INDIA S CHANGING CONSUMPTION PATTERN

INDIA S CHANGING CONSUMPTION PATTERN *Savneet Sethia ABSTRACT India s faster economic growth over 1990s has raised per capita income (expenditure) and has significantly impacted its food consumption patterns by causing a change in the structure of food consumption patterns observed earlier during pre-reforms period. The percentage of private final consumption expenditure (PFCE) on food items had declined from 53.7% to 48.4% and on non food items it showed fluctuating trend and has increased from 46.3% to 51.6% in the pre reform period (1970-1991). While in the post reform period (1991-2004), the expenditure on food items had decline from 49.9% to 35.4% whereas expenditure on non food items showed a steady increased from 50.1% to 64.6%. The above comparative discussion on national income and consumption expenditure indicated that there was a significant difference in the pre and post reform period. Keywords: Economic reforms, Consumption expenditure, determinants. *Research Scholar, NIT, Kurukshetra

Introduction: The performance of any economy is measured in terms of the trends and pattern of macroeconomic variable which include national income, consumption, saving, investment and employment. Per capita income and food consumption both are the indicators of human development but food consumption is a better indicator of human welfare. India s faster economic growth over 1990s has raised per capita income (expenditure) and has significantly impacted its food consumption patterns by causing a change in the structure of food consumption patterns observed earlier during pre-reforms period. This raises the relevance of looking at the composition of India s food consumption basket. Consumption is an important activity performed by the household sector. Whatever personal income we obtain, from one source or the other, is spent either on consumption or is saved. Today's consumption is exacerbating inequalities. The consumption pattern in India is defined with the reference to the consumer expenditure survey by the NSSO. These surveys divide rural and urban population into different expenditure group. The distribution of household/person and the per capita monthly expenditure on food and non food items is given for each group. The Government of India introduced economic reforms in various sectors of the economy in July, 1991. The economic reforms were expected to influence the national income and the standard of living of the people. There by the consumption expenditure was expected to change after the reform. Generally economic reforms refer to the special efforts aimed at the removal of economic imperfection in an economy. In other words economic reforms refer to the short term changes for better economic environment and have to refrain from operations. India is one of the fastest growing economies in the world. In the past decade (2000-2010), India s gross domestic product (GDP) has grown at an average rate of 7.27 percent. According to the Planning Commission estimates, the economy is projected to grow at the rate of 9-9.5 percent during the 12th Five Year Plan period (2012-2017). GDP growth has been accompanied by a rise in per capita income. (Economic survey[2]) The paradigm of Indian economic development is the pursuance of economic planning with domination role of the state and economic reforms with the devolution of the government role in the last decade. Now after more than two decades of the reform, it

would be interesting to explore the extent to which the economic policies of the 1990 s have impacted the behaviour of consumption amongst urban and rural population of the country. Objective: 1. To study the impact of economic reform on changing consumption pattern/habits. 2. To compare the expenditure pattern of Indian households between pre and post reform. Survey Data: It is based on the secondary data collected from various source. For collecting secondary data, data will be taken from Central Statistical Organization, Reports on National Sample Survey of various years, National Accounts Statistics of various year, various websites on the internet, various published and unpublished reports and journals will be considered. Private Final Consumption Expenditure On Food Items In The Pre And Post Reform Period: The total private final consumption expenditure was classified as expenditure on food items and expenditure on non-food items. In order to understand the components of consumption, the food items and non-food items were separately considered under Private Final Consumption Expenditure. The expenditure on food items include expenditure on cereals and bread, pulses, sugar and gur, oil and oil seeds, fruits and vegetables, potato and tubers, milk and milk products, meat, egg and fish, coffee, tea and cocoa and spices. The changes in the economic indicators due to new economic reform were expected to change the consumption pattern of households. Hence, the expenditure pattern of the households was classified as pre and post reform period. According to Table I, in the year 1987-88 for food expenditure amounted to INR 213613 whereas at the end of pre reform period it amount to INR 147305 giving a decline of INR 66308 (3.3%) whereas non food expenditure for the year 1987-88 amounted to INR 199344 and at the end of the reform that is in the year 1990-91 it fluctuated and steadily increased to 51.6%, an amount of INR 156878.

