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 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.
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.
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.
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.
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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