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LATEST NEWS UPDATES | Rural India spending more on FMCG and services: NSSO

Rural India spending more on FMCG and services: NSSO

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published Published on Jul 9, 2011   modified Modified on Jul 9, 2011
-The Economic Times
 
Rural Indian households are spending more on consumer goods like durables, beverages and services than five years ago, shows the latest expenditure data that debunks the notion that rapid growth in recent years did not benefit the hinterlands. The household consumer expenditure survey for 2009-10, released by the National Sample Survey Office ( NSSO )) on Friday, shows rising real spending in rural areas, even though it is almost half of urban India's, suggesting increasing incomes.

"The data suggests that there has been an improvement in the living standards of the rural population," CARE Ratings Chief Economist Madan Sabnavis said. The 66th round of the National Sample Survey showed that monthly per capita expenditure (MPCE) in rural India was Rs 953.05 in 2009-10, an increase of 64.6% from 2004-05. The increase in per capita expenditure is higher than the 57.64% rise in consumer prices, according to the Consumer Price Index (CPI-AL) during the five-year reference period.

Urban India did better with the MPCE rising 68% to Rs 1,856.01 and prices, according to CPI-IW, rising 49.92%. The National Sample Survey, done every five years, was carried out between July 2009 and June 2010, covered 7,524 villages and 5,284 blocks. The data suggests there have been gains in real terms, as the rise in incomes has offset the rapid rise in prices during this period. "The rise in incomes has offset the negative effects of inflation," said Crisil India Senior Economist Sunil Sinha. "This is probably the reason why we do not see social discontentment on the streets," he added.

The breakup of the expenditure, or how households spent their money, suggests a break away from mere subsistence for the vast majority because the average spending on food was down to 53.6% in 2009-10 from 59.4% in 1999-2000. In rural households, cereals accounted for only 15.6% of expenditure in 2009-10, down from 22.2% in 1999-2000. During the same period, share of their spending on consumer durables almost doubled to 4.8% from 2.6%.

In fact, when the global recession hit urban demand two years ago, it was strong rural demand that rescued the economy. And all kinds of consumer product companies-from toothpaste marketers and mobile handset makers to carmakers and television companies-have been expanding their rural reach in recent years. "We have experienced growth of about 25% in the consumer durables segment in the last 3-4 years," said YV Verma, chief operating officer of LG Electronics India , the country's largest consumer durables maker.

The survey also does not endorse the notion that one reason for high food inflation was that consumers were buying high-value foods. There is no clear trend of higher expenditure on pulses, milk products, vegetables and fruit, and eggs and meat. In the case of urban households, there is steady decline in allocation to these foods. The bulk of allocation away from foods has gone to consumer durables and services. "The rise in spending on durables indicates on the overall increasing affluence of the population," Sabnavis said.


While the incomes have increased, in absolute levels they are still low. More than 80% people living in rural India- where more than 70% of the country's population live--spend less than a dollar a day. And the disparities between the richest and the poorest have worsened since 2004-05, both in rural and urban India. The current survey reveals the expenditure of the richest 10% villagers was 5.76 times higher than that of the poorest 10%.

This ratio was slightly better at 5.63 during the previous survey period (2004-05). The rich-poor divide has increased at a higher rate in urban areas. In the 2009-10 survey period, the average expenditure of the top 10% urbanites was 10.11 times more than the bottom 10%. In the 2004-05 survey period, the ratio stood at 9.14.

While the average urban household spend is almost double that of a rural household, the poor in urban areas are poorer than the rural poor. The poorest 10% of urban households spent only Rs 453 per head a month while their rural counterparts spent Rs 599 each. "Inequality has gone up... the poorest 10% has benefited a lot less," said Himanshu, an assistant professor in the Jawaharlal Nehru University and a visiting fellow at the Centre de Sciences Humaines, New Delhi.

The Economic Times, 9 July, 2011, http://economictimes.indiatimes.com/news/economy/indicators/rural-india-spending-more-on-fmcg-and-services-nsso/articleshow/9157630.cms

Tagged with: Poverty



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