The latest NSSO survey for 2022-23 provides insights into household consumption expenditure, shedding light on significant shifts over the past decade. Notably, rural spending has nearly tripled, outpacing urban spending, while the gap between urban and rural expenditure has narrowed. There’s also a marked increase in non-food spending, reflecting changes in technology, finance, and culture, as well as maturing economic growth.
The rise in rural non-food consumption, despite narratives of rural distress, may be attributed to higher rural inflation and savings, influencing spending patterns. Inflation-adjusted data reveals a more modest 4 percent Compound Annual Growth Rate (CAGR) for both rural and urban spending during the decade. Surprisingly, social welfare freebies haven’t significantly impacted consumption patterns.
This calls for a revision of the CPI index, as the current weights assigned in 2011-12 seem out of sync with the data. Notably, there’s been a significant increase in non-food spending, particularly in rural areas, which is not adequately reflected in the CPI index.
Revising the weights could lead to a decline in food inflation and potentially higher core inflation, impacting monetary, credit, and fiscal policies. While spending patterns may not directly affect GDP growth, there’s a disconnect between GDP-reported Personal Consumption Expenditure (PFCE) and NSS survey data, with significant disparities in expenditure on food.
The dispersion of spending across different income brackets and regions could affect demand, production, regional growth, and tax collections. Despite high income inequality, there’s hope for India Inc, with the surge in rural non-food spending indicating opportunities for industry and manufacturing, particularly in durables, services, travel, and processed foods.
