Rise in the average household consumption
Context
Recently, India saw a rise in the average household consumption per capita by 3.5% in real terms during August 2023 to July 2024.
Relevance:
GS-03 (Economy)
Highlights of the Article
- Rising Consumption: As per the Household Consumption Expenditure Survey (HCES) data, there is an overall growth of 3.5% in per capita spending, of which the maximum spending was from the rural areas (3.53%) as compared to urban areas (3.48%).
- Reduced Inequality: The increase in household expenditure in the rural areas indicates a narrow gap between urban and rural spending.
- Non-Food Dominance: The major share of spending was on the non-food items.
- 53% for rural areas.
- 60% for urban areas.
- Shifts in Spending Patterns: Decline in edible oil expenditure offset rising costs for items like vegetables amid persistent food inflation.
Household Consumption Expenditure Survey (HCES):
- The HCES collects information on the consumption across households of both rural and urban populations and gives information on both goods (including food and non-food items) and services consumed.
- This data is also used in ascertaining other macroeconomic indicators such as Gross Domestic Product (GDP), poverty rates, and Consumer Price Inflation (CPI).
- It is conducted by the National Statistical Office (NSO) every 5 years.
- The report also gives estimates for household Monthly Per Capita Consumer Expenditure (MPCE) of households and individuals across different MPCE categories.
- Highlights of the Recent Survey
- Increase in Consumption: Monthly Per Capita Expenditure (MPCE) has risen significantly since 2011-12, with rural households seeing a 40.42% increase to ₹2,008 and urban households a 33.5% rise to ₹3,510.
- Food vs. Non-Food Spending: Food expenditure continues to decline, making up 46% of rural and 39% of urban household spending in 2022-23, as non-food spending on items like conveyance gains prominence.
- Inequality in MPCE: The bottom 5% of the population in rural and urban areas spends ₹1,373 and ₹2,001, respectively, while the top 5% spends ₹10,501 (rural) and ₹20,824 (urban).
- State and UT Variations: Sikkim leads with the highest MPCE (₹7,731 rural, ₹12,105 urban), while Chhattisgarh has the lowest (₹2,466 rural, ₹4,483 urban). Among UTs, Chandigarh ranks highest, and Ladakh lowest for rural MPCE.
- Shift in Spending Patterns: As incomes rise, spending on cereals and pulses declines, while allocation for medical, education, and conveyance grows. Conveyance now accounts for the highest share among non-food expenditures.
Effects on the Economy
- Improved Economic Well-being: The rise in household expenditure, especially on the non-food items in the rural areas, shows that the purchasing power has increased and signals better living standards among rural people.
- Balanced Development: The narrowing urban-rural divide is an indication of equitable economic growth across regions.
- Inflationary Trends: High food inflation continues to shape household spending, with shifts from essential goods like edible oils to other necessities.
- CPI Updates: Findings help refine the Consumer Price Index (CPI), ensuring a more accurate measure of retail inflation and economic health.
