Rural-urban consumption disparity: Less than it looks

Rural spending resembles the urban kind on unhealthful consumption far more than on healthful items

are, respectively, director for research and fellow program in management, and research associate at Great Lakes Institute of Management

The per-person monthly spending in urban areas of India in 2022-23 was 1.72 times that in rural areas. It was ₹3,773 and ₹6,459 in rural and urban areas respectively, as per the government’s recently released data on household consumption expenditure. Let us delve deeper into all the categories that lead to this gap in rural-urban consumption.

First, consider ‘rent.’ Given that most families live in their own homes in rural areas, the average monthly rent spending is only ₹30. In urban areas, it is ₹423. Second, let us consider ‘conveyance.’ In rural areas, it is ₹285, while in urban areas, it is ₹555. Third, a spending category that is related more to lifestyle than welfare: beverages and processed food. The average rural spending was ₹363 and nearly double that in urban areas. Similarly, the rural-urban gap in spending on entertainment and other goods is also high.

Now, let us look at the impact of government transfers that cushion consumer spending. While the government provides subsidized food rations to the poor in rural and urban areas, the average transfers are higher in rural areas, as seen in the survey results. Also, a wide gap in education and healthcare spending in rural and urban areas could reduce further once we account for government subsidies.

Subsidized or free healthcare services provided under Pradhan Mantri Jan Arogya Yojana and other state-specific schemes have not been accounted for, given the complexity of imputation calculations. Also, education subsidies like reimbursements or waivers of school or college fees have not been considered. The transfers on these accounts may be higher in rural areas than in urban.

In no way do such transfers imply that the quality of health or education services would be the same in rural and urban areas; consumption data does not lend itself to an examination of those aspects.

Several state governments run welfare schemes offering free or subsidized laptops/ computers, mobile phones, bicycles, other two-wheelers and so on. While the survey report mentions that imputed expenditure estimates consider the provisions of state government schemes, there is no difference the spending estimates with and without imputations in any of the rural or urban consumption categories, other than cereals. If correctly accounted for, it is possible that the rural poor receive higher transfers of several central and state government schemes than the urban poor do.

The next question is: What are the differences in the quality of consumer spending between rural and urban areas in food and non-food categories?

To explore this question, we remove the impact of rising prices in rural and urban areas over the last decade and calculate the real consumption levels. Among food categories, the real monthly spending per person on vegetables in rural areas is in fact marginally higher than in urban zones. The rural-urban gap in real spending on pulses and pulse products is also small. In one of the main protein-rich food categories, eggs, fish and meat, the rural-urban difference in average monthly consumption expenditure is just about ₹21.

There is another consumption category where the rural-urban gap, which was already low in nominal terms, becomes even smaller and almost negligible when we consider real consumption levels. Spending on this category is likely to adversely impact people’s health, so roughly equivalent rural and urban consumption spending does not signal rising rural aspirations. We are talking about paan, tobacco and other intoxicants. If it is any consolation, average rural consumption in this category was marginally higher in rural areas than in urban areas in 2011-12.

There is one more category where the gap in real consumption between rural and urban areas is marginal: sugar, salt, and spices. However, we don’t know the breakdown of the unhealthful part, sugar, and the other two sub-categories.

Which are the food categories related to nutrition and overall health where rural spending is lagging? Two essential item groups are fruits and milk and milk prodin ucts. The average monthly urban real spending on fruits is about 1.7 times that in rural areas and about 1.5 times that of milk and milk products (including consumption of milk from owned animals). Compared to 2011-12, the ratio of urban-to-rural spending in the case of milk and milk products is broadly the same, while spending on fruit was more than twice in urban areas earlier.

Spending levels in themselves do not inform us if spending gaps are explained by lack of affordability (and thus demand) or lack of accessibility. For example, it is likely that in rural areas, facilities for cold storage are fewer than in urban areas for perishable items such as fruits and milk.

Increasingly, rural India will look more like urban India in terms of spending, especially after all the government transfers are accounted for. However, true incremental welfare gains at the household level would be felt if families do not get split in search of employment.

For that, either non-farm job creation needs to reach rural parts of the country, or the relative cost of housing—as tracked by rent—needs to be lowered in urban areas through an increase in the supply of affordable housing. If both these things happen, that would propel the Indian economy.