TABLE I PRIVATE FINAL CONSUMPTION EXPENDITURE ON FOOD AND NON FOOD ITEMS IN PRE-REFORM PERIOD (1987-88 TO 1990-91) (At 1999-2000 Prices) Sr. No ITEMS 1987-88 1988-89 1989-90 1990-91 1 Food items 213613 (51.7) 226228 (51.6) 236254 (51.3) 147305 (48.4) 2 Non Food items 199344 (48.3) 212504 (48.4) 224250 (48.7) 156878 (51.6) Total Private Final Consumption Expenditure 412957 (100) 438732 (100) 460504 (100) 304183 (100) Note: Figures in parantheses denote the percentage to the total Private Final Consumption Expenditure. Source: National Accounts Statistics, Government of India, New Delhi, various years. Private final consumption expenditure on non food items in the pre and post reform period: The expenditure on non-food items comprises of expenses of beverages, pan, intoxicants, tobacco and its products, hotel and restaurants, clothing and footwear, gross rent and fuel and power, furniture, furnishing appliances and services, medical care and health services, transport and communication, recreation and education and cultural services. The total expenditure on non-food items showed a fluctuating trend and it was found to be 50.1 per cent in 1991-92 and reached 64.6 per cent in 2004-2005.On the whole, in the pre reform period, gross rent, fuel and power was the major non food component in the total private final consumption expenses. But in the post reform period, the emphasis was shifted to transport and communication expenses. It shows that Indians were shifting their expenses towards transport and communication in the post-reform period. TABLE II PRIVATE FINAL CONSUMPTION EXPENDITURE ON FOOD AND NON FOOD ITEMS IN PRE-REFORM PERIOD (1990-91 to 2004) (At 1999-2000 Prices)

Sr No ITEMS 1991-92 1996-97 2001-02 2004-05 1 Food items 175767 (49.9) 422134 (51.0) 595259 (43.6) 611949 (35.4) 2 Non Food items 176727 (50.1) 404899 (49.0) 771054 (56.4) 1118367 (64.6) Total Private Final Consumption Expenditure 352494 (100) 827033 (100) 1366313 (100) 1730316 (100) Note : Figures in parantheses denote the percentage to the total Private Final Consumption Expenditure. Source : National Accounts Statistics, Government of India, New Delhi, various years. Changing consumption pattern: Consumption pattern has attracted a greater interest to a larger number of researchers in developed countries but in all under-developing countries research interest in consumer studies receive less attention. Consumption expenditure on different food and non-food items are generally used as the main yardstick for measuring standard of living in developing nation. Studies of temporal changes in consumption pattern, provides an insight into the status of human resources of a country and hence is helpful in planning future investment decision. Such studies attained special focus in recent years in wake of globalization and concerns about food securities. The National Sample Surveys conducted by Ministry of Statistics and Programme Implementation (MOSPI) are a good reference point to study the behaviour and patterns along lifeline and lifestyle expenses. Following is a table displaying how MPCE (real terms)1 has changed over this time period. It is interesting to note that the increase in MPCE is much higher in the first decade than the second. Table III Monthly Per Capita Expenditure (RS) Sector 1987-88 2000-01 2009-10 Rural 157.42 184.76 190.27 Urban 252.67 313.08 347.47

