Vijay Kumar Gaba

 The National Sample Survey Office (NSSO) released the results of the latest Household Consumption Expenditure Survey a few days ago. The report highlights some interesting trends in household consumption patterns over the last two decades. The changes in the rural consumption patterns are particularly noteworthy.

Some of the key highlights of the survey could be listed as follows:

Consumption levels

·         The average monthly per capita consumption expenditure (MPCE) in rural areas is Rs3773 while in urban areas it is about 71% higher at Rs6459.

·         Rural population spends 46% on food and 54% on non-food items. While in urban India this ratio is 39% and 61%.

Consumption disparities

·         There is a significant regional skew in both rural and urban expenditure levels. Sikkim has the largest MPCE (Rs7731 for rural and Rs12105 for urban consumers) while Chhattisgarh has the lowest MPCE (Rs2466 for rural and Rs4483 for urban consumers). Delhi, Goa, Kerala, Punjab, Tamil Nadu are some notable states with above average MPCE.  Assam, Bihar, Gujarat, Jharkhand, Odisha, Uttar Pradesh, West Bengal are some notable states with below average MPCE.

·         SC/ST have below average MPCE, while OBC’s consumption levels are close to national average.

·         Rural-Consumption gap has reduced over the past two decades, but it is still quite high. In FY05 Rural MPCE (Rs579) was 91% lower than the urban MPCE (Rs1105). In 2022-2023, the gap has reduced to 71% (Rs3773 vs Rs6459)

·         Overall, the top 5% of rural population (MPCE Rs10501) is consuming 7.6x more than the bottom 5% (MPCE Rs1373). The skew is much higher in urban India where the top 5% population (MPCE Rs20824) spends 10.4x more than the bottom 5% (MPCE Rs 2001). MPCE of the top 5% in urban areas (Rs20824) is almost 2x as compared to the MPCE of top 5% in rural area (MPCE Rs10501).

·         Not only between the top 5% and bottom 5%; the gap is significant between the top 5% and the next 5%. In urban area, this gap is 68% (Rs20824 vs Rs12399) while in rural areas this gap is 58% (Rs10501 vs Rs6638)

Consumption patterns

·         Beverages, Refreshments, and Processed Food is the largest item in urban and rural consumption baskets. Urban consumers spend 10.64% of MPCE on this while rural consumers spend 9.64% of MPCE on this. Dairy products are the second largest consumption item in both rural (8.33%) and urban (7.22%) baskets. Conveyance and medical expenses come at a close third and fourth.

·         Since FY05, rural India has seen a significant rise in expenditure on Fruits, beverages & processed foods, hospital expenses, conveyance, entertainment, and durable goods. The share of cereals, sugar & salts, fuel & light, clothing and footwear have seen a significant fall. Education and toiletries are two notable items that have not seen much change in share in MPCE.

·        In the case of the urban consumption basket, the trends are similar, except that spend on education has fallen and expenditure on rent has seen notable increase.

Last week, the National Statistical Office (NSO) released first advance estimates of the National Income for FY23. These estimates are important because the budget estimates for FY24 would be based on these estimates. The finance ministry will use these estimates to project the GDP, savings, tax revenue, expenditure and allocations for various sectors of the economy.

Some key highlights of the data released by NSO could be listed as follows:

FY23 real growth (2011-12 prices)

• GDP (at 2011-12 prices) may increase by 7% to against 8.7% in FY22. This estimate is marginally higher than the RBI’s latest estimate of 6.8%.
• Per capita GDP may increase by 5.8% to Rs1,13,967, in FY23, against a growth of 7.6% in FY22.
• Per capita private consumption may be Rs65,237, a growth of 6.6% over FY22.
• FY23 Nominal Growth (current prices)
• GDP may increase by 15.4% to US$3.3trn, against 19.5% growth in FY22.
• Per capita GDP may grow by 14.2% to Rs1,97,468 (US$2394), against a growth of 18.4% in FY22.
• Per capita private consumption may grow by 15.1% to Rs1,18,580 (US$1437) in FY23, against a growth of 16% in FY22

FY23 Sectoral growth (2011-12 prices)

• Agriculture growth may accelerate to 3.5% (FY22 – 3%)
• Manufacturing growth may collapse to 1.6% (FY22 – 9.9%)
• Mining growth to collapse to 2.4% (FY22 – 11.5%)
• Construction growth to slow down to 9.1% (FY22 – 11.5%)
• Public administration and Defence expenditure growth to slow down to 7.9% (FY22 – 12.6%)
• Electricity, gas, water and other utility services growth accelerate to 9% (FY22 – 7.5%)
• Trade, hotel, transport, communication etc. to grow faster at 13.7% (FY22 – 11.1%)
• Financial services, professional services and real estate to grow by 6.4% (FY 22 – 4.2%)

FY23 Production growth

·         Rice, cement, Oil & gas, steel, telephone subscriber, cargo at ports, air passengers, railways, exports, mining, manufactured products etc. may witness material slow down in growth.

·         Commercial vehicles, passenger vehicles, bank credit may witness higher yoy growth as compared to FY22.

Key observations

• The estimates are based on the data available till November 2022 and may go under significant revision when the first revised estimate for the full year will be released in May 2023. These estimates seem to assume sharp recovery in manufacturing and some slowdown in services in 2HFY23. However, it appears unlikely that the industrial growth will accelerate enough in 2HFY23 to achieve 4.5% real GDP growth in 2HFY23. The lagged impact of higher rates, tighter liquidity and slower global demand (exports) may actually be more pronounced in 2HFY23.
• These estimates may however allow the government to project buoyant tax revenue in FY24, and accordingly provide for higher government spending and improved fiscal position in the union budget to be presented on 1^st February.
• The NSO has projected a trade deficit of 4.6% of GDP for full year FY23 up from 2.5% in FY22. This is worrisome, as the exports are likely to slow down further in 2023 as the world struggles to avoid recession.
• Real per capita private consumption expenditure of Rs65,237 read with huge income inequality indicators, is inadequate to support self-reliance of citizens and higher growth. The pressure on the government to provide basic necessities like food, housing, education, healthcare etc. will only increase going forward. This will (i) constrict investment; (ii) hinder development of quality human resources; and (iii) lead to even more socio-economic inequalities.
• The good part is that buoyant growth may save the finance minister from making the unpleasant decision of hiking taxes.