Understanding Spatial Economics can Help Business Decision Immensely

Dripto Mukhopadhyay

Evidences suggest that rapid economic growth is often associated with lopsided regional development. This has raised concerns from various quarters, including policy makers, that how to avoid intensifying of spatial inequalities with development efforts which are actually been aimed towards reducing the same. However, apart from being socially and politically de-stabilizing, this divergence in economic welfare has immense impact on business decision making. In simple terms, spatial inequality is the net result of the balance of forces of concentration and dispersion of economic activities.

In regional economics, two different models exist to address regional inequality. The first one is based on the standard neoclassical assumptions of constant returns to scale and perfect competition. Within this concept, the role of government involvement is relatively limited to infrastructure investments, which affects mobility of goods, labor and other factors. Governments may have little ability to influence the centripetal forces that are based on comparative advantage stemming from technology or resources. But Government may increase regional specialization or inequality by lowering the mobility of goods or may decrease extent of spatial inequality by lowering the mobility of factors.

On the other hand, the “new economic geography” models, commonly associated with Paul Krugman, contain five essential ingredients: increasing returns to scale that are internal to the firm, imperfect competition, trade costs,  endogenous firm location and most importantly, endogenous location of demand. The first four ingredients give rise to the agglomeration economies of home market effects, but the last ingredient, endogenous location of demand, creates the well-known process of circular causation which causes core-periphery regions to arise from initially symmetric regions.

The primary purpose of this article is to understand the likely implications of spatial inequality on business instead of understanding the genesis of spatial inequality. Several studies on India suggest that spatial inequality in India in increasing over time, as opposite to the Government’s efforts to reduce it. However, for you and me, this may be disturbing from social welfare point of view. But for business this understanding spatial inequality has immense bearing on business growth. Let me give you a simple example. As we know, Indian market is quite heterogeneous across geography as well as within geography. Assume a car manufacturer, producing small car, sedan, SUV and luxury cars wants to expand its presence in the country. The manufacturer is already an established player in small car market. Their current focus is to go beyond the small car market and to capture the sedan and SUV market. It is a big challenge for him to decide on how to expand his dealership as well as services in various parts of the country so that he can reach out and cater to the right segment of people for the sedan and SUV categories.

The car market is experiencing a transition from lower segment to higher segment since last few years. It is critical for the manufacturer to know where this trend of upgradation will be prominent in next 5 years or so. Only then he will be able to chalk out a plan to plan to cater demand at the right location. So, what all the manufacturer needs to know, as basic information? Following are a few critical ones as examples.

  1. How this upgradation trend has been recorded across geographies?
  2. What all are the factors that are driving this upgradation or transition of customers from lower segment to higher segment of cars?
  3. Has it been similar across the states of the country? Has it been similar within various cities or districts of the state?
  4. What will be scenario in next 5 years or 10 years from now regarding this upgradation?
  5. Based on the future scenario of upgradation across geographies, what will be the optimal way for creating new dealership development and service delivery plan?

 

All these can be answered through analyzing the dynamics of upgradation in passenger car with the help of spatial economics. Following is the flow of analysis that provides the answers to all critical questions that are important to this manufacturer.

  1. A through study of past trend of car sales for a significant period of time. This should be able to capture data as granular as possible. In majority of the cases, the data may be available at the state level and may be for selected cities.
  2. The analysis has to capture how this transition from one segment of car to others, reflecting upgradation, is happening by every state as well as from overall perspective.
  3. This needs to capture the demand drivers including economic parameters like changes in various components of domestic income (GDP), employment, household income, policy and access to finance, availability of various models across geographies and the similar ones
  4. An econometric model to be developed to measure elasticities and probabilities of upgradation and their nuances across states/cities.
  5. A demand forecast scenario by type of car to develop based on the econometric modelling and considering the likely changes going to happen on economic front across geographies in next 5 to 10 years.
  6. Mapping forecasted demand across states/cities to portray futuristic possibilities of upgradation and identify the clusters of higher demand of sedan and SUVs that are their focus segment to push in the market in next 5 to 10 years
  7. Prioritize geographies where the aggregate demand for the clusters located in closer proximity to each other from the point of view of supply chain point of view.

