Consumer choices bridge India’s rural-urban divide

Updated on Jul 01, 2016 12:12 PM IST
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NEW DELHI: Spending patterns in cities and villages are fast converging, as rural households now pay for most goods and services usually associated with urban lifestyles — from mircrowave ovens and laundry services to air travel and even out-of-home dining — a landmark government survey shows.

The basket of goods and services that hogs major portions of rural budgets is getting bigger, underscoring the importance of keeping rural incomes steady with better jobs and agriculture. The upshot is that since rural demand accounts for a large share of overall sales, falling rural incomes can dent other sectors of Asia’s third-largest economy.

Although buses remain the main mode of transport in both urban and rural India, 0.04% rural households reported travelling by air, compared to 0.14% by their urban counterparts. Also, rural households now spend about 21% of their monthly service-related budget on eating out, compared to 22% by urban households, indeed another sign of converging lifestyles.

Across villages and cities, consumer spending habits don’t seem to vary much, data from the 72nd round of the National Sample Survey shows. But rural households tend to spend a significantly higher amount in some categories as a proportion of their monthly budget, mainly because of comparatively lower incomes.

This is the first focused survey on consumer habits across India by the National Sample Survey Organisation, carried out between July 2014 and June 2015.

For instance, the data show 21.2% of rural households, compared to 27.0% urban households, reported acquiring “major durable goods” during the reference period. These are households that don’t own a “non-agricultural enterprise”.

Therefore, such spending purely reflects lifestyle-related consumption.

The survey defines major durable goods, such as large furniture, notebooks, smartphones (but not ordinary cellphones), water purifier, air conditioners and heating devices, apart from cars and tractors, etc.

“This tells you how income is being spent, not how it is earned. Not much jobs are being generated in rural India outside the construction sector,” said Prof Partha Saha, who teaches economics at the Jindal School of Government and Public Policy. “So, one part of it is aspiration. The other is flow of money from urban to rural India. Better connectivity and power supply are major factors. It is a well-accepted fact that when you build a road, then you are tackling poverty far better than just giving subsidised ration,” he said.

The number of rural Indians paying for personal grooming is slightly higher than urban folks, the survey shows. According to the data, nearly nine out of 10 rural households reported spending at least 11% of their monthly budget for services on personal grooming such as visits to salons and barber shops.

“About 70% of India is still rural and in recent years they have clearly emerged as the biggest buyers, matching their city counterparts with demand for high-end products,” said CM Singh, chief operating officer of Videocon, a consumer durables maker.

A range of rural consumer spending makes the rural economy important for overall growth. A back-to-back drought has shriveled rural incomes, causing agriculture growth to first tumble to minus 0.2% in 2014-15 and then 1.2% in 2015-16.

The survey sample size included 7,969 villages and 6,048 urban blocks. In absolute terms, however, village families spend far less than their city counterparts. A rural individual, on an average, spends Rs 331.75 on services a month, compared to an urban individual’s Rs 819.36. On goods, an average village individual spends Rs 1,469 a month compared to Rs 2,602 by a city-dweller.

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  • ABOUT THE AUTHOR

    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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