Food’s share in consumption kitty declines, but not sharply

While the findings of the all-India Household Consumption Expenditure Survey 2022-23 published on Saturday revealed a decline in the share of food items in the consumption basket in the last decade, the fall was less steeper than widely expected. This shows that even though the absolute amount of food consumed by households may have started rising at a lesser pace due to the reduction in poverty, the consumption of high-value food items may have jumped, economists say.

This is significant because the new Consumer Price Index (CPI) basket – a metric to measure prices of key commodities and services – may not see a major decline in the share of food items, as expected earlier. The current CPI, with the base-year 2012, accords 39.1% weight to food items, while ‘food and beverages’ constitute 45.9% of the index.

Consumption in the household sector reflects the levels of living and the demand dynamics in the economy. It is also a proxy for poverty incidence.

Food’s share in MPCE for rural households decreased to 46.4% in 2022-23 from 52.9% in 2011-12, the immediate past year for which survey results are available, while that of urban households declined to 39.2% from 42.6%. Several economists had earlier expected the food’s share in the consumption basket to fall around 35-36% at the aggregate level, but as per the current data, it’s around 43%.

Pronob Sen, former Chief Statistician of India said: “Grains are the cheapest, people are spending less on it and more on eggs, meat, fruits etc. and therefore, the overall share of food consumption has not declined substantially.”

The revision of the CPI will be on the basis of two rounds of HCES results. The second round, currently underway, is expected to be completed by July 2024.

After the 2011 survey, the government chose to withhold the results of the survey held in 2017-2018 (July-June), citing “data quality” issues.

The latest HCES showed that the difference in average monthly per capita consumption expenditure (MPCE) between urban and rural households has narrowed between 2011-12 and 2022-23. In nominal terms, the gap reduced from 83.9% to 71.2% during the period. However, at 2011-12 prices, the gap was still comparatively wider – with the difference between the MPCE of the two segments of population in 2022-23 being 74.8%.

This is mainly because inflation in general in the past 11 years for rural areas has been higher as compared to urban areas. Between 2012-2023, inflation in rural areas surged by 87.6%, while in urban areas, it rose by 84.5%.

In nominal terms, the gap between urban and rural consumption narrowed to 1.71 times in 2022-23 from 1.84 times in 2011-12. In the 2009-10 and 2004-05, the gap between the two was 1.88 and 1.91, respectively.

The share of the consumption of non-food items by rural households has risen sharply by more than 6 percentage points (pps) to 54.6% in 2022-23 from 2011-12. Whereas, in the case of urban households, the share has mildly increased by over 3 pps to 60.83%.

“The expansion of (non-food items in) urban consumption basket is limited because they already have those endowments. In my view, the basket expansion would have been exhausted in 2011-12 only,” said NR Bhanumurthy, vice chancellor, BASE University. However, he said, the expansion of the rural basket doesn’t imply a big rise in incomes in rural areas in the past 11 years.

Madhavi Arora, lead economist, Emkay Global said that the rural sector’s marginal propensity to consume (MPC) is higher than urban. “It’s also possible the rural households dipped more into their savings due to lower income and increased their MPCE even more.”

The share of eggs, meat and fish, fruits, beverages and processed foods in the MPCE has recorded an increase in 2022-23 from their levels in 2011-12, in rural households. Cereals’ share in MPCE has plunged drastically to 4.9% from 10.8% during the period. In urban areas, the decline has been sombre, with cereals’ share coming in at 3.6% in 2022-23 from 6.7% in 2011-12.

The estimates of MPCE are based on the data collected from 2,61,746 households in total, which includes 1,55,014 rural households and 1,06,732 urban across the country.

The new HCES results have come after a long gap of more than 11 years since the government had scrapped the 2017-18 survey citing “data quality issues” after leaked results had shown a decline in consumption.

The Ministry of Statistics and Programme Implementation (MoSPI) announced plans for two consecutive surveys spanning 2020-21 and 2021-22 to allow ample time for revising the ‘base year’ for macroeconomic indicators. However, due to the onset of the Covid-19 pandemic, the survey slated for 2020-21 couldn’t commence. The initial survey of the series commenced in August 2022 and concluded in July 2023.

MoSPI has so far issued a factsheet for the year 2022-23, with a comprehensive report slated for release in the near future.

Consumption pattern throws light on the social/regional disparities and income inequalities. What is being surveyed is final consumption expenditure (on goods and services) by resident households to meet their everyday needs– food, clothing, housing (rent), energy, transport, durable goods, health costs, leisure etc.