This can enable the manufacturer to take a firm decision based on a scientifically obtained results and insights to expand his dealership and services activities. This model is applicable to most of the sectors of economy including FMCG, Durables and similar ones. The rate of returns obtained through understanding spatial economics can be much higher compared to decisions taken through other means. Also, this reduces the probability for wrong investment decisions to a large extent.      

2. Current Projects

  1. A study on experimental economics on financial product market in India            This experimental study aims at understanding decision making behaviour of Indian consumer regarding financial product purchase. the study will cover 3000 plus households in Delhi for a certain income group to understand how do people make their decision for financial product purchase. The study is sponsored by Warwick university, NIPFP and IIM Ahmedabad.

Healthcare Insurance in India: A Few Concerns

ACRA Article No. 3, Oct. 2018

By Dripto Mukhopadhyay

The Union Government’s budget speech of 2018-19 announced two major initiatives as part of ‘‘Ayushman Bharat’’ programme.  Government’s aim was to create interventions to address health issues holistically, covering both prevention and health promotion. The National Health Policy, 2017 envisioned 1.5 lakh health and wellbeing centres to bring health care system closer to locations where people live. A budget of 1200 crore was allocated for this flagship programme. Admitting that lakhs of families in India borrow or sell assets to receive indoor treatments at hospitals, the finance minister stated that the “Government is seriously concerned about such impoverishment of poor and vulnerable families. Present Rashtriya Swasthya Bima Yojana (RSBY) provide annual coverage of only `30,000 poor families. Several State Governments have also implemented/supplemented health protection schemes providing varying coverage. My Government has now decided to take health protection to more aspirational level. We will launch a flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage upto 5 lakh rupees per family per year for secondary and tertiary care hospitalization.”[1] Apparently, if implemented, this will be the world’s largest government funded health care programme. with this background, this article attempts to provide an assessment of current situation regarding Indian health insurance market and likely implications of externalities that are required to make intensions of the government, as expressed during budget speech, a success.

[1] https://www.indiabudget.gov.in/ub2018-19/bs/bs.pdf

Slide1

Slide2

Above figures suggest one key aspect clearly. Though the Governments, both Central and State, always claim health to be a critical component of planning, reality is far from it. As Figure 1 suggests, public health expenditure as percentage of GDP was far below many other countries of the world. More importantly, even with scanty fund available for healthcare sector development, total funds remained unspent were significantly high. Except last couple of years, % of funds unspent was nearly 20% of the total fund. This puts a question on the authorities about their true intention of developing healthcare in the country, which is perhaps the most important development parameter. It is obvious that while the basic healthcare facilities are given less important compared to many other sectors, health insurance would hardly figure in governments’ agenda, at least in reality. Let’s look at the current health insurance sector.

Health insurance sector in India

To understand the current scenario and possibilities in of health insurance sector in India it is pertinent to understand types of health expense coverage Indian population do avail at present. In India 28.7% households do have privilege to avail any kind of health coverage. If we look at the same from rural and urban status of residence, these are 28.9% and 28.2% respectively. As evident from Fig 3, among the households covered under any health scheme, about 93% in rural areas and 80% in urban areas are covered by Government schemes. State health insurance scheme and Rashtriya Swastha Bima Yojana (RSBY) are the two government schemes that provide maximum coverage to both urban and rural areas. Health insurances purchased from private companies (by households) are as low as 8.5% and 1.8% in urban and rural areas respectively of the households covered under any health scheme.

