The Aakhya Weekly #86 | Mapping India's Economic Transformation: Insights from HCES

In Focus: Household Consumption Expenditure Survey Unveils Remarkable Economic Shifts: What it Means for India's Future

By Aradhana Gupta

Amidst the chatter of economic resurgence, a recent unveiling has stirred fresh debate across the nation. The long-awaited release of the Household Consumption Expenditure Survey (HCES) report has not only brought attention to the myriad evolution of household expenditure but has also ignited discussions on its far-reaching implications for India's economic trajectory.

Once in every five years, the HCES emerges as a beacon of economic insight, influencing key indicators such as Gross Domestic Product (GDP), poverty levels, and the Consumer Price Index (CPI). After an 11-year hiatus, the latest survey, conducted between August 2022 and July 2023, has unveiled a landscape reshaped by shifting spending habits and evolving consumer preferences.

A Decade of Evolution

India's consumption patterns are undergoing a significant transformation driven by factors such as rising incomes, technological advancements, and globalization. The surge in disposable income, coupled with the convenience of e-commerce, has reshaped how consumers shop, with a notable shift towards online platforms.

Furthermore, changing preferences in food and beverages, influenced by health consciousness, are driving demand for organic and sustainable options. Technology plays a pivotal role, empowering consumers with information and personalization, while globalization exposes them to diverse choices.

Amidst these changes, businesses face both challenges and opportunities. Adapting to evolving trends and leveraging consumer insights can help them stay competitive and tap into new growth avenues. The findings of the recently released household expenditure survey does throw light on these changing consumption patterns and the numbers speak volumes, painting a picture of resilience and growth.

Over the past decade, rural households have witnessed a remarkable surge in consumption expenditure, catapulting from Rs 1,430 in 2011-12 to Rs 3,773 in 2022-23. Urban areas have experienced a parallel ascent, with expenditure soaring from Rs 2,630 to Rs 6,459 during the same period. These figures, pulsating with promise, underscore the nation's steady march towards prosperity.

Economic Metamorphosis: Urban-Rural Divide Narrows, Non-Food Expenditure Surges

The narrative of India's economic story has undergone a dramatic transformation, as revealed by the latest HCES findings. Perhaps the most striking revelation lies in the narrowing chasm between urban and rural expenditure patterns, signaling a convergence fueled by economic growth and urbanization.

Over the past decade, rural household spending has surged by 2.6 times, while urban expenditure has witnessed a comparable increase of 2.5 times since the last survey. This evolution signifies not just an increase in purchasing power but also a fundamental shift in consumption habits, with non-food items now commanding a larger share of household budgets.

Intriguingly, the survey paints a picture of changing preferences, with durable goods such as electronics and personal care products gaining prominence in both rural and urban areas. From playstations to power banks, these items have become emblematic of a burgeoning consumer culture, underpinned by rising incomes and aspirations.

State-Level Disparities

The survey also provides insights into the variations in consumption spending across different states and union territories in India. The average monthly consumption spending per person differs significantly between urban and rural areas, as well as among states. These disparities reflect the varying economic conditions and development levels across the country. It is crucial for policymakers to take these regional disparities into account when formulating development plans and policies. Targeted interventions and investments can help uplift the regions with lower consumption spending and improve their standard of living.

Rethinking Inflation: Food's Diminished Role in CPI and its Ramifications

Amidst the chorus of economic data, the HCES findings cast a revealing light on the dynamics of inflation, particularly the role of food prices in shaping the Consumer Price Index (CPI). Contrary to conventional wisdom, the survey suggests a diminishing significance of food expenditure in household budgets.

Over the past two decades, both rural and urban households have seen a gradual decrease in the proportion of their total consumption spending allocated to food. In rural India, the share of food expenditure fell from 59.4% in 1999-2000 to 46.38% in 2022-23. Similarly, in urban India, the share decreased from 48.06% to 39.17% during the same period.

This shift in spending patterns indicates a growing ability of households to allocate more funds towards other essential and non-essential items. It reflects an improvement in the overall economic well-being of the population, allowing for greater aspirations and a higher quality of life. At the same time, the figures also challenge the prevailing narrative of food-driven inflation.

As food's share in total expenditure witnesses a decline, questions arise regarding the accuracy of inflation metrics and their implications for monetary policy. Could a recalibration of the CPI, reflecting evolving consumption patterns, pave the way for a more nuanced approach to inflation targeting?

Changing Consumption Patterns

Within the category of food expenditure, the survey highlights some interesting changes in consumption patterns. While the share of expenditure on cereals has significantly declined, there has been an increase in spending on high-value and nutritional items such as eggs, fish, meat, fruits, and vegetables. These changes have been more pronounced in rural households, where the spending on these items has seen a significant rise compared to urban households. The shift towards a more diverse and nutritious diet is a positive advancement, indicating an increasing awareness of health and well-being among the population. 

