The Household Consumption Expenditure Survey (HCES) 2023-24 has highlighted significant changes in India’s spending patterns, showcasing economic shifts and societal transformations. Over the past decade, the Monthly Per Capita Consumption Expenditure (MPCE) has grown substantially. Rural areas witnessed an impressive 45.4 per cent rise in MPCE in real terms (2011-12 prices), from ₹1,430 in 2011-12 to ₹2,079 in 2023-24. Urban areas, traditionally characterised by higher consumption levels, experienced a growth of 38.1 per cent, with MPCE increasing from ₹2,630 to ₹3,632 during the same period. Encouragingly, the rural-to-urban MPCE ratio improved from 54.4 per cent to 57.2 per cent, signifying a narrowing gap in consumption disparities and a significant rise in rural purchasing power.
This rise in consumption marks a paradigm shift in India’s household spending, with a clear transition from food-dominated expenses to non-food expenditures. In rural areas, non-food spending constituted 53 per cent of total expenditure in 2023-24, while urban households allocated 60 per cent to similar categories. Key contributors include transportation, healthcare, clothing, and entertainment, reflecting an aspirational society striving for an improved quality of life. This shift also signals evolving priorities, with households focusing more on lifestyle enhancements and long-term well-being.
Another positive trend is the decline in consumption inequality. The Gini coefficient, a widely used measure of inequality, fell in rural areas from 0.283 in 2011-12 to 0.237 in 2023-24, while urban areas saw a reduction from 0.363 to 0.284. In particular, the bottom 5 per cent and 20 per cent of households in both rural and urban areas reported significant growth in consumption. In contrast, consumption among the top 5 per cent of households declined, indicating a more equitable distribution of resources. Despite these gains, certain trends raise concerns.
Raising concerns
Firstly, it is crucial to understand the difference between consumption and income inequality. For lower-income households, consumption closely mirrors income due to minimal savings. Conversely, higher-income households tend to prioritise savings and investments, often masking broader income disparities. According to data from the Periodic Labour Force Surveys (PLFSs), income inequality remains significant. The income inequality coefficient stood at 0.421 in 2023-24, a marginal decline from 0.426 in 2017-18. While rural income inequality improved slightly from 0.367 to 0.359, urban income inequality stagnated at 0.439, indicating persistent challenges in bridging the economic divide.
Secondly, after a decade of decline, the share of food expenditure within MPCE has risen between 2022-23 and 2023-24. In rural areas, the share increased from 46.4 per cent to 47 per cent, and in urban areas, it moved from 39.2 per cent to 38.7 per cent. This reversal is likely driven by rising food inflation, which strains household budgets and undermines purchasing power.
Thirdly, the PLFS highlights that lower-income households experienced decent growth in real earnings, primarily driven by casual labour activities and low-income self-employment opportunities. In contrast, middle- and high-income households, often engaged in salaried jobs or high-earning self-employment, reported decline in income growth. Real monthly earnings (2011-12 prices) for individuals in regular employment declined from ₹10,644 in 2017-18 to ₹10,370 in 2023-24, and for self-employment, from ₹6,831 to ₹6,611. Meanwhile, casual workers saw a modest increase in real earnings, from ₹4,034 to ₹4,344 over the same period.
These trends also align with India’s slowing GDP growth in recent quarters, with the advance estimate for 2023-24 pegged at 6.4 per cent, the lowest in four years. Price inflation and stagnant incomes have particularly impacted the middle- and lower-income groups, dampening overall consumption. This is also reflected in the slowing growth of Private Final Consumption Expenditure (PFCE), which dropped to 6 per cent in the second quarter of 2023-24 from 7.4 per cent in the previous quarter. Renowned economist Raghuram Rajan aptly noted, “The lower middle class is hurting the most,” also highlighting the impact of rising costs and stagnant incomes.
As India prepares for Union Budget 2025, addressing these challenges must be a priority. The government should focus on enhancing the purchasing power of lower-income households, increasing disposable income for the middle class, and supporting small businesses. Potential interventions include tax relief for middle-income groups, subsidised loans for rural enterprises, and increased liquidity for micro, small, and medium enterprises (MSMEs). Additionally, encouraging private sector in generating well-paying employment opportunities is vital to address income stagnation and sustain economic momentum. These measures could stimulate consumption, create decent jobs, and boost economic growth.
The writer is Professor at Institute for Human Development, New Delhi
