High inflation squeezes budget of households

Urban expenditure as % of rural expenditure

 

On Thursday, India's National Sample Survey Office (NSSO) released the key indicators of household consumer expenditure in India, generated from the data collected during July 2011-June 2012 in its 68th round survey.

As per the survey, the rural urban inequality (in the absence of reliable income data, the survey data on household expenditure acts as a gauge for may have equality) may have improved a tad as compared to the 66th round survey conducted during July 2009-June2010.

However, the improvement is only marginal and the disparity still remains high. As per the latest survey, average monthly household spending of the urban area (at Rs 2,630) is still 84 per cent higher than that of rural areas (Rs 1,430), while two years back, it was higher by 88 per cent. Moreover, the disparity within states is remarkable and it has actually increased in quite a few states, with the states of Maharashtra, Chhattisgarh, West Bengal and Karnataka being the most unequal, with average urban household expenditure being more than double that of rural areas. On the other hand, despite a slight increase in inequality, Kerala and Punjab remains the most equal state. (Click for chart)

The overall improvement in the rural urban divide can be attributed to increased spending in welfare schemes which leads to a higher level of transfer of income to the rural areas. And, with the richer and well-connected farmers being the major beneficiaries of such rural welfare schemes (especially the MSP), rural inequality (calculated as the ratio of the average household expenditure of the top 10 per cent of the population to the bottom 10 per cent of the population) has actually increased (from 4.56 times to 4.93 times), while urban inequality (though higher) has fallen a tad (from 8.78 times to 8.71 times).

However, what is shocking about the data is the sustained fall in household expenditure on food, despite despicably high incidences of hunger and malnourishment in India.

In fact, the share of expenditure on food as a proportion to total expenditure in the rural areas fell below 50 per cent for the first time, having declined by as much as five per cent in a period of two years - the highest ever decline. Given that food inflation in India remained inexorably high during this period, the drastic fall in food consumption is an area of concern. Also, the household budget seems to be squeezed due to increasing cost of health and education expenses, which might also force a cut in food expenditure.

The author is a Delhi-based independent economist