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Consumption
Inequality in India* |
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| June
26 th 2012, C.P. Chandrasekhar and Jayati Ghosh |
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The
period of economic boom in India that has lasted for
around fifteen years was also a period of significant
increase in aggregate consumption, at least according
to the data of the National Accounts Statistics. To
what extent was this also reflected in increases in
household consumption?
Data from the National Sample Survey Organisation’s
quinquennial large surveys allow us to track the movement
of household consumption over the last thirty years,
not only in the aggregate, but also disaggregated
across deciles so as to get a glimpse into the inequality
of such consumption.
In the charts shown here, some preliminary results
from such data analysis are presented. (We are grateful
to Himanshu of JNU, New Delhi for providing us with
the disaggregated estimates.)
Chart
1 >>
(Click to Enlarge)
Chart
1 shows that average urban consumption (at constant
2009-10 prices) has been increasing much faster than
rural consumption, and the latter in fact tapered off
in the most recent five-year period. The ratio of urban
to rural consumption rose from 1.79 in 1983 to 1.96
in 2009-10, with the most rapid widening of the gap
coming after 2004-05.
But even within locations, there were significant differences
between the upper and lower ends of the consumption
spectrum in the matter of time trends. As evident from
Chart 2, in rural areas it is really only the top decile
that has shown significant increases in per capita consumption
after 1993-94. The relative stability of consumption
for all the other groups is striking, particularly given
that this was a period of rapid GDP growth. Indeed,
there was hardly any change in per capita consumption
between 2004-05 and 2009-10, not only for the lowest
quintile of the population, but also for the next 40
per cent and even for the following 30 per cent just
below the top decile. Within the rural areas, therefore,
only the top decile benefited from the aggregate income
growth in a manner as to be able to increase their consumption
appreciably.
Chart
2 >>
(Click to Enlarge)
The picture is even more differentiated for urban India.
Chart 3 indicates the extent to which the consumption
of the top decile has zoomed far above all the other
groups. (Incidentally, it should be borne in mind that
the NSSO surveys generally and probably increasingly
underestimate the consumption expenditure of the rich,
so the consumption of the top ten per cent is likely
to be even higher than indicated here.)
What is possibly even more striking is that the average
consumption of the bottom 20 per cent in urban India
has stagnated or increased only marginally, even through
the phase of high growth between 1993-94 and 2009-10,
while the consumption of the top urban decile increased
by more than 30 per cent in the same period.
Chart
3 >>
(Click to Enlarge)
This is why the gaps between various categories of groups
have increased substantially since 1983. However, Chart
4 suggests that this process has not been smoothly consistent
through the entire period since 1983. Indeed, in rural
areas the gap between top and bottom deciles in consumption
spending fell slightly and then increased only marginally,
thereby, remaining broadly the same over the entire
period. This is in sharp contrast to urban India, where
the gap between richest and poorest deciles increased
consistently and even sharply.
Chart
4>>
(Click to Enlarge)
The
decade between 1983 and 1993-94 showed a slight
reduction in some gaps, particularly those between
the rural top and bottom deciles and between the
top urban decile and the bottom rural decile. This
evidence of some slightly reduced consumption gaps
in 1993-94 could reflect the policies of the late
1980s, which involved increasing fiscal transfers
to the rural areas and were also reflected in employment
changes at that time.
However, thereafter the tendency to increasing inequality
reasserted itself with even greater force, precisely
in the period when economic liberalisation was combined
with various fiscal and monetary sops designed to
encourage private corporate investment in a strategy
of profit-led growth. By the most recent period
of 2009-10, consumptions inequalities were at all-time
highs, particularly with the multiple of the consumption
of the top decile of the urban population relative
to the bottom rural decile being higher than 14.
It has already been observed in earlier editions
of MacroScan that the period after 1993-94 (and
even more sharply after 2004-05) was marked by significantly
increased regional inequality (across states) and
declining shares of wages and informal incomes in
national income. Here it is clear that the same
tendency is evident for consumption inequality as
well, with the fifteen years up to 2009-10, and
particularly the last five years, indicating very
significant increases in consumption.
This analysis of differing gaps across various periods
is confirmed by analysis of the growth rates of
consumption by decile group, as indicated by Charts
5 and 6 for rural and urban areas respectively.
Chart
5>>
(Click to Enlarge)
From Chart 5 an interesting pattern emerges: in
the decade 1983 to 1993-94, the fastest growth
in consumption expenditure (albeit from much lower
base) was registered by the poorest groups, and
each of the successive deciles exhibited slightly
lower rates of improvement in average consumption.
This suggests a progressive pattern of consumption
distribution at the margin. In both of the other
periods (1993-94 to 2004-05 and 2004-05 to 2009-10)
the pattern was reversed, with the richest deciles
showing the fastest growth rates of consumption.
The
pattern for urban areas, as evident from Chart 6,
is only slightly different. In the decade 1983 to
1993-94, the rate of growth of consumption increased
with decile (rising from the lowest to the highest)
but only marginally, so that the difference in rates
of growth across consumption decile were not that
significant, as indicated by the relatively flat
line in Chart 6. However, in both of the other periods
the trend of accentuated inequality was marked and
increasing: with the rate of growth increasing quite
sharply as one moved across consumption deciles,
and the rate of growth of consumption of the top
deciles being several multiples of the relatively
low consumption increase of the lower deciles.
Overall, this provides further confirmation of the
fact that the growth process of recent times has
been marked by increasing inequality. It also provides
compelling but disturbing evidence of lack of improvement
of the lives of the rural and urban poor in terms
of absolute consumption expenditure (in constant
prices) in a period when GDP growth was the fastest
ever experienced and came close to double digit
figures in several years.
*
This article was originally published in the Business
Line on 25th June, 2012.
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