Overall 178.98 213.60 233.12 Note : All the values are expressed in real terms i.e adjusted with CPI Empirical data supports that the level of MPCE has an inverse relationship to the proportion of food expenditure. This is shown in the graph below (Graph 1) which also confirms Engel s Law i.e. as the income of a household increases, they tend to spend a lower proportion on food even the overall expenditure on food may rise. For rural areas, the real MPCE with 1987-88 as a base year grew from RS 163 in 1993-94 to RS 196 in 2007-08, an increase of 21 % was observed over the last 14 years. While for the urban areas the real MPCE with 1987-88 as a base year grew from RS 268 in 1993-94 and reached RS 364 in 2007-08 showing an increase of 36 %. Table IV Growth of MPCE at current and constant prices since 1987-88, all India Characteristic 1987-88 1993-94 2004-05 2009-10 MPCE ( R ) Current price MPCE ( R ) Base Year 1987-88 MPCE (U) current prices MPCE ( U) Base Year 1987-88 158.10 286.10 579.17 953.05 158.10 162.56 181.56 192.93 249.92 464.30 1104.60 1856.01 249.92 268.38 326.80 368.99 Source: Household Consumption Expenditure in India, 2009-10 The annual real term increase from 2006-07 to 2007-08 in average rural MPCE was 2.2 % while average urban MPCE was 5.4 %. the corresponding annual increments from 2005-06 to 2006-07 were 207 % and 4.7 % for rural and urban MPCE. Graph 1

MPCE at current prices, Rural and Urban India, 2004-05 to 2007-08 2000 1500 1000 500 MPCE ( R ) Current price MPCE (U) current prices 0 2004-05 2005-06 2006-07 2007-08 Source: Household Consumption Expenditure in India, 2007-08. Rising Rural MPCE Is A Reflection Of India s Economic Growth: During the latest survey, the economy grew at an average annual rate of above 8 % and the rural MPCE rose to 65 % during the same period. Among the major state, Kerala ( INR 1835) has the highest rural MPCE followed by Punjab (INR 1649) and Haryana (INR1510) while Bihar and Chhattisgarh (around INR 780) had the lowest rural MPCE followed by Orissa and Jharkhand (around INR 820) and Uttar Pradesh and Madhya Pradesh (around INR 900). In the urban sector, MPCE of 6 states was higher than the national average led by Maharashtra and Kerala and followed by Haryana, Andhra Pradesh, Punjab and Karnataka. Like in the rural sector, Bihar (INR 1238) also had the lowest urban MPCE followed by Orissa, Uttar Pradesh, Jharkhand and Chhattisgarh. Table V Average MPCE (RS) in rural and urban sectors of major states in India State Rural MPCE Urban MPCE Kerala 1835 2413 Punjab 1649 2109 Haryana 1510 2321 Andhra Pradesh 1234 2238 Rajasthan 1179 1663 Tamil Nadu 1160 1948 Maharashtra 1153 2437

Gujarat 1110 1909 Karnataka 1020 2053 Assam 1003 1755 West Bengal 953 1965 Madhya Pradesh 903 1666 Uttar Pradesh 899 1574 Jharkhand 825 1584 Orissa 818 1548 Chhattisgarh 784 1648 Bihar 780 1284 All India 1054 1984 Source: National Sample Survey Organisation, Report No.538 According to the quenquinnel survey, the composition of household expenditure basket in terms of food and non food items has been steadily changed. The share of food was 57 % in rural India and 44.4 % in urban India. The progressive decline in the share of food by about 10 % and 16 % in rural and urban sectors respectively, during the 22 years is widely considered as a measure of economic growth. The consumption of cereals which still form the largest components of household consumption budget has significantly declined since 1987-88 from 26.3% to 15.6% in rural India and from 15 % to 9 % in urban India. Pattern Of Consumption: Using the MMRP (Modified Mixed Reference Period) method of MPCE measurement, food was estimated to account for about 57% of the value of the average rural Indian s household consumption during 2009-10. This included 14% for cereals and cereal substitutes, a little less than 8% for milk and milk products, and 8% on vegetables. Among non-food item categories, fuel for cooking and lighting accounted for about 8%, clothing and footwear for 6%, medical expenses for a little over 5%, conveyance and education for about 3.5% each, other consumer services for 4%, and consumer durables for 3.5%. For the average

