SBI Research

Consumption Expenditure Survey reveals a remarkable decline in Rural Poverty estimated at 4.86% in FY24 (7.2% in
FY23 and 25.7% in FY12)… Urban Poverty estimated at 4.09% (4.6% in FY23 & 13.7% in 2011-12)….overall poverty levels
now in 4-4.5%.... The sharp decline in rural poverty ratio is on account of higher consumption growth in lowest 0-5%
decile with significant Government support and such support is important as we also find that change in food prices
has significant impact on not just food expenditures, but overall expenditure in general….the new weights drives
down headline inflation by as much as 50 basis points in Nov’2024...

Issue # 24, FY25 03-January-2025

Please see the last page for disclaimer

Executive Summary…..

❑ Based on 2023-24 fractile distribution, the sample proportion for poverty in rural areas is 4.86% and 4.09% in urban areas in
FY24…This is significantly lower than FY23 estimates of rural poverty at 7.2% and urban poverty at 4.6%...

❑ It is possible that these numbers could undergo minor revisions once the 2021 census is completed and new Rural Urban
population share is published. We believe Urban poverty could decline even further . At an aggregate level, we believe
poverty rates in India could now be in the range of 4%-4.5% with almost minimal existence of extreme poverty

❑ Enhanced physical infrastructure is scripting a new story in Rural Mobility…one of the reasons for the increasingly shrinking
horizontal income gap between Rural and Urban and the vertical income gap within Rural Income classes

❑ The difference between rural and urban monthly per capita consumption expenditure/MPCE to rural MPCE is now at 69.7%, a
rapid decline from 88.2% in 2009-10…mostly due to the initiatives the Government has taken in terms of DBT transfers,
building Rural infrastructures, augmenting farmer’s income, improving the rural livelihood significantly

❑ We estimate that food inflation dampens consumption demand more in lower income states as compared to higher-income
states, reflecting that rural people are comparatively more risk-averse in low-income states, than in high-income states

❑ We estimate that Nov’24 inflation because of the new weights would be 5.0% against 5.5%...

❑ Most of the high-income states delineate a savings rate greater than National Average (31%). Uttar Pradesh and Bihar show
low savings rate possibly due to higher outward migration
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Impact on Poverty & Inequality

3
Poverty ratio estimates for the year 2023-24

❑ Starting with 2011-12 (Based on MRP Consumption) poverty line estimate

of Rs 816 in rural area and Rs 1000 in urban area, the new poverty line
was adjusted for decadal inflation and imputation factor derived from
NSSO report

❑ New estimated poverty line is Rs 1632 in rural area and Rs 1944 in urban
areas in 2023-24

❑ The poverty ratio new estimate was arrived by linear interpolation of the
relevant fractile class in which it falls

❑ Based on 2023-24 fractile distribution, the sample proportion for poverty in

rural areas is 4.86% and 4.09% in urban areas ignoring imputation factor

❑ The decline in rural poverty ratio is on account of higher consumption

growth in 0-5% decile leading to shift in poverty line from 5-10% decile in
2022-23 to 0-5% decile in 2023-24

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Enhanced physical infrastructure is scripting a new story in Rural Mobility and hence more Rural prosperity …

Mostly 4/8 Lane Incremental length of

National Highways rural (Grameen area)
of 1,50,000 kms roads built

Enhanced “Ease
of Living” for rural
households
Seamless connectivity
Improved “Loops of with improved
connectivity” transportation means
facilitating real-time upending consumption,
2-way access altering Buying &
Selling patterns deeply

Rural Road Completion Status (in Kms)

20000 250

Pradhan Mantri 15000

200
Gram Sadak Yojana
(PMGSY) boosting 150
10000
rural connectivity 100
with 7,00,000 plus
kms of roads built 5000
50

0 0
2014 2015 2016 2017 2019 2020 2021 2022 2023

Target Completion Completion in %

~1,50,000 kms NH length as on date

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Rural consumption fast catching up with the urban consumption

❑ Urban rural gap as a % of rural consumption is on a declining trend

❑ It has declined from 88.2% in 2004-05 to 69.7% in 2023-24

Trend in level of consumption since 1999-00: All India

Average MPCE (Rs.) over different period

2004-05 2011-12
Sector 1999-00 (NSS 55th 2009-10 (NSS
(NSS 61st (NSS 68th 2022-23 2023-24
Round) 66th Round)
Round) Round)
Rural 486 559 1054 1430 3773 4122
Urban 855 1052 1984 2630 6459 6996
Difference 369 493 930 1200 2686 2874
Difference as % of Rural 75.9 88.2 88.2 83.9 71.2 69.7
Source:MOSPI, HCES , SBI Reasearch

