak (November 2020) and second wave’s ascent (April 2021). Second, the country saw a sharp reduction in the share post-lockdown in urban India, but no reversal to pre-pandemic levels. Evidently, income levels did not fully recover and changes in relative food prices induced substitutions within the household consumption basket.

On substitution, Nobel laureate Angus Deaton had argued, based on National Sample Survey data, that price-induced substitutions are typically confined to switches within food categories (example: between inferior and good-quality rice). However, if people suffer massive price and income shocks, then sacrificing other essentials to maintain subsistence-level food consumption is not unlikely. So not only were good-quality cereals substituted by inferior foods, there may have been switches away from fruits and high-nourishment vegetables.

That the poor in both rural and urban areas (that is, the bottom three income deciles) bore the brunt of these unavoidable but unhealthy choices is a cause for worry.

It is presumptuous to maintain that India’s finance ministry failed to see the writing on the wall. But if it did, and yet decided to cut the Centre’s food subsidy by about 28%, money for mid-day meals by 12% and funds for jobs under the Mahatma Gandhi National Rural Employment Guarantee Act by 25% in the budget for 2022-23 (compared to allocations for 2021-22), it would reflect not just insensitivity to the needs of our poor, but also an ill-informed view that India’s growth was stalled by a deficiency of investment rather than demand.

Nidhi Kaicker & Raghav Gaiha are, respectively, an assistant professor of management, Ambedkar University, Delhi; and a research affiliate, Population Aging Centre, University of Pennsylvania.