urban Indian, over 44% of the value of household consumption was accounted for by food, including 8% by cereals and 7% by milk and its products. The share of most of the food item groups in total consumption expenditure was higher in rural India than in urban India, fruits and processed food being exceptions. For non-food item groups, the share was usually higher in urban India. The most noticeable differences were in case of cereals (urban share: 8%, rural share: 13.8%), rent (urban: 6%, rural share: 0.5%) and education (urban: 8%, rural: 3.6%). In the major states, the share of food in rural MPCE varied from 46% for Kerala and 48% for Punjab to 64% in Assam and 65% in Bihar. In the urban sector it varied from 40-41% in Kerala and Maharashtra to 52% in Jharkhand and 53% in Bihar and Assam. The share of cereals in total expenditure in rural India varied across the major states from 7% in Punjab and Haryana to 21% in Assam and Bihar. In urban India, the share varied from 6% for Haryana, Punjab and Kerala to 13% in Assam and 15% in Bihar. The budget share of cereals was 23-24% for the bottom decile class of rural India but fell with rise in MPCE to about 7-8% for the top decile class. In urban India the share of cereals fell from 18-19% for the bottom decile class to 3-4% for the top decile class. The budget share of milk and milk products in rural household consumer expenditure was seen to rise with MPCE level from 3-4% in the bottom decile class to 9% in the ninth decile class. For urban India, however, the share was higher for the middle third of the population than for the highest decile classes. The share of fuel and light in household consumer expenditure was around 10-11% for the bottom decile class in both sectors. With rise in MPCE it was seen to fall to about 6% in the top decile class for rural India and 5% for urban India. Conclusion: The share of expenditure on food items in total aggregate consumption expenditure had declined from 53.7 per cent in 1970-71 to 48.4 per cent at the end of the pre reform period. In the post reform period also, the food expenditure had declined from 49.9 per cent in 1991-92 to 35.4 per cent in 2004-2005. The above comparative discussion on aggregate national income and aggregate consumption expenditure between pre and post economic reform period indicates that there was significant difference in them. The consumption of cereals which still form the largest components of household consumption budget has significantly declined since 1987-88 from 26.3% to 15.6% in rural India and from 15 % to 9 % in urban India.

TABLE VI Average MPCE MMRP across decile classes of MPCE MMRP, all-india, 2009-10 Rural Urban Decile class of Average Decile class of Average MPCE MMRP (RS.) MPCE MMRP (RS.) MPCE MMRP (RS.) MPCE MMRP (RS.) (1) (2) (3) (4) Less than 537 Less than 733 452.98 599.27 537-631 584.40 733-926 830.96 631-718 675.35 926-1101 1011.84 718-804 760.79 1101-1293 1196.08 804-895 848.07 1293-1502 1397.99 895-1001 944.35 1502-1773 1633.42 1001-1133 1062.93 1773-2097 1930.96 1133-1322 1220.59 2097-2603 2329.87 1322-1653 1470.33 2603-3665 3050.69 1653 and above 2516.69 3665 and above 5863.25 All classes 1053.64 All classes 1984.46 Note: Each decile class corresponds to 10% of population TABLE VII Average MPCE MMRP and food share: major States, 2009-10 Rural urban Average per capita % share of average per capita % share of State food in food in MPCE food exp. cons. MPCE food exp. cons. (RS.) (RS.) exp. (RS.) (RS.) exp. (1) (2) (3) (4) (5) (6) (7) Bihar 780 505 64.7 1238 655 52.9 Chhattisgarh 784 456 58.2 1647 720 43.7 Orissa 818 507 61.9 1548 749 48.4 Jharkhand 825 503 60.9 1584 816 51.5 Uttar Pradesh 899 521 57.9 1574 728 46.3 Madhya Pradesh 903 504 55.8 1666 694 41.7 West Bengal 952 604 63.5 1965 907 46.2