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…..Rural Average MPCE (Rs.) has increased due to Government Initiatives &
Support at bottom of the pyramid
❑ The difference between rural and urban monthly per capita consumption expenditure/MPCE to rural State-Wise Average MPCE (Rs) in 2023-24
Difference as %
MPCE is now at 69.7%, a rapid decline from 88.2% in 2009-10. Alternatively, around 30% of the States Rural Urban
of Rural MPCE
Rural MPCE is explained by factors that are endogenous to the Rural ecosystem Andhra Pradesh 5327 7182 34.8
❑ Such endogenous factors are mostly due to the initiatives the Government has taken in Assam 3793 6794 79.1
Bihar 3670 5080 38.4
terms of DBT transfers, building Rural infrastructures, augmenting farmer’s income,
Chhattisgarh 2739 4927 79.9
improving the rural livelihood significantly Delhi 7400 8534 15.3
❑ Remarkably, states that were once considered laggards are showing the maximum improvement in Goa 8048 9726 20.8
Gujarat 4116 7175 74.3
Rural and Urban Gap…States like Bihar, Rajasthan, etc. are showing increasingly the impact of
Haryana 5377 8428 56.7
factors that are endogenous to the Rural Ecosystem…. Himachal Pradesh 5825 9223 58.3
Jharkhand 2946 5393 83.1
Karnataka 4903 8076 64.7
Kerala 6611 7783 17.7
Madhya Pradesh 3441 5538 60.9
Maharashtra 4145 7363 77.6
Odisha 3357 5825 73.5
Punjab 5817 7359 26.5
Rajasthan 4510 6574 45.8
Tamil Nadu 5701 8165 43.2
Telangana 5435 8978 65.2
Uttarakhand 5003 7486 49.6
Uttar Pradesh 3481 5395 55.0
West Bengal 3620 5775 59.5
All-India 4122 6996 69.7
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Rural-Urban MPCE gap is declining….

❑ The difference between rural and urban monthly per capita consumption expenditure/MPCE to rural MPCE is declining for all states
across income categories
❑ Our analysis reveals that the gap has been comparatively lower for middle income states and is further declining steeply

Numbers represent - Gap between rural urban MPCE as a percentage of rural MPCE

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Average MPCE in Rural India is thriving
State-Wise Change (FY24 over FY23) in Average MPCE (Rs)
❑ In the last one fiscal (FY24 over FY23), average Rural MPCE increased by Rs 349
Rural/
States Rural Urban
and urban MPCE by Rs 537. This indicate that incremental rural MPCE is almost Urban
Karnataka 506 410 123%
65% of incremental urban MPCE

States where Rural/Urban change is

Andhra Pradesh 457 400 114%

greater than national average

Haryana 518 517 100%
Kerala 687 705 97%
❑ However, the state-wise situation is varied Bihar 286 312 92%
Uttar Pradesh 290 355 82%
Telangana 633 820 77%
❑ While in most of the states the incremental rural MPCE is less than the Uttarakhand 362 482 75%
West Bengal 381 508 75%
incremental urban MPCE, the situation is contrarian in a few states (like Tamil Nadu 391 535 73%
Karnataka, AP and Haryana) and quite favourable is most of the states (like Goa 681 992 69%
All-India 349 537 65%
Kerala, Bihar, UP, etc.)

States where Rural/Urban change is

Odisha 407 638 64%

lower than national average

Punjab 502 815 62%
Chhattisgarh 273 444 61%
❑ However, the situation is alarming in states like Maharashtra, Rajasthan, etc. Madhya Pradesh 328 551 60%
Gujarat 318 554 57%
Assam 361 658 55%
Jharkhand 183 462 40%
Rajasthan 247 661 37%
Himachal Pradesh 264 1,148 23%
Maharashtra 135 706 19%
Source: SBI Research 9
Consumption Behavior has Shifted from Food to Non-Food Items
Trend in percentage composition of MPCE since 2011-12
❑ It is interesting to see the change in consumer preference Rural Urban
Item
2011-12 2023-24 Change 2011-12 2023-24 Change
both in rural and urban areas during the last 12 years Cereal 10.69 4.97 -5.72 6.61 3.74 -2.87
Pulses And Pulse Products 2.76 1.78 -0.98 1.93 1.22 -0.71
Sugar & Salt 1.83 0.89 -0.94 1.15 0.57 -0.58
❑ A significant drop (more than 5%) in ‘Cereal & Pulses’ Milk And Milk Products 8.04 8.44 0.40 7.01 7.19 0.18
Vegetables 6.62 6.03 -0.59 4.63 4.12 -0.51
consumption both in rural and urban areas Fruits (Fresh) 2.25 2.66 0.41 2.64 2.61 -0.03
Fruits (Dry) 0.58 1.19 0.61 0.78 1.26 0.48
❑ Toiletries consumption has increased in the basket, reflecting Egg, Fish & Meat 4.79 4.92 0.13 3.65 3.56 -0.09
Edible Oil 3.74 2.77 -0.97 2.66 1.82 -0.84
the impact of Swachh Bharat and awareness Spices 3.5 3.27 -0.23 2.42 2.3 -0.12
Beverages, Processed Food# Etc 7.9 9.84 1.94 8.98 11.09 2.11
Food: Total 52.9 47.04 -5.86 42.62 39.68 -2.94
❑ Surprisingly, taxes and cess has declined, which may be due Pan, Tobacco & Intoxicants 3.21 3.84 0.63 1.61 2.37 0.76
Fuel And Light 7.98 6.11 -1.87 6.69 5.59 -1.1
to rationalization of GST…. Toilet Articles & Other Household
4.01 5.2 1.19 3.88 5.15 1.27
Consumables
Education 3.49 3.24 -0.25 6.9 5.97 -0.93
❑ Clothing, footwear expenditure share declined, which may be Medical (Non- Hospitalization) 4.5 4.58 0.08 3.58 3.89 0.31
Conveyance 4.2 7.59 3.39 6.52 8.46 1.94
due to decline in GST rates from the earlier regime Consumer Services 3.99 5.25 1.26 5.6 5.72 0.12
Entertainment 0.99 1.02 0.03 1.61 1.77 0.16
Rent 0.45 0.56 0.11 6.24 6.58 0.34
Other Taxes & Cesses 0.25 0.21 -0.04 0.82 0.33 -0.49
Clothing & Bedding 5.99 5.67 -0.32 5.37 4.8 -0.57
Footwear 1.02 0.96 -0.06 1 0.86 -0.14
Durable Goods 4.85 6.48 1.63 5.6 6.87 1.27
Non-Food: Total 47.1 52.96 5.86 57.38 60.32 2.94
Source: MOSPI, SBI Research