Slide3

Equally skewed distribution is observed in relation to wealth index. The NFHS latest survey shows that except the topmost quartile of wealth group, for rest of the quartiles state health insurance scheme and RSBY are the most important ones and cover about 95% of the households have any kind of health coverage. As expected, households covered under health insurance by private service providers is significantly high for topmost wealth quartile.      Slide4

Apart from rural urban and wealth distribution, financial coverage of households for healthcare is extremely skewed across states in India. While the per cent of households with at least one member covered under any health scheme or insurance is as high as 75% in Andhra Pradesh, the same is as low as about 4% in Manipur. Significant regional disparity can be noticed. Even more importantly, intra region disparity is also quite sharp. All Southern states are much ahead of the other regions of the country. However, in Karnataka this percentage is marginally lower than India average. While most of the North-Eastern states record a coverage above national average, in Assam, Nagaland and Manipur this percentage is less than 10. All the Western states are below India average. The same is true for Northern region also. Surprise inclusion among the top states is Chhattisgarh which is ranked 2nd with a high 68.5%.       

Slide5Source: Survey (NFHS-4) National Family Health Survey (NFHS-4), 2015-16, International Institute for Population Sciences, Mumbai, Dec 2017.

It is heartening to see that in some of the state at least one member of significantly high proportion of households is covered under any sort of healthcare coverage. However, for healthcare its critical to understand whether the covered people are delivered quality services. Healthcare coverage without quality services is as good as no health cover. As shown in Fig 3 and Fig 4, out of 28.7% households where at least one member is covered by any type of health scheme or insurance, more than 95% are covered by either state government or central government schemes. Therefore, the financial assistance for treatment will be available in government facilities only. Therefore, it is important that people do have access and confidence on government facilities to avail financial assistance in case of health problem. To understand the same, the following table is presented. The table shows that in most of the states more than 50% of the people do not use government facilities because of different reasons. Two major reasons are long waiting time and poor quality of treatment. It is well understood that in case of any serious illness, immediate treatment and quality treatment are must. Therefore, it is quite unlikely that people will be able to avail current government facilities so that they are eligible to avail the financial assistance for healthcare coverage. The latest NSSO report (2014) suggests that 68% of the urban population and 58% of rural population go to private hospitals for their treatment.[1]

 

Table 1: Usage of Government Facilities

 State
Reasons for not using government facilities
% of households that do not generally use government facilities
No nearby facility
Facility timing not convenient
Health personnel often absent
Waiting time too long
Poor quality of care
India
55.1
44.6
26.4
14.8
40.9
48.1
Delhi
42.5
44.4
33.4
13.3
67.1
34.1
Haryana
60.9
47.4
33.3
23.3
59.1
53.8
Himachal Pradesh
19.3
40.5
29.6
16.1
44.9
44.4
Jammu & Kashmir
19.7
39.4
21.6
13.8
48.5
46.9
Punjab
72.9
41.9
26.4
17.1
66.3
57.5
Rajasthan
34.6
37.6
23.7
13.7
39.9
57
Uttarakhand
50.5
41
31.1
18.1
47.9
47.1
Chhattisgarh
49.5
49.8
20
13.3
31.1
50.2
Madhya Pradesh
59.6
44.7
28.4
18
40.6
48.3
Uttar Pradesh
80.1
47.7
16.9
11.5
35.7
61.1
Bihar
77.6
42.6
33.8
17.8
38.6
59.6
Jharkhand
71.7
59.7
24.3
15.8
33.9
45.9
Odisha
11.3
48.4
13.9
8.7
23.1
34.6
West Bengal
44.7
49.6
22.2
10.2
46.5
35
Arunachal Pradesh
12.3
50.5
18.8
11.6
30.3
32.6
Assam
20.7
46.9
23.6
10.2
34.6
30.1
Manipur
23.2
16.5
38.7
14.5
54.9
60.8
Meghalaya
23.6
30.8
19.6
11.2
43.5
33.5
Mizoram
14.6
31.1
10.7
3.3
34.1
30.4
Nagaland
40.7
35.4
24.4
17.5
26.1
39.7
Sikkim
10.2
22.9
38.7
31.1
65.8
53.8
Tripura
9
15.1
14.9
6.1
54.9
34.9
Goa
45.6
20.7
34.9
15.3
67.7
24.3
Gujarat
57.2
38.1
23.9
10.6
39.6
34.7
Maharashtra
63.7
45.7
24.5
12.1
40.9
36.4
Andhra Pradesh
64
36.5
34.6
17.8
37.2
50.5
Karnataka
48.7
49.6
39.3
26.8
44.6
40.1
Kerala
32.5
37.7
28.8
11.4
47.1
25.5
Tamil
36.7
35
33.7
15.4
46.2
37.2
Telangana
70.7
46.1
30.6
17.3
35
50
Source: Survey (NFHS-4) National Family Health Survey (NFHS-4), 2015-16, International Institute for Population Sciences, Mumbai, Dec 2017.