Assam 1003 646 64.4 1755 929 52.9 Karnataka 1020 577 56.5 2053 869 42.3 All-India 1054 600 57.0 1984 881 44.4 Gujarat 1110 640 57.7 1909 882 46.2 Maharashtra 1153 623 54.0 2437 999 41.0 Tamil Nadu 1160 635 54.7 1948 876 45.0 Rajasthan 1179 647 54.8 1663 798 48.0 Andhra Pradesh 1234 717 58.1 2238 1002 44.8 Haryana 1510 815 54.0 2321 1001 43.1 Punjab 1649 795 48.2 2109 933 44.3 Kerala 1835 843 45.9 2413 970 40.2 TABLE VIII Trends in percentage composition of MPCE URP since 1987-88 rural urban share in total consumer item group expenditure in 1987-1993- 1999-2004- 2009-1987- 1993-1999- 2004-2009- 88 94 2000* 05 10 88 94 2000* 05 10 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Cereals 26.3 24.2 22.2 18.0 15.6 15.0 14.0 12.4 10.1 9.1 Gram 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.1 0.1 0.1 cereal substitutes 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 pulses & products 4.0 3.8 3.8 3.1 3.7 3.4 3.0 2.8 2.1 2.7 milk & products 8.6 9.5 8.8 8.5 8.6 9.5 9.8 8.7 7.9 7.8 edible oil 5.0 4.4 3.7 4.6 3.7 5.3 4.4 3.1 3.5 2.6 egg, fish & meat 3.3 3.3 3.3 3.3 3.5 3.6 3.4 3.1 2.7 2.7 Vegetables 5.2 6.0 6.2 6.1 6.2 5.3 5.5 5.1 4.5 4.3 fruits & nuts 1.6 1.7 1.7 1.9 1.6 2.5 2.7 2.4 2.2 2.1 Sugar 2.9 3.1 2.4 2.4 2.4 2.4 2.4 1.6 1.5 1.5 salt & spices 2.9 2.7 3.0 2.5 2.4 2.3 2.0 2.2 1.7 1.5 beverages, etc. 3.9 4.2 4.2 4.5 5.6 6.8 7.2 6.4 6.2 6.3 food total 64.0 63.2 59.4 55.0 53.6 56.4 54.7 48.1 42.5 40.7 pan, tobacco, intox. 3.2 3.2 2.9 2.7 2.2 2.6 2.3 1.9 1.6 1.2 fuel & light 7.5 7.4 7.5 10.2 9.5 6.8 6.6 7.8 9.9 8.0 clothing & bedding 6.7 5.4 6.9 4.5 4.9 5.9 4.7 6.1 4.0 4.7

Footwear 1.0 0.9 1.1 0.8 1.0 1.1 0.9 1.2 0.7 0.9 misc. g. & services 14.5 17.3 19.6 23.4 24.0 23.2 27.5 31.3 37.2 37.8 durable goods 3.1 2.7 2.6 3.4 4.8 4.1 3.3 3.6 4.1 6.7 non-food total 36.0 36.8 40.6 45.0 46.4 43.6 45.3 51.9 57.5 59.3 total expenditure 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 *URP estimates shown except for 1999-2000, for which only MRP estimates are available. Reference: 1. Sinha R.R An analysis of food expenditure in India, Journal of Farm Economics, (1996), Vol. 48, No. 1,pp 113-123. 2. Economic Survey 1970-71 to 2004-05, Ministry of finance, Government of India, New Delhi Publication. 3. National Sample Survey Organisation, Government of India, (2008), New Delhi Publication. 4. Central Statistic Organisation, Ministry of Statistic and programme implementation, (2007), National accounts statistic (2007), New Delhi Publication. 5. Level and Pattern of Consumer Expenditure 2009-10, National Sample Survey Report No. 538.