How are Indians spending their money and why it matters

Indians are changing how they spend their money.

A new survey shows Indians are decreasing their expenditure on staples such as rice and wheat while increasing spends on processed food and durables such as televisions and fridges.

The survey was released ahead of the Lok Sabha polls in which Prime Minister Narendra Modi is seeking a third term.

But what do we know about the survey? And why does it matter?

Let’s take a closer look:

What do we know about the survey?

The Household Consumption Expenditure Survey was released late on Saturday.

It was undertaken by the National Sample Survey Office (NSSO) under the Ministry of Statistics and Programme Implementation from August 2022 to July 2023.

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The data was collected from 2,61,746 households – 1,55,014 in rural areas and 1,06,732 in urban areas – across India.

The survey aims at generating estimates of household Monthly Per Capita Consumption Expenditure (MPCE) and its distribution separately for the rural and urban sectors of the country, for states and Union Territories, and for different socio-economic groups.

It shows people in both rural and urban areas increased their spending.

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The rural consumer increased spending to 3,773 rupees per month compared to 1,430 rupees in the previous survey in 2011-2012.

Meanwhile, the urban consumer increased spending to 6,459 rupees compared to 2,630 rupees in the same 2011-2012 survey.

The new survey will form the basis of a review of India’s consumer price inflation index.

Spending on food fell to 46 per cent of monthly consumption for rural consumers from nearly 53 per cent in 2011-12.

In urban areas, that figure decreased to 39 per cent from 43 per cent.

Indians are spending less on cereals, including wheat and rice, and pulses, but more on beverages, refreshments and processed food.

Bloomberg quoted the survey as showing that non-food consumption in rural areas increased to 53.6 per cent from 47 per cent.

Among non-food items, consumers are spending more on conveyance, consumer services and durable goods, like televisions and fridges.

In urban areas, non-food spending increased to 60.8 per cent from 57.4 per cent.

“The latest consumer expenditure survey gives insight on spending patterns of Indian households and is key to gauge demand in the economy. The data will also be used by the government to readjust items considered for calculating retail inflation and gross domestic product data", the report stated.

The results come before India goes to the polls in an election to be held by May, with Modi seeking a rare third term.

Average MPCE rises

As per the study, the average MPCE at 2011-12 prices (without imputation) also increased to Rs 3,510 in 2022-23 from Rs 2,630 in 2011-12 in urban areas.

Similarly, it rose to Rs 2,008 from Rs 1,430 in rural areas at 2011-12 prices.

It showed that the average MPCE also increased (with imputation) to Rs 6,521 in 2022-23 from Rs 2,630 in 2011-12 at current prices in urban areas.

Similarly, it rose to Rs 3,860 from Rs 1,430 in rural areas.

The average MPCE at 2011-12 prices (with imputation) increased to Rs 3,544 in 2022-23 from Rs 2,630 in 2011-12 in urban areas.

It increased to Rs 2,054 from Rs 1,430 in rural areas.

The estimates of MPCE are based on the data collected from 2,61,746 households (1,55,014 in rural areas and 1,06,732 in urban areas) in the central sample spread over all states and Union Territories.

In HCES:2022-23, the usual practice of imputation of the value figures for consumption out of home-grown/home-produced stock and  gifts, loans, free collection and goods received in exchange of goods and services etc. has been continued; and accordingly, estimates of MPCE have been generated.

Besides, a provision for collection of information on the quantity of consumption for a number of items, received and consumed by the households free of cost through various social welfare programmes has been made in HCES:2022-23.

Consequently, the value figures for food items: rice, wheat/atta, jowar, bajra, maize, ragi, barley, small millets, pulses, gram, salt, sugar, edible oil and  non-food items: laptop/PC, tablet, mobile handset, bicycle, motorcycle/Scooty, clothing (school uniform), footwear (school shoe etc.) received free of cost by the households through these programmes, have been imputed using an appropriate method.

Accordingly, another set of estimates of MPCE considering imputed values of these items and of consumption out of home produce, free collection, gifts, loans etc. has also been compiled for HCES: 2022-23.

What does this mean?

According to Indian Express, data indicates people in both rural and urban areas are spending less of their overall money on cereals and pulses.