The NSSO report also shows that on an average the treatment cost in case of hospitalization is Rs. 18268. In case of rural and urban these are Rs. 14935 and Rs. 24436 respectively. The following chart (Fig 6) presents the expense scenario of treatment in Public and Private hospitals. In both rural and urban areas, the average costs in private hospitals are more than 4 times than that of government hospitals. Since the large number of households cannot avail treatment in public hospitals due to various reasons, they need to opt for private hospitals under compulsions. Therefore, not only a large number of people need to incur 4 times higher treatment cost, but also devoid of any financial assistance as that can be available in case of the treatment done in government hospitals. As obvious, the expense is met either from their savings or through borrowings. With more than 60% households below income group Rs. 1.5 lakhs per annum, the average expenditure itself is about 20% of annual income. However, in many of the cases this may go beyond annual income of these poor households, especially if the treatment is done in private hospitals.

[1] Health in India, NSSO Report No. 574, 71st Round, January to June 2014.

 Slide6Source: Health in India, NSSO Report No. 574, 71st Round, January to June 2014.

Key points emerge from the analysis

A few emerge from this analysis are:

  • Even with extremely low public expenditure on healthcare facilities, significant amount of fund available goes unspent
  • Only 28.7% of the households are covered under any scheme of health scheme or insurances, where at least one member of the household is covered (according to NFHS report). However, according to NSSO report this is even lower.
  • In both rural and urban areas majority of these households are covered by either state government or by central government schemes.
  • According to wealth index, except the top quartile, for the rest government schemes are the only major source of any healthcare coverage.
  • Significant discrepancies are noted across states in terms of healthcare financial coverage. Southern states are much ahead when the coverage is compared.
  • However, across states large number majority of the households do not opt for government hospitals due to poor treatment quality and waiting as major reasons.
  • The average expenditures in private hospitals is about 4 times than that of the government hospitals in both rural as well as urban areas. People do spend such exorbitant costs under compulsion.

A few concerns for future 

With the finance minister’s announcement of Ayushman Bharat and bringing 10 crore poor households in the net of health insurance, a few questions arises:

  • Whatever small fund is available for health and family welfare, larger chunk is allocated for family wellbeing than creating healthcare infrastructure. According India Health Statistics 2017, as of March 2017 in many of the states there is not even a single district hospital in every district.
  • It is also well known that existence of healthcare facilities is disproportionately biased towards urban areas. The rural areas are majorly devoid of any good healthcare facilities.
  • Though every year a large number of students passing out from government and private medical colleges, most of them are unwilling to serve the rural areas. The prime reason is lack of basic facilities in these areas that doctor require.
  • With this situation, and already more than 95% of the covered households are covered under government schemes only, an addition of 10 crore household to this base will make it more or less 100% under government schemes. Where will they be treated?
  • Unless the public healthcare facilities are increased in number and improve in their quality of treatment and other relevant facilities, the situation will remain the same

 

References:

 

