Over the past decade, India has witnessed a significant transformation in household consumption patterns, with a marked increase in spending on non-food items and a narrowing disparity between urban and rural expenditures. The Household Consumption Expenditure Survey (HCES) for 2023-24, conducted by the Ministry of Statistics and Programme Implementation (MoSPI), provides a comprehensive overview of these evolving trends.
Rise in Non-Food Expenditure
The survey indicates a substantial shift towards non-food expenditures across both rural and urban households. In rural areas, non-food items accounted for approximately 53% of per capita spending in 2023-24, up from about 47% in 2011-12. Urban areas saw an increase from around 57% to 60% over the same period. This trend reflects a growing allocation of household budgets towards sectors such as transportation, clothing, entertainment, and other non-essential goods and services.
Implications for Consumer Price Index (CPI)
The evolving consumption patterns are poised to influence the composition of the Consumer Price Index (CPI), a critical tool for formulating monetary policy. MoSPI has announced plans to update the CPI base year from 2012 to 2024 to more accurately mirror current spending behaviors. This revision is expected to reduce the weight assigned to food items within the CPI, thereby affecting inflation measurements and subsequent policy decisions.
Convergence of Urban and Rural Spending
A notable finding from the HCES is the diminishing gap between urban and rural monthly per capita consumer spending. The disparity has decreased to 70% in 2023-24 from 84% in 2011-12, indicating a relative increase in rural consumption. In nominal terms, rural spending rose by 9.55% year-on-year to ₹4,122 per month, while urban spending increased by 8.31% to ₹6,996. When adjusted for inflation, rural spending exhibited a growth of 3.5%, whereas urban spending remained relatively subdued, influenced by a retail inflation rate of approximately 5.5% during the fiscal year ending in March 2024.
Reduction in Consumption Inequality
The survey also highlights a decline in consumption inequality, as evidenced by a reduction in the Gini coefficient for both rural and urban India. This suggests a move towards more equitable economic growth, with lower-income households experiencing a proportionally higher increase in spending compared to their higher-income counterparts.
Economic Growth and Policy Implications
Household consumption constitutes approximately 58% of India's economic activity, underscoring its significance as a driver of economic growth. The observed shifts in spending patterns, particularly the increased expenditure on non-food items and the convergence between urban and rural spending, reflect broader economic development and improved living standards. These trends are essential for policymakers to consider, especially in the context of updating economic indicators like the CPI and formulating strategies to sustain inclusive growth.
The HCES 2023-24 offers valuable insights into the changing dynamics of household consumption in India. The increased focus on non-food expenditures, narrowing urban-rural spending gaps, and reduced consumption inequality highlight the country's ongoing economic transformation. These developments have significant implications for economic policy, particularly in areas related to inflation measurement and efforts to promote balanced growth across different population segments.
(Source:www.busnessworld.in)
Rise in Non-Food Expenditure
The survey indicates a substantial shift towards non-food expenditures across both rural and urban households. In rural areas, non-food items accounted for approximately 53% of per capita spending in 2023-24, up from about 47% in 2011-12. Urban areas saw an increase from around 57% to 60% over the same period. This trend reflects a growing allocation of household budgets towards sectors such as transportation, clothing, entertainment, and other non-essential goods and services.
Implications for Consumer Price Index (CPI)
The evolving consumption patterns are poised to influence the composition of the Consumer Price Index (CPI), a critical tool for formulating monetary policy. MoSPI has announced plans to update the CPI base year from 2012 to 2024 to more accurately mirror current spending behaviors. This revision is expected to reduce the weight assigned to food items within the CPI, thereby affecting inflation measurements and subsequent policy decisions.
Convergence of Urban and Rural Spending
A notable finding from the HCES is the diminishing gap between urban and rural monthly per capita consumer spending. The disparity has decreased to 70% in 2023-24 from 84% in 2011-12, indicating a relative increase in rural consumption. In nominal terms, rural spending rose by 9.55% year-on-year to ₹4,122 per month, while urban spending increased by 8.31% to ₹6,996. When adjusted for inflation, rural spending exhibited a growth of 3.5%, whereas urban spending remained relatively subdued, influenced by a retail inflation rate of approximately 5.5% during the fiscal year ending in March 2024.
Reduction in Consumption Inequality
The survey also highlights a decline in consumption inequality, as evidenced by a reduction in the Gini coefficient for both rural and urban India. This suggests a move towards more equitable economic growth, with lower-income households experiencing a proportionally higher increase in spending compared to their higher-income counterparts.
Economic Growth and Policy Implications
Household consumption constitutes approximately 58% of India's economic activity, underscoring its significance as a driver of economic growth. The observed shifts in spending patterns, particularly the increased expenditure on non-food items and the convergence between urban and rural spending, reflect broader economic development and improved living standards. These trends are essential for policymakers to consider, especially in the context of updating economic indicators like the CPI and formulating strategies to sustain inclusive growth.
The HCES 2023-24 offers valuable insights into the changing dynamics of household consumption in India. The increased focus on non-food expenditures, narrowing urban-rural spending gaps, and reduced consumption inequality highlight the country's ongoing economic transformation. These developments have significant implications for economic policy, particularly in areas related to inflation measurement and efforts to promote balanced growth across different population segments.
(Source:www.busnessworld.in)