Future Prospects and Policy Implications: A Tale of Two Narratives

As policymakers and economists grapple with the implications of the HCES findings, divergent narratives emerge regarding its impact on policy formulation. While some advocate for a recalibration of inflation metrics to align with shifting consumption patterns, others remain skeptical, citing the persistence of food-centric spending habits.

Regardless of the debate, one thing remains clear: the HCES report offers a tantalizing glimpse into the evolving contours of India's economic landscape. As the nation navigates the complexities of a post-pandemic world, understanding these shifting dynamics will be paramount in charting a course toward inclusive growth and prosperity for all.

In conclusion, the unveiling of the Household Consumption Expenditure Survey represents more than just a data release; it heralds a new chapter in India's economic narrative, marked by resilience, adaptation, and the promise of a brighter tomorrow. As the nation stands at the crossroads of possibility, the insights gleaned from the survey will serve as guiding stars, illuminating the path toward a more equitable and prosperous future.

Top Stories for the Week

India to now allow 100% FDI in the space sector

The Union Cabinet amended the Foreign Direct Investment (FDI) policy for the space sector, allowing up to 100% foreign investment under the automatic route for three activities in the satellite sub-sector. The amendment prescribes defined limits for foreign investment for each category. Before this amendment, FDI was only allowed in the establishment and operation of satellites through the Government approval route. This move is in line with the Indian Space Policy 2023, an overarching framework aimed at promoting private participation in the space sector.

The updated regulations are as follows: 

a) Up to 49% FDI is allowed under the automatic route for launch vehicles, associated systems/subsystems, and spaceports, beyond which the government route will be applicable.

b) Up to 74% FDI is allowed under the automatic route for satellite manufacturing, operation, satellite data products, ground Segment, and user Segment. Once again, any FDI that exceeds 74%  will require an approval from the government.

c) FDI up to 100% is permitted under the automatic route for manufacturing components and systems/subsystems, ground segments, and user segments.

This reform is expected to draw potential investors and enhance the ease of doing business, resulting in increased FDI inflows and contributing to investment, income, and employment growth. Further, the heightened participation of the private sector would facilitate the adoption of modern technology and promote self-sufficiency in the sector. It is anticipated to integrate Indian firms into global value chains, enabling them to establish manufacturing facilities domestically, thereby supporting the ‘Make in India’ and 'Atmanirbhar Bharat' initiatives.

Yet another WTO’s Ministerial Conference sees deadlock over trade reforms

The 13th WTO Ministerial Conference in Abu Dhabi is currently in session and countries are aiming to actively address global geopolitical challenges and shifts in the international trading system. The entry of East Timor and Comoros into the organization was met with enthusiasm, prompting calls for reforms in the WTO's approach in handling trade disputes. Many nations, including India, emphasized the need for further reforms, given the trade court's four-year inactivity. This could be attributed to the US’s resistance to appointing new judges, which is viewed by many countries as the reason for several disputes worth billions of dollars remaining unresolved.

Based on the reflections from the 12th Ministerial Conference in Geneva, emerging economies are advocating for a 25-year moratorium on fishing subsidies, beyond the 200 nautical miles limit. This comes amidst growing environmental concerns over sustainable fishing practices. However, India underscored the importance of taking the interests of fishing communities into consideration, while advocating for principles like "Common But Differentiated Responsibilities and Respective Capabilities" and "Special and Differential Treatment", in the Fishing Agreement.

In addition to this, both India and South Africa formally objected to the Investment Facilitation for Development Agreement. The two countries cite potential impacts on autonomous policy spaces, highlighting ongoing debates over international trade agreements and the balance between global cooperation and national autonomy. Such concerns are unlikely to be resolved even in the near future, considering the substantial divergence in governance structures and economic perspectives that evolve across the Global North to the Global South.

A Few Good Reads

• Mihir Sharma defends India’s hardline on farmer subsidies amidst WTO talks, balancing innovation and farmers’ concerns.

• Transparency, not subsidies, is the solution to achieving affordable housing for the Indian middle class, suggests this op-ed by Shishir Gupta, Nandini Agnihotri, and Annie George.

• Pulapre Balkrishnan unveils how an unbalanced state budget and the center’s control of finances must be tackled with fiscal management.

• On the 2nd anniversary of the Russia-Ukraine war, the Council of Foreign Affairs notes expert suggestions on 3 different resolutions to the conflict.

• Priyanjali Malik examines António Guterres’ apprehensions on the UN's future and the weakening of the global order.