  • National Family Health Survey (NFHS-4), 2015-16, International Institute for Population Sciences, Mumbai, Dec 2017.
  • Health in India, NSSO Report No. 574, 71st Round, January to June 2014.
  • https://www.indiabudget.gov.in/ub2018-19/bs/bs.pdf
  • https://www.livemint.com/Opinion/6S9Hvo31dR3aA8h7snIWKL/What-ails-Indias-public-healthcare.html
  • Economic Survey 2015-16
  • https://www.livemint.com/Politics/drnszDrkbt418WpuQEHfZI/Budget-2018-Indias-health-sector-needs-more-funds-and-bett.html

 

Changing Consumption Behaviour in India: A Few Key Insights

ACRA Article No. 2, Oct 2018

By Dripto Mukhopadhyay

Why Understanding Consumption is Critical

Consumption is considered to be the fundamental determinant of welfare for any economy. It reflects several important characteristics of an economy including affordability, inequality and the similar ones. Consumption behaviour is one of the true measures of a society’s economic, political and social condition at a given point of time or over time. This is one of the exclusive indicators that captures various interconnected issues of a society. Though worldwide research related to consumption has gained momentum for last three to four decades, in India it is still at a nascent stage. Most of the consumption related research in India is still geared towards understanding inequality and poverty instead of looking its implications on economy and business decision making.

One of the shortcomings for restricted research on consumption is certainly data paucity. However, it would be essential to define consumption before we enter into data related issues of the same. Consumption is the largest component of demand generated within an economy. Consumption can happen through various agents within an economy. Two broad components are private consumption and government consumption. In this article, we limit our discussion to private consumption only. Private consumption is a true reflection of economic condition and demand generation in an economy compared to Government consumption.

Analysis of consumption has become even more relevant since the household income distribution in India has changed significantly over time. Income distribution in India is presented in Figure 1 below. The chart clearly suggests that India has been experiencing a significant shift in household income distribution. While the shares of households in the higher income groups have shown continuous increase, the share of the lowest income group (less than Rs. 75,000 per annum) has been declining significantly.  This must have an impact on consumption pattern as affordability of the households’ changes.

With this background, this article focusses on understanding the changing household consumption pattern in India during from 2004-05 to 2014-15.

Slide1Source: Computed using Indicus Analytics Data.

The concept of Private Final Consumption Expenditure

While understanding private consumption in a country, the term “Private Final Consumption Expenditure (PFCE)” is the most important concept to understand. As defined by Government of India, “PFCE is defined as the expenditure incurred on final consumption of goods and services by the resident households and non-profit institutions serving households (NPISH)”[1]. It is clear from the given definition that three key criteria need to be fulfilled to be accounted for PFCE:

  • Final consumption – The consumption for end use purpose. No intermediate consumption is included in PFCE to avoid double counting.
  • Resident households – The consumption only by resident Indians is considered under PFCE. No consumption by NRI or foreign individuals is considered as PFCE.
  • Goods and services – Any and every goods and services a human being consumed by households is considered under PFCE.

Keeping in mind the above criteria, PFCE is calculated as the following:

PFCE= Total consumption by the households and for the households in domestic market + Final Consumption Expenditure of Resident Households in the Rest of the World + Final Consumption Expenditure of Non-resident Households in the Economic Territory.

Data on Consumption

When we think consumption data in India, two most critical and authentic data sources are National Accounts Statistics (NAS) and National Sample Survey (NSS). Both are Government data as published by Central Statistical Organisation (CSO). While PFCE data from NAS is an aggregated data on several items, NSS data is captured through primary survey of households. There are a few other data sources available in private domain. However, in any research PFCE is extremely crucial since whichever data and methodology one uses to arrive at consumption numbers, the last word at aggregate level is PFCE as captured by NAS.

