The Household Consumption Expenditure Survey shows that inflation basket needs to be adjusted, and the quality of life in Bihar, MP, Rajasthan, and UP is lower than in most other Indian states and union territories. The poorest rural households had the least amount of free items to spend.
1. Over the past 20 or so years, how has India’s share of food spending changed?
If your food expenditure is lower as a percentage of your overall consumption, you will have more money for other items such as consumer durables, apparel, shoes, fuel or diesel for your car, and even entertainment. To put it another way, you can aim higher.
Between 1999–2000 (the 55th round of the National Sample Survey) and 2022–2023, both urban and rural households’ share of food expenditures gradually decreased. However, food spending has finally decreased to less than 50% of total consumption in rural India and less than 40% in urban India. This is a first for both regions. This is really impressive.
In rural India, the percentage of expenditures on food consumption reached 59.4% in 1999–2000, remained relatively stable at 50% during the first ten years of the new millennium, and reached 46.38 percent in 2022–2023.
In urban India, food’s percentage of average monthly per capita consumption expenditure (MPCE) dropped from 48.06 percent in 1999–2000 to 39.17 percent in 2022–2023.
2. What kinds of foods are Indians eating these days?
The amount of money spent on more nutritious foods than just cereals (rice, wheat, etc.) is useful to know. In rural households, the amount spent on cereals decreased from nearly 22% of total consumption expenditure in 1999–2000 to 4.91% currently. It was 12% in urban households, but it is currently only 3.64 %.
Over the past 20 years, rural households have spent more money than urban households have on high-value, nutritious products like eggs, fish, and meat as well as fruits and vegetables.
During 1999–2000, urban households spent 10.68 percent and rural households spent 11.21 percent of their total consumption budget on these items. This was only slightly higher for urban households (11.17%) in 2022–2023 but much higher for rural households (14%).
3. Does the inflation basket need to be reviewed? What is revealed by the average MPCE data?
The price changes of a wide basket of goods are used to compute inflation. If we live in a city or a village, our consumption habits may differ, so these products should ideally reflect what you and I consume. The goods basket should accurately reflect the consumption expenditure pattern of households, regardless of their location, in order to calculate inflation.
Currently, a basket that was chosen in 2012 serves as the basis for retail inflation, also known as inflation based on the Consumer Price Index (CPI). However, as the most recent Household Consumption Expenditure (HCE) Survey 2022–2023 demonstrates, a lot has changed in the previous 11 years.
For instance, “cereals and products” are given a weightage of 12.35 percent in the CPI (Rural) basket. However, as was already mentioned, the most recent HCE Survey reveals that rural households only spend 4.91% of their income on cereals and cereal substitutes. Once more, the Survey indicates that 46.38 percent of rural households spend their money on food. However, the weightage of food in the CPI (Rural) basket is 54.18 percent, which is significantly higher than what a rural consumer currently spends.
Food also has a weightage of 36.29 percent in the CPI (Urban) basket; however, according to the HCE Survey, urban households spend 39.17 percent of their income on food. The percentages of urban households’ spending that go toward entertainment, tobacco and other intoxicants, and pan are 1.58%, 2.45%, and 1.57%, respectively. However, these two items have weights of 1.36 percent and 2.04 percent, respectively, in the CPI (Urban) basket.
Rent expenditures now account for a larger portion of household budgets in both urban and rural areas, at 6.56% and 0.78%, respectively.
Growth is impacted when the Reserve Bank of India (RBI) adjusts the policy rate, also known as the repo rate, which is the interest rate at which it lends money to commercial banks, in response to changes in retail inflation. Because lower interest rates make loans more accessible, they will promote economic growth. However, the RBI will almost certainly postpone changing interest rates if it is led by inaccurate data.
4. What is the difference between the average MPCE data that is imputed and that is not?
In the most recent HCE Survey 2022–2023, the National Sample Survey Office (NSSO) added the imputed value of several items that households received for free through various social welfare programs to create another set of MPCE data.
They consist of: i) food items like rice, wheat, atta, pulses, salt, sugar, and edible oil; and ii) non-food items like a tablet, laptop, phone, bicycle, motorbike, scooter, clothes (like school uniforms), and shoes (like school shoes, etc.).
A MPCE fractile class is the population segment that falls between two fractiles. The lowest 5% of the population, for example, is represented by the 0–5% fractile. The next five percent of the population is represented by the 5–10% fractile, and so on. The top 5% of the population is represented by the 95%–100% fractile.
Compared to the MPCE that excludes the free items, the MPCE of rural and urban households that includes the imputed value of free food and non-food items is higher.
Nevertheless, it’s interesting to see who gains the most overall. The poorest 0–5% of households in rural areas had the least amount of money to spend on imputed value of free goods. This group only received Rs 68.
The population in the 70–80% fractile benefited the most in absolute terms; even the top 5% received benefits of Rs. 80, which is more than the benefits received by the bottom 5% of the population. In terms of percentage, this would be different.
