In this edition of MacroScan, C. P. Chandrasekhar and Jayati Ghosh track the changes in personal consumption as indicated by the mean per capita monthly consumption expenditure data from the NSSO large surveys. They find evidence of stagnation of consumption of the lower proportions of the population and significant increases in inequality across deciles, especially in the most recent period.

The period of economic boom in India that has lasted for around fifteen years was also a period of significant increase in aggregate consumption, at least according to the data from the National Accounts Statistics. To what extent was this also reflected in increases in household consumption?

Data from the National Sample Survey Organisation’s quinquennial large surveys allow us to track the movement of household consumption over the last thirty years, not only in the aggregate, but also disaggregated across deciles so as to get a glimpse into the inequality of such consumption.

In the charts shown here, some preliminary results from such data analysis are presented. (We are grateful to Himanshu of JNU, New Delhi, for providing us with the disaggregated estimates.)

Urban, rural consumption

Chart 1 shows that average urban consumption (at constant 2009-10 prices) has been increasing much faster than rural consumption, and the latter, in fact, tapered off in the most recent five-year period. The ratio of urban to rural consumption rose from 1.79 in 1983 to 1.96 in 2009-10, with the most rapid widening of the gap coming after 2004-05.

But even within locations, there were significant differences between the upper and lower ends of the consumption spectrum in the matter of time trends.

As evident from Chart 2, in rural areas, it is really only the top decile that show significant increases in per capita consumption after 1993-94. The relative stability of consumption for all the other groups is striking, particularly given that this was a period of rapid GDP growth.

Indeed, there was hardly any change in per capita consumption between 2004-05 and 2009-10, not only for the lowest quintile of the population, but also for the next 40 per cent and even for the following 30 per cent just below the top decile.

Within the rural areas, therefore, only the top decile benefited from the aggregate income growth in a manner as to be able to increase their consumption appreciably.

The picture is even more differentiated for urban India. Chart 3 indicates the extent to which the consumption of the top decile has zoomed far above all the other groups. (Incidentally, it should be borne in mind that the NSSO surveys generally and probably increasingly underestimate the consumption expenditure of the rich, so the consumption of the top ten per cent is likely to be even higher than indicated here.)

Striking trends

What is possibly even more striking is that the average consumption of the bottom 20 per cent in urban India has stagnated or increased only marginally, even through the phase of high growth between 1993-94 and 2009-10, while the consumption of the top urban decile increased by more than 30 per cent in the same period.

This is why the gaps between various categories of groups have increased substantially since 1983. However, Chart 4 suggests that this process has not been smoothly consistent through the entire period since 1983. Indeed, in rural areas, the gap between top and bottom deciles in consumption spending fell slightly and then increased only marginally, thereby remaining broadly the same over the entire period.

This is in sharp contrast to urban India, where the gap between richest and poorest deciles increased consistently and even sharply.

The decade between 1983 and 1993-94 showed a slight reduction in some gaps, particularly those between the rural top and bottom deciles and between the top urban decile and the bottom rural decile.

This evidence of some slightly reduced consumption gaps in 1993-94 could reflect the policies of the late 1980s, which involved increasing fiscal transfers to the rural areas and were also reflected in employment changes at that time.

However, thereafter, the tendency to increasing inequality reasserted itself with even greater force, precisely in the period when economic liberalisation was combined with various fiscal and monetary sops designed to encourage private corporate investment in a strategy of profit-led growth.

By the most recent period of 2009-10, consumption inequalities were at all-time highs, particularly with the multiple of the consumption of the top decile of the urban population relative to the bottom rural decile being higher than 14.

It has already been observed in earlier editions of MacroScan that the period after 1993-94 (and even more sharply after 2004-05) was marked by significantly increased regional inequality (across States) and declining shares of wages and informal incomes in national income.

Here it is clear that the same tendency is evident for consumption inequality as well, with the fifteen years up to 2009-10, and particularly the last five years, indicating very significant increases in consumption.

This analysis of differing gaps across various periods is confirmed by analysis of the growth rates of consumption by decile group, as indicated by Charts 5 and 6 for rural and urban areas, respectively.

Interesting insights

From Chart 5, an interesting pattern emerges: in the decade 1983 to 1993-94, the fastest growth in consumption expenditure (albeit from much lower base) was registered by the poorest groups, and each of the successive deciles exhibited slightly lower rates of improvement in average consumption. This suggests a progressive pattern of consumption distribution at the margin. In both of the other periods (1993-94 to 2004-05 and 2004-05 to 2009-10) the pattern was reversed, with the richest deciles showing the fastest growth rates of consumption.

The pattern for urban areas, as evident from Chart 6, is only slightly different.

In the decade 1983 to 1993-94, the rate of growth of consumption increased with decile (rising from the lowest to the highest) but only marginally, so that the difference in rates of growth across consumption decile were not that significant, as indicate by the relatively flat line in Chart 6.

However, in both of the other periods, the trend of accentuated inequality was marked and increasing: with the rate of growth increasing quite sharply as one moved across consumption deciles, and the rate of growth of consumption of the top deciles being several multiples of the relatively low consumption increase of the lower deciles.

Overall, this provides further confirmation of the fact that the growth process of recent times has been marked by increasing inequality.

It also provides compelling but disturbing evidence of lack of improvement of the lives of the rural and urban poor in terms of absolute consumption expenditure (in constant prices) in a period when GDP growth was the fastest ever experienced and came close to double-digit figures in several years.

(This article was published on June 25, 2012)
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