Events & Issues

New Delhi, 16 May 2011

Consumption Growth

BOOST POOR FOOD INTAKE

By Dhurjati Mukherjee

With a 1.2 billion strong population, a GDP of trillion dollars growing at around 8 to 9 per cent and a booming economy, the country’s per capita income may reach $ 1000 by 2012. Perceptibly, the consumption pattern has been increasing, both in urban and rural areas. While items such as cars, durables and high cost apparels are registering increasing sales, food items like cereals, pulses, vegetables and eggs are in great demand. Undoubtedly, no longer can one point to India as a low per capita consumer, be it durables or food.

Consumption is obviously powered by higher disposable incomes as both hiring and increments gather momentum in the coming years. According to a global HR consulting firm, “the revival of the economy and renewed hiring activity across sectors has contributed to this upward trend”. This is a phenomenon in the metropolises and big cities and the trend is expected to accelerate.  

Reports indicate that the $ 3 billion Indian market comprising watches, apparel, shoes, jewellery, cosmetics etc. is slated to grow at around 20 per cent buoyed by over two million households, which annually earn around $ 50,000 or more. The number of such households is growing in double digits, which is bound to fuel demand. Moreover, it has been found that between 2005 and 06 and 2013-14, the number of households with an annual income of more than $ 24,000 will grow nearly four-fold.

For example, sale of mobile telephones are increasing at a very fast pace of around 27 per cent and have exceeded 660 million in 2010. Even after prices coming down, costly handsets of over Rs 8,000 are in demand in urban areas, especially among students and youth from affluent and middle class families. With digital convergence fast becoming a reality various new devices have been introduced.

In the rural sector, an increase in the purchasing power of the population has led to a rise in the prices of food items. Schemes such as NREGS, Bharat Nirman and the like have led to a spurt in prices of rice, pulses, vegetables, eggs etc. Indications are that prices of food items are expected to remain high because of the mis-match between the growing demand and inadequate policy interventions in improving farm productivity, agricultural practices and supply chain efficiencies.

The problem is that the organized (salaried) sector has not been greatly affected. It is the unorganized sector, small and marginal farmers, rural artisans, small traders and shopkeepers etc whose income is more or less stagnant or declining, who have become victims of a struggle to make both ends meet.   

If, as economists believe, there would be a spurt in consumption this year without a resultant check in prices, the poor and the economically weaker sections, which constitute over 55-60 per cent of the population, are bound to fall in a debt trap and face severe consequences.

Besides, with the welfare of the masses going down with a hike in essential items some industries could be hit, hampering their growth at the macro-level in the rural sector. Said a market analyst, “As the consumption patterns of people are changing, the demand for non-produced industrial products is falling”.

As is well known, the increase in consumption has lead to an all-round inflation, which is unlikely to come down in the near future. Economists are worried about over-heating of the economy, especially because the demand is more than the supply. It is felt that significant additions could check the situation and control prices.

The big question is: What can the Government do in such a critical situation? It is serious. While one segment of the population has been increasing its income and resorting to high and wasteful consumption, another section has been struggling to avail the bare necessities of life. With the economy poised to grow at around 8.5 per cent in the coming years, it is indeed tragic that only a section may reap the benefits.

The condition of a large section, both in urban and rural areas, would continue to be a cause for concern. Upgrading their lives and making available two square meals a day needs the Government’s special attention. It is in this context that the implementation of the Food Security Act has become imperative, whatever else be its impact on the economy. If necessary, funds from other areas may have to be made available or a tax levied on those whose annual income exceed Rs 12-Rs 15 lakhs per annum to fund this project.

This apart, five measures need to be undertaken to increase consumption of the poorer sections: Namely,  pro-agricultural strategy for increasing production of cereals and pulses, bringing forward necessary reforms and making available the requisite funds;  reducing transaction costs by eliminating non-value adding barriers for free movement of goods through implementation of GST.

Reforming the supply chain system of food items, drugs etc. and eliminating corruption; setting up more low-cost medicine shops all over the country or making available basic medicines through PDS shops; and keeping a check on Government officials and traders at all levels who are involved in trading and distribution of food items so as to check corruption and artificial increase in prices.

Consumer growth does not necessarily mean hike in electronic items, cars or apparels but also per capita increase in pulses, eggs or vegetables, especially in rural areas. This can only be possible if prices are checked, on the one hand, and the purchasing power of the rural population enhanced on the other. Equitable consumption patterns will ensure that growth reaches the bottom segments of society and helps in over-all socio-economic development that is balanced and sustainable. This is critically vital if India has to gain international status.

Thus, without a significant increase in food intake and other basic necessities of the poor and economically weaker sections, India will continue to be impoverished, notwithstanding the increase in consumer spending on high-cost items by the rich and middle-income sections. Undeniably, there is need to evolve viable plans to ensure better standards of living for the lowest segments of society.  ---- INFA 

 (Copyright, India News and Feature Alliance)