PFCE captures all sorts of consumption on goods and services in the country. However, to those are categorised into a few broad categories to make it comprehensive as well as manageable from analysis point of view. The broad categories of PFCE data[2] are as follows:

  1. Food, Beverages & Tobacco
  2. Clothing & Footwear
  3. Gross Rent, Fuel & Power
  4. Furniture, Furnishing, Appliances & Services
  5. Medical Care & Health Services
  6. Education
  7. Transport
  8. Communication
  9. Restaurants and Hotels
  10. Recreation & Cultural Services
  11. Miscellaneous Goods & Services

Apart from the above categories, one can also analysis PFCE in terms of durability, viz., Durable Goods, Semi-Durable Goods, Non-Durable Goods and Services.

With limited scope of this article and the visuals presented herein, this analysis has considered the former broad classification as mentioned above. Since presenting eleven categories in one visual is always a challenging task, I have tried to break the categories based on their nature of essentiality. Apart from food related items, Clothing and Footwear, Rent, Fuels & Power categories, health and education all other items were put as All Others. Wherever, certain key trends emerged regarding categories included in All Others, they are analysed and presented separately. To make a note here, though health and education are not strictly considered as essential items, we have considered those as crucial for the society and therefore, did not include it in All Others.

A time series PFCE data from a period of 2004-05 to 2014-15 is used for analysis. To adjust the data for inflation, entire data series has been converted into a constant price of 2011-12 to make it comparable over time.

Trends and Insights  

Overall PFCE has shown a significant increase during last 10 years. Overall PFCE and the absolute change in PFCE from 2004-05 is presented in Figure 2 and Figure 3. As can be seen from the charts that private consumption in India has increased substantially in last 10 years. However the pace of change varied in each year. This reflects the variations we observed in country’s economic growth and as a result household income generation. Absolute change in PFCE as observed in Figure 3 suggests that perhaps we can divide the entire period of 10 years into two distinct periods, 2004-05 to 2009-10 and 2009-10 to 2014-15. Apparently, during the period after 2009-10 consumption in India has increased at a higher pace than pre- 2009-10 period. The impact of global economic recession can be noticed through substantial dips in consumption in the year 2008-09 and 2009-10.

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[1] https://data.gov.in/keywords/private-final-consumption-expenditure

[2] https://data.gov.in/catalog/private-final-consumption-expenditure-domestic-market-constant-prices

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Slide2Source: Computed by Author using National Accounts Statistics of India
Slide3Source: Computed by Author using National Accounts Statistics of India

The following analysis considers these two distinct time points that as identified from PFCE trends. To make it comprehensive and reader friendly, I have avoided full names of each category. The names as given under data section should be considered while going through the analysis. The Consumption by the broad categories during three time points are presented in Figure 4 and 5. Food constitutes a significant proportion of total consumption basket of Indian residents. However, the chart shows a drastic change in composition of consumption basket. The primary trend says that consumption has increased for each of the broad categories. However, the key point as shown in the chart, consumption expenditure in items under All Others or non-essential category has increased much more compared to the essential goods and services.  

To make it further clear, the proportions of all these items in Indian households’ consumption basket is presented in Figure 4. It indicates a distinct direction on how the consumption pattern is changing in Indian context. Consumption of foods, beverages and tobacco related product has declined 8 percentage points during last 10 years from a proportion of 39% in 2004-05. Expenditure on house rent etc. has declined by about 3 percentage points, whereas clothing and footwear expenditure has gone up by 3 percentage points. Significant surge in consumption has occurred in case of other goods and services. From 37% in 2004-05, which was lower than that of foods etc., it has reached to 46% in last 10 years. This shows that Indian households are increasingly spending on non-essentials creating a demand for goods and services that were not as important earlier. This depicts a transition of the society from one stage to another. It is a reflection that Indian households do have higher disposable income in hand at present at an aggregate level compared to the earlier years. Therefore, they can spend on non-essential goods and services after fulfilling the requirements for essential commodities and services.  

