The Hindu Business Line : Rural-urban gap widens in reform years

The divergence can be traced to a faster increase in the consumption of non-food items in urban India -- such as clothing, footwear, tobacco, education, health and consumer goods.

A. Srinivas

Bangalore, Nov. 12

The reform years have been marked by a growing rural-urban divide.

Surveys on household expenditure, conducted by the National Sample Survey Organisation, point out that the monthly per capita consumption expenditure (MPCE) in rural India has grown at a negligible rate in real terms, while growing at a reasonable clip in urban India.

The data raises doubts about the claim that India’s growth is driven by a spurt in private final consumption expenditure.

The divergence can be traced to a faster increase in the consumption of non-food items in urban India -- such as clothing, footwear, tobacco, education, health and consumer goods.

As a result of rising incomes, the proportion of food in total spending has fallen more sharply in urban India. Food (cereal, pulses, milk, eggs, meat, sugar, spices and beverages) made up 64 per cent of a rural individual’s MPCE in 1988 and 52 per cent in 2007.

However, the urban individual’s spending on food fell from 56 per cent of MPCE in 1988 to 39 per cent in 2007.

MPCE of the rural individual increased by 95 per cent in real terms between June 1988 and June 2007, which works to a compound annual growth rate of just 1.29 per cent. In nominal terms, average rural MPCE increased from Rs 158 in June 1988, when the 43rd round of NSS was conducted, to Rs 695 in June 2007.

The MPCE of the urban individual increased by 164 per cent in real terms in this 20 year period, which works out to a CAGR of 3 per cent. In nominal terms, average urban MPCE increased from Rs 250 in 1988 to Rs 1313 in 2007.

While nominal rural MPCE was 63 per cent of urban MPCE in 1988, this proportion was down to 53 per cent in 2007.

Since the consumer price index for this period increased by about 7 per cent per annum in both rural and urban India, it is clear that the growth of rural incomes fell behind that of urban incomes.

The 10 percentage point drop in the ratio of rural to urban spending is largely on account of non-food items. In 1988, average MPCE of the rural individual on non-food items was Rs 57, as against Rs 110 in the case of his urban counterpart.

In 2007, MPCE on non-food items was Rs 332 in rural India, as against Rs 795 in urban India. The ratio of rural to urban MPCE for non-food items, therefore, fell from 52 per cent in 1988 to 42 per cent in 2007.

In the case of consumption of food items, the difference between rural and urban India has not sharpened over time. Rural MPCE on food items was Rs 101 in 1988, while urban India’s MPCE on food products was Rs 140. In 2007, these numbers were Rs 363 and Rs 517 for rural and urban India, respectively. The ratio of rural to urban MPCE for food items was 72 per cent in 1988 and 70 per cent in 2007.

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