Rural Growth Paradox: Household Consumption Expenditure Surveys Show Higher Rural Growth

Indian households are spending twice as much as a decade ago, with rural households spending Rs 3,773 a month and urban households spending Rs 6,459.

Growth in rural consumption has outstripped urban growth, despite concerns around rural stress. Is that indicative of improving rural conditions and the impact of government social security programmes?

The average estimated monthly per capita expenditure, or MPCE, for rural India was Rs 3,773, and for urban India, it was Rs 6,459 during the period between August 2022 and July 2023, according to the survey. With the last survey having taken place in 2011–12, it implies a CAGR of 9.2% and 8.5%, respectively, compared in nominal terms with a 9.6% CAGR for nominal GDP per capita until FY23, according to Madhavi Arora, lead economist at Emkay. That means higher growth for the rural sector. The MPCE is at odds with the argument that the rural economy has been sluggish over the last few years. However, the rural sector’s marginal propensity to consume is higher than that of the urban sector, and so, with rural wages having been stagnant, it may be the case that rural households needed to dip into their savings to fund their expenditure. Rural inflation has also been higher than urban inflation during this period, which would also be reflected in higher expenditure growth for rural households.

The National Sample Survey Office’s household consumption expenditure survey during 2022–23 contradicts the often-suggested view that the rural economy has been in deep distress, said Garima Kapoor, economist at Elara Capital.

Data shows the rate of growth of rural consumption remained higher than urban consumption during FY12–23, on a CAGR basis, she said. "Our analysis also concurs that the impact of social welfare programmes was found to be notable in sustaining consumption in lower expenditure fractile groups, indicating an effective and progressive impact of social welfare programmes on poverty and consumption in India," Kapoor said.

• According to a factsheet released by the ministry, the bottom 5% of India’s rural population, has an average Monthly Per capita Consumption of Rs. 1,373 while it is Rs. 2,001 for the same category of population in the urban areas. The top 5% of India’s rural and urban population, ranked by MPCE, has an average MPCE of Rs. 10,501 and Rs. 20,824, respectively.

• Share of cereals consumption fell to 4.9% in the average MPCE, while the share of food fell to 46.4%, in rural areas. For urban areas, the share of cereals consumption fell to 3.6% in the average MPCE, while the share of food fell to 39.2%.

The Private Final Consumption data, which also includes non-residents and certain institutions, did not capture any trends in terms of allocation, but finally, the household-level data available in this survey suggests that food represented less than half of the expenses of the rural basket and less than 40% for the urban basket, stated a research note by Bernstein. "The non-food expenses have shot up - and we see a bridging gap between rural and urban allocation - indicating that over time, those in the hinterland are consuming more and more like those in bigger cities."

Discretionary spending allocation has increased far faster, and even within the food basket, packaged foods have grown in importance and now form nearly 10% of the overall expenses, rising at a CAGR of 11% over the past decade, the note said. Durables, entertainment, and medical expenses are among the biggest gainers, growing by 10% or higher annually.

"The acceleration will further come as per capita incomes rise."