Household Consumption Expenditure Survey (HCES)

Context: The National Sample Survey Office (NSSO) has released the summary results of Household Consumption Expenditure Survey (HCES) 2022-23 in a form of factsheet. The detailed report of the survey is expected to be released in the near future.

About the Survey

• The Household Consumption Expenditure Survey (HCES) is a quinquennial survey (conducted every five years) by National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation.
• It collects information about the consumption of goods and services by the households. 
• It also collects some auxiliary information on household characteristics and demographic particulars of the households. 
• This information is invaluable to policymakers because of its wide coverage, covering the whole of the Indian Union (except a few inaccessible villages in the Andaman and Nicobar Islands) and has a big sample size comprising 2.6 lakh households. Of these, 1.5 lakh are from rural areas and 1.1 lakh from urban areas.
• The latest survey was released after a decade because the previous household consumption survey conducted in 2017-18 was scrapped. 

Why Do We Need Such Surveys?

• Information collected in HCES is useful for understanding the consumption and expenditure pattern, standard of living and well-being of the households. 
• The data of HCES provides budget shares of different commodity groups that are used for preparation of official Consumer Price Indices (CPIs).

Major Findings

• Decline in Food Spending
  • Indians have been consistently spending less on food. The expenditure on food dropped below 50% of the total consumption expenditure in rural India and below 40% in urban India. This marks a significant shift in spending patterns.
• Moving Beyond Cereals
  • Expenditure on cereals was almost 22% of the total consumption expenditure in rural households in 1999-2000; it is now down to 4.91%. In urban households, it has reduced from 12% to 3.64% in the same period.
• Spending More on Foods having High-value & Nutritional items
  • In 1999-2000, rural households spent 11.21% of the total consumption spending on  items such as eggs, fish and meat, and fruits and vegetables, and urban households spent 10.68%. In 2022-23, this was significantly higher for rural households at 14%, and only marginal higher for urban households at 11.17%.
• Lowering Rural-Urban Divide
  • India's average monthly spending more than doubled - both for the rural and the urban areas. Rural Indians have been spending a lot more than a decade ago. The rural average monthly consumption spending for one person went from ₹1,430 in 2011-12 to ₹3,773 in 2022-23, an increase of 163.84%. This indicates an improvement in the standard of living in rural households.
  • On the other hand, urban spending rose 145.58% to ₹6,459 in 2022-23.
  • Another positive outcome of the survey is that the difference between how much rural and urban households are spending has decreased.
  • The difference in monthly per capita consumption expenditure (MPCE) between rural and urban households decreased from 83.91% in 2011-12 to 71.19% in 2022-23.
  • This means that consumption expenditure in rural areas has been growing at a faster rate than urban areas during the 11-year period. 
• Rising Inequality
  • Rural and urban households might be spending higher but the difference between the bottom-most and the top-most strata is alarming.
  • The bottom 5% in rural areas spend ₹1,373 per month on consumption, while the top 5% spend ₹10,501. At the same time, the bottom 5% in urban areas spend ₹2,001, the top 5% spend ₹20,824.
  • Hence, it can be said that the MPCE of the top 5% of rural population is 7.65 times more than its bottom 5%, the MPCE of the top 5% of urban population has an MPCE of over 10 times its bottom 5%.

Significance

• Reviewing Inflation Indexes: 
  • The retail inflation is gauged from Consumer Price Index (CPI). The CPI is based on a basket that was decided in 2012. But over the last 11 years, the consumption pattern has changed.
    • For example, the CPI (Rural) basket assigns a weightage of 12.35% to ‘cereals and products’. But as the latest HCE Survey shows, rural households spend just 4.91% on cereals and their substitutes. 
    • The share of expenditure on food in rural households is 46.38%, according to the Survey. But food in the CPI (Rural) basket has a weightage of 54.18%. 
  • Hence according to the HCES, the figures assigned to food are much higher than what a rural consumer now spends.
  • Therefore, it is necessary to make changes in the weightage of different commodity groups of the CPI basket by following the trends highlighted above. This will ultimately help the RBI to review accurately the changes in inflation and then enable it to react accordingly in terms of making necessary changes in its monetary policy decisions.
• Rising Aspirations: Decline in food spending means that Indians are left with more money for various purposes, such as purchasing consumer durables, clothing, footwear, fuel, entertainment and other lifestyle expenditures.
• Preference to Nutrition: The spending on high-value/ nutritional items such as eggs, fish and meat, and fruits and vegetables has gone up more in rural households than in urban households over the last two decades.
• Inclusive Growth: The narrowing rural-urban gap suggests positive trends in rural development, economic upliftment, and an improvement in living standards.