India’s Household Spending On Non-Food Items Rises; Narrowing Urban-Rural Gap

India’s household spending on non-food items such as transport, garments, and entertainment has seen a significant increase, with both rural and urban areas reporting higher expenditures. A recent government report reveals that the urban-rural gap in spending has narrowed, highlighting changing consumption patterns across the country.

According to the Household Consumption Expenditure Survey for 2023/24, conducted from August 2023 to July 2024, non-food items accounted for approximately 53% of per capita spending in rural areas, up from 47% in 2011/12. Similarly, urban areas saw an increase, with non-food spending rising to 60% from 57% over the same period. The shift in spending toward non-food categories reflects broader economic changes, including increased disposable income and changing preferences in both rural and urban households.

Impact On Consumer Price Index And Monetary Policy

The rise in non-food consumption is expected to influence the consumer price index (CPI), which the Reserve Bank of India (RBI) uses to determine monetary policy. As food items constitute a smaller portion of household budgets, their reduced weighting in the CPI could lead to adjustments in inflationary trends, impacting the central bank’s policy decisions.

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Officials from the Ministry of Statistics and Programme Implementation have already indicated plans to revise the base year for retail inflation data from 2012 to 2024. This revision will incorporate recent findings, including the shift in household spending behavior.

The report highlighted that rural consumer spending grew by 9.55% year-on-year, reaching 4,122 rupees ($48.23) per month by July 2024, compared to 3,773 rupees in the previous year. Urban spending, on the other hand, increased by 8.31%, rising to 6,996 rupees from 6,459 rupees.

When adjusted for inflation, rural spending showed a modest increase of 3.5%, while urban spending growth remained subdued, impacted by retail inflation of about 5.5% in the fiscal year ending March.

Narrowing Urban-Rural Consumption Gap

The gap in monthly per capita spending between rural and urban households has narrowed significantly, dropping to 70% in 2023/24 from 84% in 2011/12. This reflects a slight convergence in consumption patterns, with rural areas experiencing a more significant increase in consumer spending over the past decade.

In comparison with 2011/12, rural consumer spending has risen by 45.4%, outpacing the 38.1% increase in urban areas. This trend suggests that rural households are experiencing improved economic conditions, contributing to a more balanced consumption dynamic between rural and urban India.

Consumer spending remains a crucial driver of economic activity, accounting for approximately 58% of India’s GDP. The evolving spending patterns reflect broader shifts in the Indian economy and are expected to play a vital role in sustaining growth in the coming years.