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What Does The Household Consumption Survey 2024 Say About The Indian Economy? – IMPRI Impact And Policy Research Institute

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What does the Household Consumption Survey 2024 say about the Indian economy?

TK Arun

The most striking feature of the latest monthly per capita expenditure estimates is how low the purchasing power of most Indians remains, regardless of where India stands in the ranking of countries by aggregate GDP.

Nearly four-fifths of Indians in rural areas consume less than Rs 4,500 worth of goods and services per month, that is, less than Rs 54,000 per year. The consumption of their urban counterparts is less than Rs 7,700 per month or Rs 92,400 per year. In other words, the family of a housemaid in a middle-class residential colony in a city like Delhi, who is paid Rs 15,000-Rs20,000 per month, and whose husband also has at least a comparable income, belongs to the top 25 percent or so consumers of the land.

Some might cheer such elevation of household help to the nation’s income elite as a sign of the nation’s progressive march towards equality. Such people probably also believe in elimination of poverty by statistics. The more realistic approach, which thinks it prudent to give free food to 80 crore or 56 percent of the population, as the present government has, would acknowledge the magnitude of distress in the country, and focus on what it takes to accelerate the pace of growth and to broaden the base of the growth that takes place.

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It would strike most well-off Indians as outlandish that their household help belongs to the top 25 percent consuming layer of society. How do we arrive at this conclusion? It is derived from the table, from the figures for the fractile class 70-80 percent. What is meant by a fractile and a fractile class?

Let us take the fraction 80 percent (for the sake of those who have forgotten their elementary arithmetic, let us note that percent denotes a fraction whose denominator is 100). The 80th percentile of the distribution of monthly per capita expenditure is the level of expenditure that would be just above the expenditure levels of 80 percent of the population.

The table does not tell us what the expenditure level is for the 80th percentile. It gives the average for the percentile class comprising 70th -80th percentiles. The maid family’s per capita monthly expenditure falls within the expenditure for this percentile class. Which is why it is safe to conclude that this expenditure level belongs to the uppermost 25 percent of the Indian population.

It can be observed that the average monthly expenditure keeps climbing by about Rs 1,000 for successive percentile classes till we come to the 80-90 percent class, when it rises by Rs 2,000. For the next percentile class, 90-95 percent, the jump is some Rs 3,000. The gap rises to Rs 8,000 between the 90-95% class and the 95-100% class.

The average for the most well-off 5 percent in urban areas still falls short of Rs 21,000, lower than the price tag of a single paithani saree. Which suggests that even within this five percent of the population, there is great income disparity. But then, even one percent of India’s population is 14 million. A consuming class of 2 percent of the population would be roughly as large as Belgium and the Netherlands put together.

But Indians cannot afford to be happy with the statistical reduction in poverty and marginal declines in the share of food in overall consumption. Growth of the demand for what the industry produces depends on growing purchasing power in the hands of the masses.

For such a mass market to develop and drive the profitable growth of industry, we need a growth strategy that focuses on broadening the base of growth, with special focus on education, so that India’s youth become employable and generate income at a high level of productivity.

The current growth strategy produces concentration of income, as the table shows. India needs to shift gears.

TK Arun is a senior journalist.

The article was first published in Money Control as Household Consumption Survey: A worrying concentration of income that doesn’t help industrial growth on 27 February 2024.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organization.

Read more at IMPRI:

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Acknowledgment: This article was posted by  Kaushiki K. Singh, a research intern at IMPRI.

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