The poorest can live better without buying much

Aunindyo Chakravarty

Senior Economic Analyst

HOW does one measure success in our world? If you are of the spiritual kind, you might say that success is about how happy you are and how much love you have in your life. Indeed, the richer you are, the more likely you are to talk about that kind of success. That is why the Beatles — who made loads of moolah — sang “I don’t care too much for money; money can’t buy me love.”

For the rest of us mortals, money does matter.

In fact, more often than not, we measure success in terms of what kind of job a person has and how much they earn. Even that can only be known from their spending habits — what kind of clothes they wear, the car they own, the restaurants they eat at and the places they visit on holidays. After all, it is unlikely that successful people will show you their bank statement or salary slip.

What is true for people is equally true for economies. We measure an economy’s success in terms of how much income it generates every year (we call it GDP), what kind of jobs people have and how much they spend. Modern economies generate this data on a regular basis. In India, the GDP data is published every quarter, but there has been a huge lag when it comes to the data on how much households are spending on goods and services. Finally, after a gap of 11 years, the government’s statisticians have come out with detailed monthly consumption figures based on a survey of 2.62 lakh households.

It tells us that in 2022-23, the average per person monthly expenditure in rural areas was Rs 3,773, while it was Rs 6,459 in urban areas. This excludes the imputed cost of free food and other subsidies given by the government and things that people grew or made on their own, without buying them from the market. If one takes a 60:40 ratio of rural to urban population (the ratio used by the survey for its sample), the average monthly consumption would come to about

Rs 4,850 per person.

This is less than half of the average consumption figure that we get from the GDP figures that the government had released for the same year. The GDP data contains a category called private final consumption expenditure (PFCE). In economics textbooks, this stands for the total value of goods and services consumed by households in an economy. The per capita PFCE in 2022-23 was Rs 9,896, which is more than double the consumption figure one can estimate from the new survey.

This is not difficult to explain. Consumption surveys rarely tap the richest households. So, they are unable to capture how much the affluent are consuming. This pushes down the overall average consumption figure, especially in countries like India, where there is huge income inequality. We can see this clearly from another direction. In the GDP data, expenditure on food amounts to just 28 per cent of overall consumption, whereas it is approximately 44 per cent of the monthly spending estimated by the household consumption expenditure survey. Again, textbook economics tells us that richer families spend less on food as a proportion of their total budget, when compared to the poor. The difference between the two data sources points to the fact that the consumption expenditure survey underestimates consumption at the top of the income scale, while it makes a decent estimate for the rest of the population.

There is another reason to believe that the consumption survey underestimates how much the richest people spend. According to the survey, the average per person monthly expenditure by the richest 5 per cent of urban Indians was Rs 20,824 in 2022-23. India’s average household size is estimated to be between 4.3 and 4.4 persons. We know that the household size falls as we go up the income ladder. This means that at the top of the pile, there are likely to be no more than four people per household. If we use that to calculate the monthly consumption expenditure of the richest 5 per cent of households in towns and cities, it amounts to just

Rs 83,300. This clearly cannot account for the kind of consumption that we see among India’s urban rich.

We know that about 60 per cent of Indians get free rations from the government. This can be seen from the difference between the cash spending and imputed expenditure of individuals across the expenditure scale. In 2022-23, the poorest 10 per cent of people in urban India got about Rs 87 of freebies per month per head. The poorest 10 per cent of people in rural India have an additional

Rs 75 per month in imputed expenditure. These people are likely to be landless, and many would not have any regular work either. So, they are likely to purchase everything they consume from the market, except for some donations and barter income. This suggests that almost the entire additional ‘imputed’ expenditure is based on government subsidies.

Including subsidies, the poorest 30 per cent of Indian households spent about Rs 10,600 every month in rural areas and Rs 15,500 in towns and cities. If we compare this to the data collected by NABARD’s (National Bank for Agriculture and Rural Development) financial inclusion survey in 2016-17, the poorest people in India’s villages seem to have seen a dramatic improvement in their consumption expenditure. That survey suggested that the bottom 30 per cent of people living in rural areas spent about Rs 3,800 per month. Going by the 2022-23 prices, that would be approximately Rs 5,100. Even though surveys are not entirely comparable, this suggests that average household expenditure has nearly doubled in real terms for the poorest 30 per cent of people in rural India in six years.

Should this significant improvement have shown up in production and sales data? Not necessarily. It is possible for the poorest to be living better without buying much. This is just a case of surviving at the subsistence level, which has been getting increasingly difficult since the 1990s. This could be one key reason for the massive support for the Narendra Modi-led government among India’s poor, despite its lacklustre record on generating jobs.

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