Households are spending more on discretionary items: Economic Survey

Indians are increasingly spending more on discretionary items and less on basic necessities such as food, according to the Economic Survey for 2018-19. 

Private consumption forms the biggest chunk in the gross domestic product (GDP) basket. Changes in consumption pattern are crucial to the growth dynamics of various sectors of the economy. 

The last two quarters of 2018-19 saw growth slowing in private consumption — contracted auto sales and subdued FMCG sales — pushing down economic growth to the lowest in 20 quarters. Private final consumption expenditure, the way it is defined in national income accounts, forms nearly 60 per cent of India’s GDP. 

“Although the share of private consumption in GDP remains high, the pattern of consumption has undergone some change over time — from essentials to luxuries and from goods to services,” the Survey said. 

The trend is important as it gives a hint about the outcome of the Consumption Expenditure Survey (CES), which will be released by the National Statistics Office within a month or two. The CES forms the basis for deciding the sources and weights of private consumption expenditure in the national accounts; the data that is used for GDP formulation. 

“From food and beverages, transport and communication, which are more of necessities, the spending has been shifting towards clothing and footwear, health and education, and housing and maintenance,” the Survey said. 

The data from the NSO shows the share of food and beverages has reduced from 33.2 per cent of private consumption in 2011-12 to 30 per cent in 2017-18 — a reduction of over three percentage points. 

As more children are attending school and college, incomes are rising. Spending on health and education has started occupying a larger pie in the consumption mix. Their share increased from 7.4 per cent in 2011-12 to 9.2 per cent in 2017-18.

“This shows an increase in discretionary spending by households, compared to necessities,” noted the Survey. 

Spending on housing, its maintenance and basic household necessities, such as electricity and water, reduced as a share of overall spending, from 19.6 per cent to 17.3 per cent, over six years. 

The Survey noted spending on services was rising vis-à-vis goods. In another chapter, the Survey found inflation in services in recent times has been higher than that for goods.