Slide4Source: Computed by Author using National Accounts Statistics of India
Slide5Source: Computed by Author using National Accounts Statistics of India

To look into at a greater depth for All Other categories, a category-wise share in consumption basket is presented in Figure 6. Critical points that can be highlighted are:

  • Most significant increase is observed in the category of Miscellaneous Goods and Services. This constitutes of expenditure on personal care goods and effects, personal goods and various other personal services.
  • Enormous increase has been observed for Communication which is primarily relating to telecom and IT. Considering the requirements of households for communication, the increase in expenditure and its current share in households’ consumption basket is extremely noteworthy.
  • In real term, share of expenditure on education in total consumption basket has seen a decrease. The same is true for Recreation and Culture category too.
  • Expenditure on travel and eating out has also increased in real term.  
Slide6Source: Computed by Author using National Accounts Statistics of India

When the trends at the aggregate level are analysed, it is also important to consider the population. Population is a critical factor of consumption demand. Since population changes every year, one needs to consider per capita consumption to understand the dynamics better. Per capita consumption is presented in Figure 7 and Figure 8. To make the analysis more comprehensive, the following charts present the trend in form of an index. This allows us to compare the consumption trends on a similar scale. The index values for each of the category has been computed considering the consumption expenditure of 2004-05 on that item as 100. Following points can be highlighted from the charts:

  • Per capita consumption on clothing and footwear has accelerated the most. It has increased by about 2.6 times, but with significant ups and downs, in last 10 years.
  • It is followed by All Others category. However, the per capita consumption change in this category is relatively steady. This reflects that this category has been impacted to a lesser extent through externalities.
  • Food etc. and house rent and related categories experienced a steady increase in terms of per capita consumption, but at a significantly lower level compared to other two as mentioned above.
  • Another important fact is that per capita expenditure on healthcare services has increased by about 2 times. 

  Slide7

Source: Computed by Author using National Accounts Statistics of India

It is also important to understand how the categories under All Others have changed in terms of per capita consumption expenditure. It is presented in Figure 7. We find some revealing findings in terms of per capita consumption of Indian households. Those are as follows:

  • Per capita expenditure on communication has shown a hoofing increase of more than 5 times in last 10 years. The steep increase was seen till 2011-12. It has been flattened marginally showing a steady increase since then.
  • Per capita consumption of miscellaneous goods and services has increased by 4 times.
  • Per capita consumption on Furnishing etc., travelling and eating out has been increased by more than 2 times.
Slide8Source: Computed by Author using National Accounts Statistics of India

Concluding Words

Above analysis certainly suggests that India is experiencing a significant transition in terms of consumption behaviour of goods and services as reflected from PFCE data. It is moving towards a more mature consumption phase (Banerjee and Esther, 2011) where the proportion of basic goods and services do not constitute the majority of the consumption basket any further. However, it is important to remember that this analysis does not reflect a few key issues of consumption in the country. They are:

  • The variations from state to state as well as rural and urban sectors, which may have drastic differences when the spatial dimensions in consumption dynamics are included; and,
  • The distinct differences across social and economic strata of the society in consumption behaviour across income groups as well as social groups.

It is important to analyse these aspects not only to help the policy makers, but also businesses immensely in formulating their strategies across location and across target segments.

_________________________________________________________________________________

References

  • Banerjee V. Abhijit and Duflo Esther (2011), Poor Economics, Random House, India
  • National Accounts Statistics of different years, Central Statistical Organisation, MOSPI, Government of India
  • Deaton Angus (2013), The Great Escape – Health, Wealth and the Origin of Inequality, Princeton University Press, Princeton and Oxford
  • Gerbens-Leenes PW1, Nonhebel SKrol MS. Gerbens L, Nonhebel S, and Krol MS (2010), “Food Consumption Patterns and Economic Growth”, Appetite, 55 (3), Dec 2010.
  • William A. Masters (2011), Economic Development, Government Policies, and Food Consumption, DOI: 10.1093/oxfordhb/9780199569441.013.0015
  • https://data.gov.in/catalog/private-final-consumption-expenditure-domestic-market-constant-prices

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Note: This article was published  in Geography and You in its 100th issue, January-February 2017