Rural /Urban Disparities in consumption levels

Summary:

(1) Urban households incur almost twice the expenditure incurred by rural households.  The gap between rural and urban household expenditure widened from 1:1.4 in 1977-78 to 1:1.9 in 2004-05 (RBI).

(2) The share of food in the average consumption basket has shown a steady decline in both urban (60% to 42%) and rural (64% to 55%) areas during the same period. While income levels have been rising everywhere, urban households have been spending less on food in proportionate terms compared to rural households.

(3) Within the food basket, the share of cereals has been coming down rural house holds from 33% to 18% and urban house holds from 21% to 10% during the same period.

4) Across States, there are significant disparities in consumption expenditure. Chattisgarh, Orissa, Bihar and Madhya Pradesh had an MPCE less than Rs. 500 in rural areas. Some of these States have fared poorly in terms of urban MPCE as well. On the other side, Kerala topped the list under both urban and rural MPCE. (Rs.1056 rural and Rs. 1,566 urban. The use of kerosene as cooking fuel has been declining sharply in both rural and urban areas. However, around 42 per cent of rural households still depend on kerosene for lighting purposes.

In rural Orissa, 48% of rural households lived in katcha structures.
Details

(A)1. i)Average monthly per capita consumer expenditure (averageMPCE) in 2005-06 was Rs.625 in rural India and Rs.1171 in urban India at 2005-06 prices. Average urban MPCE exceeded average rural MPCE by 87% at the all-India level. Planning commission has observed that Data from NSS surveys show that the ratio of urban to rural per capita consumption increased from 1:1.4 in 1977-78 to 1.62 in 1993-94, to 1.76 in 1999-00 and further to 1.91 in 2004-05, which suggests that the urban rural divide is widening.
Nearly 19% of the Indian rural population belonged to households with monthly per capita consumption expenditure (MPCE) less than Rs.365, that is, spending less than Rs.12 per person per day on consumption, at 2005-06 prices. For rural Orissa and Chhattisgarh, the percentage of population with such low consumption expenditure levels was as high as 44%. For Madhya Pradesh, Jharkhand and Bihar, the percentage was in the range 29-34%.

In urban India, where expenditure levels were higher, 22% of the population belonged to households with monthly per capita expenditure less than Rs.580 (about Rs.19 per person per day). In urban Bihar, 56% of the urban population was in this category. In urban Orissa and Uttar Pradesh, the percentage was 36-38%, and in all other major States it was under 30%.
Average rural and urban MPCE in major States, 2005-06

While about 19% of the country’s rural population as a whole lived below the MPCE level of Rs.365 (about Rs.12 per day), about 44% of people in rural Orissa and Chhattisgarh, over 33% in rural Madhya Pradesh, 32% in rural Jharkhand, and over 29% in rural Bihar belonged to this category . Punjab and Kerala had the fewest people in this category, while the States of Uttar Pradesh, Karnataka, West Bengal and Tamil Nadu were average States in this respect (close to the national average).

ii) Rural and urban population below specific MPCE levels, all- India, 2005-06

Rural urban disparities are starkly evident from the table below.  While about 20% of urban population is below MPCE level of Rs 580, nearly 60% of rural population is below that level. While 37% of urban population is above the MPCE level of Rs 1100, only7% of rural population is above the comparable level.

2) BROAD PATTERN OF CONSUMPTION IN 2005-06

Out of every rupee spent in 2005-06 by the average rural Indian on consumption, 53 paise was spent on food. Of this, 17 paise was spent on cereals and cereal substitutes, 8 paise on milk and milk products, 6 paise on vegetables, 5 paise on sugar, salt and spices, and 4 paise on beverages, refreshments, processed food and purchased meals.
Out of every rupee spent in 2005-06 by the average urban Indian on consumption, 40 paise was spent on food. Of this, 9 paise was spent on cereals and cereal substitutes, 7 paise on milk and milk products, 6 paise on beverages, refreshments and processed food, and 4 paise on vegetables.
Rural and urban households differed little in the share of the budget allocated to fuel and light (10% for rural, 9% for urban), clothing, including bedding and footwear (7% for rural, 6% for urban), and medical care (7% for rural, 6% for urban).
Rural and urban households differed noticeably in the share of the budget allocated to cereals (17% for rural, 10% for urban), rent (less than 0.5% for rural, 6% for urban), education (3% for rural, 6% for urban), and miscellaneous consumer services including transport and telephone (8% for rural, 14% for urban).
In rural India, the share of food in total consumer expenditure varied from 44% in Punjab and Kerala to 60% in Assam and 61% in Bihar and Jharkhand.
In urban India the share of food was 51% in Bihar and 36-45% in all other major States.
Main Source: Household Consumer Expenditure in India, Surveys from 77-78 to 05-06.

(B) How India Spends- NCAER Study-2007-Summary

The average Indian household spends about three-fourth of its income on routine and non-routine expenditure.
The rural-urban divide is also evident in the spending patterns of households. While rural households spend (on an average) Rs 18,404 on food items in a year, urban households’ spend level on food items is Rs 26,858. As a proportion of income, urban
households spend around 45 per cent of their income on food while rural ones spend around 55 per cent.
Expenses on items like food tend to drop (as a share of both income and expenses) as households get richer. Food expenses, which comprise 51.1 per cent of all routine expenditure at the all-India level, rise to 59 per cent in the case of households headed by illiterates. This falls to 43 per cent in the case of households headed by graduates.

Similarly, there a large difference in the proportions spent on housing (5.9 per cent in urban areas versus 3.8 per cent in rural areas) and on education (8.7 per cent versus 6.4 per cent). But expenses in other areas like health (4.7 per cent versus 4.6 per cent), clothing (7.1 versus 6.8 per cent) and buying durables (4.9 versus 5 per cent) are not too dissimilar.
Like earnings, expenditure patterns too are a function of age, occupation, education, landholdings and location. Households whose main source of income is salaries/wages have the highest annual income as well as the highest annual consumption expenditure. They
spend more on non-food items (Rs 33,560 or 55 per cent) than on food items (Rs 27,975 or 45 per cent).
Weddings, social ceremonies and medical expenses largely make up for the unusual expenditure of households. While unusual expenditures account for around 13.6 per cent of income in rural areas, the figure is marginally lower at 10.6 per cent in urban areas. For the country as a whole, it is 12.2 per cent. Not surprisingly, the urban-rural disparity is also reflected in the ownership profile of most consumer durables. For instance, in the lower category of durables like pressure cookers and ceiling fans, urban.
ownership levels are much higher than those for rural areas. Just 38 per cent of rural households, for instance, own a pressure cooker/pan as compared with 80.4 per cent for urban areas. Among the medium category of consumer durables (such as black-and-white TV sets, geysers, vacuum cleaners and mixer-grinders), penetration levels are even lower -- just 35 per cent of all households in India have mixer-grinders, with more urban homes (56 per cent) compared to rural homes (19 per cent) owning these gadgets.
Ownership of high-end consumer products is even limited. However, for certain products, the share is growing. Regular colour TVs, for instance, have penetrated a third of Indian homes, with ownership
being significantly higher in urban households – at 54 per cent.
The survey found one-fourth of Indian families (51 million households equivalent to about 262 million persons) to be financially vulnerable. In other words, incomes of around 25 per cent of Indian households are below their total expenditure and these households are unable to meet their needs through the financial resources at their disposal. Approximately three-fourth of such households is located in rural India.
Sources: NSSO-AIDIS, India Financial Protection Survey-NCAER-2007