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Persistent rural-urban consumption divide

But higher urban prices bring down the differences in real terms

DATA FROM the National Sample Survey on household consumer expenditure in India are useful not only in evaluating living standards across the countrybut also in measuring income inequalities .The report of the 60th round was released on November 23.

Although these data are primarily viewed for what they say on living standards, they have one other focussed use: changing consumption patterns can be interpreted for their insights into income differentials. This despite the fact that disparities in consumption need not always correlate to income inequalities.

As a rule, the proportion of consumption expenditure decreases when income rises. The rich save more and consume less in relative terms.

For all these shortcomings, however, the NSS data on consumer expenditure have come to be relied upon for tracking income inequalities too.

The NSS consumer data are segmented into rural and urban areas on one hand and among States and geographical regions on the other.

The latest survey covering the period January -June 2004 captures certain well-known trends that previous surveys have consistently pointed out. (1) Urban households incur almost twice the expenditure incurred by rural households. During this period, an average urban household had an MPCE (monthly per capita consumption expenditure) of Rs. 1,060, which was 88 per cent more than the MPCE of an average rural household (Rs. 565). The difference between rural and urban expenditure has remained constant over various periods covered by the NSS. However, price-levels being higher in urban areas, the differences get narrowed down in real terms.

(2) The share of food in the average consumption basket has shown a steady decline in both urban and rural areas. While income levels have been rising everywhere, urban households have been spending less on food in proportionate terms compared to rural households. Almost 54 per cent of the average rural MPCE was on food. Urban households on the other hand spent almost 58 per cent on items other than food, with fuel and lighting, clothing and footwear accounting for a big chunk.

(3) Again, within the food basket, the share of cereals has been coming down. In rural areas, cereals accounted for 18 per cent of MPCE, a sharp fall from the 26 per cent recorded in 1987-88. In urban areas, it was 10 per cent in 2004-05, down from 15 per cent earlier. The sharp disparity between rural and urban areas extends to education(rural 3 per cent, urban 7 per cent) and miscellaneous consumer services (rural 3 per cent, urban 7 per cent).

(4) Across States, there are significant disparities in consumption expenditure. Jharkhand, Orissa, Chattisgarh, Madhya Pradesh and Bihar had an MPCE less than Rs. 450 in rural areas. Some of these States have fared poorly in terms of urban MPCE as well. On the other side, Kerala topped the list under both urban and rural MPCE.(Rs. 990 rural and Rs. 1,372 urban).

(5) The use of kerosene as cooking fuel has been declining sharply in both rural and urban areas. However, around 46 per cent of rural households depend on kerosene for lighting purposes. Until rural electrification gathers pace, the dependence on kerosene will remain. What specific issues do these data address?

Apart from consumption inequalities that can be narrowed only through a bigger agenda that promotes, for instance, balanced economic development; the data could help policy makers decide on doing away, at least over time, with the subsidy on kerosene.

The data obviously help in the formulation of appropriate indices for measuring inflation. In India there are two sets of indices, the wholesale price index (WPI) and consumer price indices (CPI).

The latter _ four broad measures of CPI are available are based on occupational classification and category of residence: CPI for agricultural labour (CPI_AL), CPI for rural labour (CPI-RL), CPI for industrial workers (CPI-IW) and CPI for urban non - manual employees (CPI-UNME, that is, urban middle class families).

There are two areas of difference in the four indices .The weight of cereals varies from 10 per cent in the CPI basket for urban non-manual employees, to about 20 per cent for industrial workers and to 40 per cent for agricultural/rural labour. Second, housing does not figure in the CPI for agricultural/rural labour but has a significant weight in the CPI for urban non-manual employees and 8.7 per cent in the CPI for industrial workers.

Evidently, the NSS data on consumption expenditure will impact the composition of inflation indices.

They point to a possible change in weights accorded, excluding some items that are consumed less and including certain new items, which the average household has to include in the consumption basket.

C. R. L. NARASIMHAN

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