Per capita consumption rising faster in rural areas

 Arvind Jayaram BL Research Bureau | Updated on November 20, 2017

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Per capita monthly consumption in rural India grew by 19 per cent during the 2009-10 to 2011-12 period, outpacing growth in spending by urban citizens for the first time since economic reforms began two decades ago on the back of rising wages.

Per capita urban consumption rose by 17 per cent during the period, according to a new report by market research and ratings agency Crisil, based on preliminary National Sample Survey Organisation (NNSO) data.

Despite the increase, “Rural per capita consumption is about half of urban consumption,” said Crisil Chief Economist Dharmakirti Joshi. Rural per capita spending amounted to Rs 1,281.45 a month, compared to Rs 2,401.68 in urban areas, during the July 2011 to June 2012 period, he said. Total rural consumption has always been higher than urban areas due to the larger population, but the gap has come down over most of the past decade on account of growing consumerism in developed parts of the country. But in the 2009-10 period, total rural consumption rose by Rs 3,75,000 crore, compared to a Rs 2,99,400 crore rise in urban areas.

Shift from agriculture

The NSSO data also indicates a shift from agriculture-based jobs to other employment avenues between 2004-05 and 2009-10. While the number of villagers engaged in agriculture fell from 249 million to 229 million, rural construction jobs rose by 88 per cent.

But while total rural employment shot up by 22.3 per cent to 387.7 million in 2004-05 from 317 million in 1999-2000, it rose by less than 1.4 per cent to 393 million in 2009-10. This seems to indicate that while the MGNREGS has supplemented farm income for 27 per cent of households, its impact in terms of new job creation has been more limited.

Rural consumption

So what could be responsible for the sharp rise in rural consumption? According to Joshi, “The MGNREGS has also led to higher wages in rural areas, as you have to pay more to induce labourers to work on the farms.”

Benchmarking of MGNREGS wages to inflation has meant that rural wages have risen faster than inflation since 2007-08. In the case of a rural unskilled casual labourer, while nominal wages rose by 19 per cent between 2007-08 and 2009-10, real wages rose by nearly 14 per cent after accounting for inflation.


In addition, the report highlights anecdotal evidence which suggests that intra-state rural-urban migration rose in the second half of the last decade, fuelled by job opportunities in the form of infrastructure and construction projects in urban areas. This resulted in increased remittances to families in rural India, boosting consumption. The NSSO data states that nearly 72 per cent of male migrants from rural areas to other parts of India sent remittances in 2007-08.

One of the outcomes of the higher level of income has been an increase in discretionary spends, a marked departure from the earlier trend of need-based consumption. About one in every two rural households across the country now owns a mobile phone, though in the case of states such as Bihar and Orissa, the ratio is about one phone for every three households. What is more, nearly 42 per cent of rural households owned a television set (up from 26 per cent five years before) and 14 per cent had a two-wheeler for conveyance (twice the level seen in 2004-05). In fact, more than half of India’s stock of consumer durables such as electric fans, TV sets and two-wheelers is now in rural areas.

However, the higher incomes in rich states do seem to skew the all-India average figures. For example, while one in two households in rural Punjab has a two or four-wheeler, a ratio higher than even urban Maharashtra and Karnataka, only six per cent of Bihar’s villagers own a two-or four-wheeler.


Published on August 30, 2012

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