How India Spends

Executive Summary Rural consumption has grown faster (3x) than that in urban India (2x) in the last 12 years, reflecting a degree of catch-up growth.

Non-food spending now dominates in both rural (53%) and urban (60%) areas, with shifts towards durable goods, conveyance and fuel in the former and education, rent and fuel in the latter.

Processed foods and beverages account for nearly 10% of all spending in rural India (making it the single biggest area of spend), and milk, eggs, vegetables, fish and meat another ~20%, pointing to rising incomes and changing lifestyles.

The data indicate narrowing consumption inequality, but a deeper look at the numbers suggests that this may, at least in part, be the result of data-reporting issues.

Both across and within states, consumption in India remains highly uneven.

. As a consumption-driven economy, India’s overall GDP growth is tied strongly to how its households spend. While the national accounts data provide a once-in-a-quarter snapshot of overall spending growth, the government’s periodic Household Consumption Expenditure Surveys allow for a deeper (if imperfect) view of spending trends across states, the urban-rural divide and by consumption category. The latest survey round, covering 2023-24, reveals some important developments in terms of overall spending, as well as regional and category-wise trends. This article highlights some of the key insights from the survey.

. Robust Consumption Growth: Over a 12-year span (FY12 to FY24), rural monthly per-capita consumption expenditure (MPCE) grew at an annualised 9.2%, nearly tripling from Rs 1,430 to Rs 4,122, while urban consumption expenditure grew by 8.5%, more than doubling from Rs 2,630 to Rs 6,996. Adding in the imputed value of items provided for free through government social welfare programmes, these averages go up by about Rs 100/month.

Shifting Rural Consumption Patterns: For the first time since such surveys began, non-food expenditure now accounts for over half (53%) of rural MPCE. Notably:

1. The bulk of non-food spending is going into conveyance, durable goods and fuel.

2. Rural Indians are spending much more on beverages and processed food – nearly 10% of total, and the single-biggest area of spend – reflecting rising aspirations, changing lifestyles and the deepening penetration of branded goods.

3. The drop in food expenditure in the last 12 years was led mainly by a fall in spending on edible oils, though spending on higher-value and high-protein food items, including milk, eggs, fish, meat and vegetables, rose sharply. This reflects both a diversification of rural diets and rising income levels.

4. Increased spending on conveyance reflects improved rural mobility and fast-rising personal-vehicle (mostly 2-wheeler) ownership, fuelled by bank credit.

5. Spending on healthcare is stable, but that on education has stagnated – a worrying indicator of a lack of access to quality education.

Mostly-Stable Urban Household Spending: In urban areas, non-food spends continue to dominate, with most of it going towards education, fuel and rent, and with significant increases in spending on conveyance, durable goods and processed foods. Spending on essentials like milk products and routine healthcare services has remained broadly stable.

Declining (?) Consumption Inequality: On the face of it, the data indicate a sharp fall in consumption inequality across both rural and urban India in just one year. The Consumption Gini coefficient fell from 0.266 in FY23 to 0.237 in FY24 in rural areas, and from 0.314 to 0.284 in urban areas. (A Gini value of 0 indicates perfect equality and 1 perfect inequality.) However, this likely reflects data-reporting issues rather than an actual drop in inequality. For instance, the bottom 10%, in both rural and urban India, reportedly saw their consumption grow by ~20% in a year whereas the top 5% saw declines of 3.5% and 2.5%, respectively. (The next-richest 5% saw increases of less than 5%.) There is, in fact, a strong inverse relationship between income/consumption class and the reported rate of consumption growth, which follows a well-documented trend, across the globe, of the rich underreporting their spending.

Narrowing Urban-Rural Consumption Gaps: The urban-rural consumption gap has narrowed, with the difference in MPCE between the two dropping from 84% in FY12 to 70% in FY24. While welcome, this suggests that true urban-rural parity may never be achieved. The top 5% of urban Indians still spend over 2x as much as the richest rural Indians, though the gap at the bottom is a much-smaller 41%.

Persistent Regional Variations: Across India’s states, consumption in India remains highly uneven. The tiny state of Sikkim leads the way in overall spending, with an MPCE of Rs 9,377 in rural areas and Rs 13,927 in urban areas; Chhattisgarh lies at the other end of the scale (Rs 2,739 and Rs 4,927). The largest in-state urban-rural consumption disparities are found in Meghalaya (104%), followed by Jharkhand (83%) and Chhattisgarh (80%). Interestingly, too, among the major states, rural households in Kerala stand head-and-shoulders above all others in terms of monthly spending, while among urban households, Telengana, Haryana and Tamil Nadu (each at above Rs 8,000).