It also indicates that money spent on milk is increasing – so much so that it has surpassed spending on both cereals and pulses.

Spending on fruits, vegetables and micronutrient rich food is also increasing.

“The average rural as well as urban Indian has, for the first time in 2022-23, spent more on fruits and vegetables than on foodgrains. The spending on vegetables alone exceeded that on cereals, and likewise for fruits vis-a-vis pulses,” the piece noted.

It also noted that more and more money is being spent on eggs, fish and meat.

This indicates that Indian consumers’ predilection for animal protein rather than plant protein.

Experts say this means that the poor have seen their lives improve.

The Economic Times reported that data seems to show that social welfare schemes have brought down inequality.

“The survey found that consumption of lower income groups was even higher if one imputes the value of items that households receive for free via social welfare programmes like ration and non-food items like laptops, mobile, bicycle, motorcycle, school uniform or footwear, besides home-grown stock or goods exchanged in barter,” the newspaper noted.

It said the imputation does not take into account government spending on health and education

“The average spending of the bottom 10% in rural areas increased by nearly 5% after accounting for social welfare programmes, home-grown stock and barter exchanges,” the piece noted.

The newspaper said the data also showed that scheduled castes, scheduled tribes and OBCs benefitted more from social welfare programmes.

“The higher growth in per capita consumption expenditure of rural and urban areas stands in contrast with the argument that rural economy has been sluggish since 2016-17,” Madhavi Arora, an economist with Emkay Financial Services Ltd, told Bloomberg.

Emkay said the results of the Household Consumption Expenditure Survey (HCES) for 2022-23 demonstrates that rural livelihoods have seen an improvement, especially for the lowest-income classes.

The difference between rural and urban Monthly Per Capita Consumption Expenditure (MPCE) as a percentage of rural MPCE, declined to 71 per cent in 2022-23 from 84 per cent in 2011-12 and more than 90 per cent in 2004-05.

This is even more prominent when looking at spending as per the fractile pyramid.

The same ratio drops to just 46 per cent for the bottom five per cent of the pyramid and stays under 50 per cent for the bottom 20 per cent.

“Thus, the poorest rural households have been able to spend at a much closer level to their urban counterparts, and this implies that the government’s policy initiatives for enhancing rural incomes have worked to an extent," the report said.

On the other hand, a difference of over 85 per cent for the highest 10 per cent of households implies rising income inequality at the top of the pyramid.

The results of the HCES for 2022-23 show that rural households have experienced improvement at a higher rate than urban ones since the last survey (2011-12).

The difference between rural and urban MPCE has narrowed substantially over the years, implying successful government policies for improving rural incomes, while this is even more pronounced at the lower levels of the pyramid.

Conversely, the gap is bigger at the top, reflecting an increase in inequality at higher income levels. Encouragingly, the share of food expenditure is lower across sections, while spending on proteins has improved, with rural even higher than urban, the report added.

A time-series analysis shows that the share of food in MPCE has been declining for both urban and rural households, reflecting shifting preferences as incomes rise. It also indicates more aspirational behaviour, with the share of fruits, milk, consumer services, durable goods and entertainment rising as well, again for both urban and rural households, the report said.

It is also encouraging that the share of proteins (milk, pulses, meat, fish and eggs) in total spending on food has risen across both sections. Rural households are spending more on proteins than urban households as a share of their food expenses. Both urban and rural households have been able to spend more of their food budgets on better nutrition, despite spending less on food overall, which is extremely important given India remains a protein-deficient country.

While the Indian economy is forecast to grow at a world-beating 7.3 per cent in the fiscal year that started in April and 7 per cent next fiscal year, large parts of the population living in rural areas face stagnant incomes and high inflation.

An Indian Express piece also said the survey goes a way into helping India fill in its data vaccum.

“The next government should take this forward, initiate the much delayed census exercise and take steps to strengthen the country’s statistical system,” the piece argued.

According to the Economic Times, this is the first of two surveys that the Centre is conducting.

The second will likely be released in the second half of 2024.

Prime Minister Narendra Modi’s government did not release a 2017-2018 survey due to what it called “data quality issues”.

The decision prompted controversy over whether the administration was concealing economic data.

The government denied suggestions it was withholding the data because they showed weak consumption trends.

With inputs from agencies