The Household Consumption Expenditure Survey (HCES) is a survey conducted every five years to collect information about the consumption of goods and services by the households. It also collects additional information on the age and profile of the members of a household.

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This information is invaluable to policymakers since the sample size is quite big, comprising 2.6 lakh households. Of these, 1.5 lakh are from rural areas and 1.1 lakh from urban areas.

When was the survey conducted? Why was this round of consumption survey delayed?

The survey was conducted during August 2022 to July 2023. The previous officially released survey was conducted in 2011-12.

There is a large gap between this survey and the previous one because the household consumption survey conducted in 2017-18, was scrapped. Though some of the findings of the survey were leaked to the public, the Centre decided not to release the results of the survey to the public due to issues with the quality of data, according to MOSPI.

What are the findings regarding rural and urban consumption in the survey?

According to the survey, the monthly per capita consumption expenditure (MPCE) was ₹3,773 for rural areas and ₹6,459 for urban areas in 2022-23. Compared to the last survey in 2011-12, rural MPCE has increased at a CAGR of 9.2 per cent from ₹1,430 while the urban MPCE has increased at an annual rate of 8.5 per cent from ₹2,630.

The survey finds that households are spending less on food than expected. MPCE on food by rural households is just 46 per cent, whereas expenses on non-food items is 54 per cent. For urban households, the food, non-food mix is 39 and 61 per cent.

The faster growth in rural consumption is a little strange given sluggish growth in rural areas in the recent past. But the social welfare schemes could have freed up some money allocated for food, thus increasing overall spends. “Rural inflation has also been higher than urban inflation during this period, which would also be reflected in higher expenditure growth for rural households,” says Madhavi Arora of Emkay.

What are the findings of the survey regarding inequality?

The survey finds that the consumption gap between urban and rural areas is narrowing but income inequality continues to make spends higher among high-income earners.

The difference between rural and urban consumption as a percentage of rural MPCE has fallen from 90.8 per cent in 2004-05 to 71.2 per cent in 2022-23. This shows that those living in rural areas have seen their incomes improve. But while difference between rural and urban consumption is lower at 45 per cent for bottom 5 per cent, based on the fractile classes of MPCE, the difference is 98 per cent for the top 5 per cent.

The monthly per capita consumption of the top 5 per cent in both rural and urban areas is seven times and ten times higher than the bottom 5 per cent, indicating impact of income inequality in consumption.

What are the findings regarding eating habits in rural and urban India?

The survey finds that the largest share of food and drink consumption is going towards beverages, refreshments and processed foods indicating shifting eating patterns across India. The share in MPCE for this component was 9.62 per cent in rural India while it was 10.64 per cent in urban India. Milk and milk products had the next largest share at 8.3 and 7.2 per cent in rural and urban areas followed by vegetables, egg, fish and meat and cereal and cereal substitutes.

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Share of durable goods consumption is also quite high which is probably due to purchases of mobile phones and consumer appliances. Clothing, bedding and footwear is another category that Indians are spending on, indicating aspirational consumption.

Key takeaway based on times-series data is the steep decline in share of spending on cereal. This has been balanced by increase in share of processed food, conveyance, durable goods etc.

What is the implication of the HCES for the CPI index?

The survey provides inputs which are used for compiling the official Consumer Price Indices (CPIs). Due to the delay in release of the HCES, the compilation of the CPI has also been delayed.

With the HCES data showing lower share of food in rural and urban areas, new CPI indices will have a lower weight for food and beverages and higher weigh for core goods and services. With the core inflation being more sticky of late, there could be an increase in CPI reading, going forward.