AA Edit | Low food spend to rejig India’s inflation focus

Over 30 years after liberalisation, India appears to have transformed into an aspirational nation whose needs are not confined merely to sustenance. For the first time, the average expenditure of an Indian household on food has decreased to less than 50 per cent. At the same time, its spending on non-food items like education, health, travel, and consumer durables, among others, has increased to more than 50 per cent.

The same trend applies even to households in the bottom five per cent of the income pyramid in rural areas, which spend 51.20 per cent of their monthly outgo on non-food items. The expenditure on food, meanwhile, is 48.80 per cent. This is one of the key takeaways from the Household Consumption Expenditure Survey (HCES), conducted in 8,723 villages across India, and will help the government realign weightage to food and other components for calculating the consumer price index or retail inflation.

The data of HCES also provides budget shares of different commodity groups that is used for the preparation of the weighting diagram for the compilation of the official Consumer Price Index. The data collected in HCES is also utilised to derive various other macroeconomic indicators.

Since the last survey was conducted 11 years ago, per capita monthly consumption in rural areas has increased from Rs 1,430 in 2011-12 to Rs 3,773 in 2022-23, representing a 163.8 per cent jump. This represents an average annual growth of 14.89 per cent for rural households. The average consumption of urban households has increased from Rs 2,630 in 2011-12 to Rs 6,459 in 2022-23, a 145.58 per cent jump in 11 years. The annual growth in expenditure for urban households was 13.23 per cent, a tad lower than the brunt rural households faced.

An interesting aspect of the survey is that crucial non-food goods and services, such as fuel and light, education, medical, conveyance, and rent, comprise one-third of an urban household’s expenditure. The rural household, meanwhile, spends one-fourth of its expenditure on these four key items. The government, through effective planning, can bring relief to people.

Another key change the survey reveals is the higher usage of beverages, refreshments, and processed food. The current food inflation index has a weightage of seven per cent. However, the survey shows people spend around 10 per cent for this purpose. This provides a great opportunity to promote the food processing industry in rural areas to increase farmer’s income.

The survey hints at inequality in the country. In the rural areas, the bottom five per cent of the population had an average spending of Rs 1,441, while the top five per cent of the population spent Rs 10,581, which means the rich households in villages spend roughly seven times more than the poor. In the urban areas, the bottom five per cent of the population had an average spending of Rs 2,081, while the top five per cent of the population spent Rs 20,846, which means the rich households in cities and towns spend roughly 10 times more than the poor. As the widening income gap affects the social fabric of the country, the government needs to take remedial steps to address this issue.