The Monthly Per Capita Consumer Expenditure (MPCE) data recently made available, from 1999-2000 to 2022-23, indicates a significant upward trend in the consumer expenditure levels of households across both rural and urban areas. This trend, in the period between 2012-13 and 2022-23, has observed the double whammy combined effects of sporadically rising inflation and stagnating real wages, which in the last decade provide evidence of a worsened per capita standard and quality of life for most Indians (if understood in terms of the economic and consumption choices made available to households).
See the chart below for reference:
Source: Author’s Calculations from NSSO Data
The period from 2009-10 to 2011-12 saw a remarkable surge in MPCE, suggesting a rapid increase in spending power amongst households possibly driven by robust economic growth. From 2011-12 to 2022-23, MPCE continued to rise steadily, but incomes in this period didn’t grow at the same pace for most income households. The widening gap between rural and urban MPCE levels over the years further highlights the ever deepening urban-rural economic gulf that has been explained (and exacerbated) by a K-shaped nature of economic growth trajectory, especially in the post-covid period.
Source: Author’s Calculations from RBI consumer confidence survey
The data above illustrates a notable shift in perceptions regarding the rate of change in the price level (inflation) over the specified period from January 2023 to January 2024. There is a consistent decline in the proportion of individuals perceiving an increase in prices, decreasing from 86.5% in January 2023 to 79.5% in January 2024.
This decline suggests a diminishing concern or awareness of inflationary pressures among the population. The evolving perception of inflation has the potential to impact consumer confidence, spending patterns and overall economic activity. Decreasing perceptions of inflation may lead to increased consumer confidence and overall spending, contributing subsequently to economic growth-however that hasn’t really happened in the way perception amongst income groups has been measured.
Source: Author’s Calculations from RBI consumer confidence survey
Expectation of higher prices amongst employed and self-employed categories, with 22% and 17% respectively, indicates a growing concern. This sentiment suggests potential challenges ahead, as rising prices can erode purchasing power, leading to reduced consumer spending. Such a scenario could dampen economic growth and exacerbate inflationary pressures, impacting overall economic stability. Addressing these concerns is crucial to maintaining consumer confidence, sustaining economic growth, and ensuring affordability for essential goods and services.
Below we discuss the findings of the RBI Consumer Survey data which provides a direct alignment with the household consumption data released recently.
Evidence for a K-shaped India
A closer look at the RBI’s Consumer Survey time-series data reveals glaring inequality staring at the face of India’s sluggish economic growth story. The K-shaped growth pattern becomes more evident when one carefully aligns the consumer confidence and perception data with other macroeconomic realities: real wages, consumption patterns, employment growth, household debt and a widening credit-GDP gap (creating excess liquidity concerns for the central bank).
Source: Author’s Calculations from RBI Consumer Survey (February, 2024)
From January 2023 to November 2023, a downward trend in the perception of the general economic situation is evident amongst Indians (see here for a more detailed analysis). Over this period, the percentage of individuals perceiving a decrease in the general economic condition consistently exceeds those reporting an increase or maintaining the same perception.
This prolonged pattern suggests a prevailing atmosphere of pessimism or economic uncertainty, reflecting broader concerns of adverse public sentiments and dis-confidence in economic prospects amongst certain economic groups, which, as crisis economists explain, have their own multiplier effect (amplifying its effect on other aggregates) over time.
From the RBI data, in January 2024, a temporal shift in perception compared to previous months is also evident for some income brackets, with a notable increase in the percentage of people perceiving an improvement in the economic situation, rising from 33.1% to 37.5%. Conversely, the percentage of individuals perceiving a decrease in the economic situation has decreased, dropping from 44.4% to 40.2%.
The chart below shows quite clear evidence of what has been perceived as a K-shaped economic recovery for India over the last few years, in the post Covid period.
The perception of the general economic situation varies significantly across different income brackets, as revealed by the provided data.
For individuals earning less than Rs 5,000, a concerning trend emerges, with the majority (62%) perceiving a monthly worsening economic situation. In contrast, only 21% report an improvement. This persistent negative perception suggests ongoing financial strain or challenges within this income group.
Similarly, for those earning between Rs 5,000 and