Income gap rises in India

Difference in per capita expenditure between urban and rural consumers is now wider than in 2004-05: NSSO

Despite the much-hyped rural consumption boom and all the social sector programmes of the government, the income inequality between the rural and urban consumer widened to 91% in the first five years of the United Progressive Alliance coming to power in 2004.

According to the 66th round of the household consumption expenditure survey released by the National Sample Survey Office (NSSO) on Friday, the per capita expenditure level of the urban consumer is now 91% higher than his rural counterpart, compared with 80% in the earlier 61st round of the survey conducted in 2004-05.

Though NSSO has declared that it will carry out the consumption survey again in the current fiscal as 2009-10 was a drought year, given that during the five years from the earlier survey the economy grew at an average of 8.64%, the trickle-down effect may not be happening as expected, analysts said.

N.C. Saxena, a member of the National Advisory Council, said this was because both agriculture and rural safety nets are in bad shape.

“Unfortunately, agriculture is in a state of collapse. Per capita food production is going down. Rural infrastructure such as power, road transport facilities are in a poor state,” he said. “All the safety net programmes are not working at all, with rural job scheme and public distribution system performing far below their potential. This has added to the suffering of rural India while market forces are acting in favour of urban India, which is why it is progressing at a faster rate.”

Without an official income survey, India relies on the consumption survey to measure income growth.

Among the major states, Kerala (Rs. 1,835) had the highest rural monthly per capita consumption expenditure (MPCE), followed by Punjab (Rs. 1,649) and Haryana (Rs. 1,510). Maharashtra (Rs. ,437) and Kerala (Rs. 2,413) were the two major states with the highest urban MPCE, followed by Haryana (Rs. 2,321). Urban MPCE was lowest in Bihar (Rs. 1,238).

The average urban MPCE was 28% higher than rural MPCE in Punjab, 31% higher in Kerala, and 41% higher in Rajasthan.

While average MPCE was Rs. 1,054, the median, or mid-point, rural MPCE was Rs. 895, signifying half the rural population belonged to households with consumption expenditure below Rs. 30 per day.

In urban India, where average MPCE was Rs. 1,984, the median MPCE was Rs. 1,502, meaning half the urban population had consumption expenditure below Rs. 50 per day.

Saxena said the government needs to look for imaginative solutions for rural India. “There has been no evaluation of social safety programmes,” he said. “Overall Plan expenditure in agriculture is very low, with most of the bogus schemes not benefiting the farmers.”

However, the survey shows an increase in consumption power across the country. The rural per capita consumption has grown 6% in 2009-10 against 1.2% in 2004-05. Similarly, urban per capita consumption has risen 6.8% compared with 2.9% in the earlier survey.

Indira Rajaraman, professor emeritus at the National Institute of Public Finance and Policy, said the survey data was encouraging. “If the survey shows 50% of rural population lives below Rs. 30 a day, then it is an improvement over the unorganized sector committee report (chaired by Arjun Sengupta), which showed 77% of the Indian population lives below Rs. 20 per day.”

Rajaraman said a growing urban-rural divide was inevitable in the process of development. “If there is absolute improvement in rural income, then rising disparity is not that worrisome. It only shows that though rural India has done well, urban India has only done better,” she said.

The survey shows the share of the food basket in total consumption expenditure is coming down in both rural and urban India. The share of food in consumer expenditure was 57% in rural India and 44.4% in urban India.

The share of food in total consumption has declined since 1987-88 by about 10 percentage points to 53.6% in the rural sector and by about 16 percentage points to 40.7% in the urban sector.

In rural India, people are spending less and less on cereals, edible oil and fruits. They are spending more on pulses, milk, non-vegetarian items and beverages. In urban India, consumption of nearly all food items is either going down or is constant compared with the earlier survey.

In both rural and urban India, consumption of non-food items, which include consumer durables, education and recreation, among others, has gone up as a result of the decline in expenditure on food items.

The five-year survey carried out between July 2009 and June 2010 surveyed 7,428 villages and 5,263 blocks. The survey covered 41,697 samples in urban areas and 59,097 samples in rural areas.