Editorial. Rural revival

The recently released detailed factsheet on the Household Consumption Expenditure Survey (August-July 2022-23) does point to some heartening trends for those who have taken a gloomy view on sputtering consumption demand and its effects on growth. In fact, the Reserve Bank of India Governor Shaktikanta Das’ recent observation that rural demand is on the upswing seems to hold true in a general sense – if some of the findings of the HCES are any indication.

The key finding of the HCES is that the share of food in monthly per capita consumption expenditure (MPCE) in rural households has fallen below the 50 cent cent mark, for the first time ever. It is 46 per cent of the average MPCE of ₹3,773 (current prices) for the rural individual. This raises the issue of whether the consumer price index (rural), which ascribes a weight of 54 per cent to food items, should be adjusted accordingly. It perhaps should, but the question is by how much. Since the average MPCE value for rural India falls in the 60^th percentile, there is likely to be a large variation in consumption patterns across income spectrum, with the upper end of the distribution dominating the shift away from food items. However, the impact of free foodgrain has probably blunted the edge of deprivation, lifting discretionary spending. It is remarkable that share of conveyance, medical expenses, consumer services in rural MPCE, exceeds that of cereals at 4.91 per cent. The HCES shows that within the food basket the share of cereals has dropped from 10.69 per cent a decade or so ago when the NSSO 68^th Round was conducted, by nearly six percentage points. Beverages, processed foods, milk, meat and eggs have picked up. These are indications of improved incomes; the sharpest rise is seen in conveyance from 4.2 per cent to 7.55 per cent. The signals emanating from this shift, to the extent that it is spurred by incomes rather than inflation, are positive for industry.

There are signs of convergence in the rural-urban gap. The difference between rural and urban MPCE as a percentage of the former is 71.2 per cent now, against 83.9 per cent in 2011-12. In urban India, too there has been a shift away from food items, and within that away from cereals. The expenditure on conveyance, durable goods and milk and milk products stands out. Here too, there are disparities across the income distribution, for an average MPCE of ₹6,459 (current prices). The lower share of medical expenses in urban India compared to rural, points to the availability of better health facilities.

Analysts have observed that it is important to arrive at a measure of rural and urban GDP to place consumption data in perspective. The HCES data gives rise to basic policy questions. For example, cereals inflation looks a puzzle in view of a growing consumer shift away from it. A better understanding of how incomes, debt and inflation are driving consumption is called for by conflating different data sets. This could lead to precise framing of welfare and other policies.