The monthly per-capita consumption expenditure (MPCE), as per the latest Household Consumption Expenditure Survey (HCES), shows a sharp decline in the rural-urban divide from 2009-10 till now, SBI Research said in a report on Tuesday. It also said rural poverty has declined to 7.2 per cent for 2022-23 (vs 25.7 per cent in 2011-12) after various government initiatives, while urban poverty is estimated at 4.6 per cent (vs 13.7 per cent in 2011-12).
“Basis our analysis, the difference between rural and urban monthly per capita consumption expenditure (MPCE) to rural MPCE is now at 71.2 per cent, a rapid decline from 88.2 per cent in 2009-10,” SBI Research said in its report.
It added that around 30 per cent of the rural MPCE is explained by factors that are endogenous to the rural ecosystem. Such endogenous factors are mostly due to the initiatives the government has taken in terms of DBT transfers, investments in the building of rural infrastructures, and augmenting farmers’ income, improving the rural livelihood significantly.
The SBI report said that states once considered laggards are showing the maximum improvement in rural and urban gap. “States like Bihar, Uttar Pradesh, Madhya Pradesh are showing increasingly the impact of factors that are endogenous to the Rural Ecosystem.”
“Urban-rural gap as a percentage of rural consumption is on a declining trend. It has declined from 90.8 per cent in 2004-05 to 71.2 per cent in 2022-23, and, we believe, is projected to further decrease to 65.1 per cent in 2029-30,” it said. In the lowest decile, urban consumption is only 46 per cent more dissimilar than rural counterpart.
It said that across fractile classes, urban consumption is only 68 per cent more dissimilar than rural counterpart, a number much less than all-India average. “This indicates bottom half of the rural pyramid are now having MPCE patterns mostly converging to urban counterparts, truly, poor have no differences across caste, income or even religion,” the SBI report said.
The central government on February 24 released the broad findings of the All India Household Consumption Expenditure Survey (HCES), after about 11 years since the last such exercise carried out in 2011-12. The latest survey was carried out between August 2022 and July 2023.
Among its major findings was the fact that the MPCE for rural households rose to Rs 3,773 in HCES 2022-23 from Rs 1,430 in 2011-12. Similarly, the MPCE for urban households increased to Rs 6,459 in 2022-23 from Rs 2,630 in the previous round. The Survey also showed that there has been a continuing decline in the share of food items in the total spending basket of Indians.
Poverty Decline
Rural poverty has staged a significant 440-basis point decline since 2018-19 and urban poverty a 170-basis point decline post-pandemic, vindicating how government initiatives in vogue for those at the bottom of the pyramid are having a significant salutary impact on rural livelihood, according to the report.
“Rural Poverty is now at 7.2 per cent (25.7 per cent in 2011-12). Urban poverty at 4.6 per cent (13.7 per cent in 2011-12),” the SBI report said.
It said using vertical consumption inequality across fractile classes within rural and urban reveals it has declined from 0.365 to 0.343 for Rural (rural income is trending towards more equitable distribution) while for urban India, it has declined from 0.457 to 0.399.
Using an equivalent of the Gini Coefficient, horizontal consumption inequality between rural and urban across fractiles has declined from 0.560 to 0.475, the SBI report said, adding that rural and urban consumptions are growing, on an average, at nearly the same growth rate (2.66 per cent for rural, 2.59 per cent for urban) across fractile classes.
New CPI Weights
SBI Research said that by substituting existing weights with new weights, the new headline CPI is lower than the old headline CPI in the recent period. The lower headline CPI is due to lower food inflation. However, core inflation on the other hand is larger in the new weight system.
“We estimate that April 2022 inflation could have been higher at 8 per cent against existing 7.8 per cent, while January 2024 inflation would be 4.8 per cent against 5.1 per cent. Thus, the overall impact on headline inflation would be a combination of how food outstrips the core or the core outstrips the food. If the core is declining, this will have a sobering impact on headline inflation,” the report said.
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