No case for MSP and other policy lessons from the Consumption Survey

India’s expenditure on food has fallen to less than 50 percent of the total consumption expenditure in rural India for the first time

The household consumption expenditure survey, released after more than a decade, offers valuable insights into the shifting consumption patterns of Indians. The good news is that Indians are spending less on food, implying increasing disposable income that can be spent in other areas. Also, there is a shift in consumption patterns from cereals to high-protein foods such as meats and dairy.

RURAL SHOWS THE WAY

India’s expenditure on food has fallen to less than 50 percent of the total consumption expenditure in rural India for the first time. Spending less on food translates into higher spending on other categories, including consumer durables, entertainment and so on. Spending on food in rural India is down to 46.38% from 59.4 percent in 1999-2000. In an analysis of the survey, brokerage Emkay notes: “Higher growth for rural MPCE (monthly per capita expenditure) is at odds with the argument that the economy has been sluggish over the last few years.”

The survey, notes Emkay, also demonstrates that rural livelihoods have improved, especially for the lowest-income classes. The difference between rural and urban monthly per capita consumption expenditure as a percentage of rural MPCE declined to 71 percent in 2022-23 from 84 percent in 2011-12 and over 90 percent in 2004-05. “The poorest level rural households have been able to spend at a much closer level to their urban counterparts, and this implies that the government policy initiatives to enhance rural incomes have worked to an extent,” the Emkay note said.

These findings come two years after the pandemic that upended several calculations on rural growth as India’s overall growth contracted. While the government was relatively conservative in its fiscal outreach across sectors compared to the rest of the world, a raft of measures was announced to soften the blow of economic activity coming to a standstill for several months. The measures were specifically targeted at rural India. India imposed one of the most stringent lockdowns in the world and announced a subsidised food grain scheme for nearly 800 million Indians, besides cash support. Apart from the pandemic, demonetisation announced in 2016 that made Rs500 and Rs1000 notes illegal had reportedly been a cause of great distress in rural areas. However, the survey findings illustrate that rural India’s recovery gives reasons to be more optimistic.

ASPIRATIONAL INDIA

Interestingly, the fact that the share of food in MPCE is declining also indicates more aspirational behaviour among Indians – who are now shifting to other categories of food such as milk, fruits, fish, meat, and eggs. Rural households are also spending more on proteins than urban households as a share of their incomes. This is an important change in dietary patterns, considering India continues to be a protein-deficient country. Expenditure on cereals was almost 22 percent of the total consumption expenditure in rural households in 1999-2000, which is now down to 4.91%; in urban areas, it is down to 3.64 percent from 12 percent. Non-food spending as a percentage of total consumption expenditure went up from 40.6 percent in 1999-2000 to 53.6 percent in 2022-23.

Evidently, policy measures targeted towards ensuring free food grains, rural employment, and infrastructure development have had a positive outcome. Niti Aayog CEO BVR Subrahmanyam said that the survey findings indicate that poverty in India is below five percent.

There are several policy lessons from the consumer survey; with consumption patterns shifting away from cereals, there is a clear need to give a concerted push to horticulture and animal husbandry. In fact, high-yield items such as fruits, dairy, etc, do not have an MSP – the big point of conflict between the Indian government and farmers. Poultry and fishery are among the fastest-growing agricultural sectors, growing at about 7-8 percent.

One of India’s foremost agricultural economists, Ashok Gulati, said: “One hectare of rice vs one hectare of fruit -profits are much higher in fruit. You have to move towards high-value agriculture.”

As the government gears up for elections and India elects a new government, it might be worth considering repurposing the free food grain programme into a food coupon programme, enabling citizens to purchase according to their changing taste buds. Rethinking the whole concept of MSP could be a politically contentious move, but the next term of the government should have a robust ministry handling fisheries and horticulture. In the interim budget, the allocation for animal husbandry saw a 40 percent jump to Rs 4,327 crore from Rs 3,105 crore in 2022-23.

If anything, the survey shows a turn in how India spends and eats, and policies must evolve to keep up with the times.