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Inequality in distribution of MPCE

❑ The consumption inequality has declined from 0.266 and 0.314 in 2022-23 to 0.237 and 0.284, respectively in Rural and
Urban India

Gini coefficient of total consumption

expenditure during 2011-12 to 2023-24
Sector 2011-12 2022-23 2023-24
Rural 0.283 0.266 0.237
Urban 0.363 0.314 0.284
Source: HCES

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Consumption Inequality in India has been declining across Rural and Urban India

❑ Using Vertical Consumption Inequality across Fractile classes within Rural and within Urban reveals it has declined from
0.365 to 0.306 for Rural (rural Income is trending towards more equitable distribution) while for urban India, it has declined
from 0.457 to 0.365
❑ Urban and Rural consumption inequality across Fractile classes on decline
❑ using an equivalent of Gini Coefficient, Horizontal Consumption Inequality between Rural and Urban across fractiles has declined
from 0.560 to 0.414

Consumption Inequality across Fractile Class

Region 2011-12 2022-23 2023-24
Rural 0.365 0.343 0.306
Urban 0.457 0.399 0.365
Source: SBI research

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Urban and Rural consumption is less dissimilar in more than 50% of lower end of distribution

❑ Around 60% in the downside of both rural as well as urban consumption distribution are having consumption less than all India average
rural/urban consumption
❑ In lowest decile, urban consumption is only 42% more dissimilar than rural counterpart. Across fractile classes, urban
consumption is only 65% more dissimilar than rural counterpart, a number much less than all India average.. This indicates
bottom half of the Rural pyramid are now having MPCE patterns mostly converging to Urban counterparts…poor have no
differences across caste, income and even religion….
Fractile classes consumption analysis based on all India average
Fractile rural Fractile urban Fractile urban
consumption to consumption to consumption to
Fractile class
average rural average urban rural consumption
consumption ratio consumption ratio ratio
0-5% 0.41 0.34 1.42
6-10% 0.52 0.44 1.45
11-20% 0.60 0.53 1.49
20--30% 0.69 0.62 1.54
30-40% 0.77 0.71 1.57
40-50% 0.85 0.80 1.61
50-60% 0.94 0.91 1.64
60-70% 1.04 1.03 1.67
70-80% 1.19 1.19 1.71
80-90% 1.40 1.45 1.76
90-95% 1.68 1.83 1.85
95-100% 2.46 2.90 2.00
All Classes 1.00 1.00 1.70
Source: SBI Research
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Impact on Inflation

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Food share in MPCE is declining gradually

❑ CSO had revised the base year of the CPI to 2012 (from 2010=100) in January 2015. The weighting pattern of the revised
series is based on the 2011-12 Consumer Expenditure Survey (CES) of the National Sample Survey (NSS)
❑ The recent release of CES (2023-24) may have an impact on food CPI and subsequently on overall CPI as the weights of
major food items has revised from 47.8% in 2011-12 to 43.4% in 2023-24 at all India level
❑ The share of food has declined more in rural areas as compared to urban areas as compared to 2011-12..This will have
impact on food inflation and overall inflation (for both rural and urban areas) in terms of new weights…
❑ As per reports, MoSPI is updating the base year of the CPI from 2012 to 2023 to improve economic data accuracy. This will help
measure changes in economic variables and compare indicators over time

Food share in MPCE (%)

Rural Urban All India*

1999-00 59.4 48.1 53.7
2004-05 53.1 40.5 46.8
2009-10 57.0 44.4 50.7
2011-12 52.9 42.6 47.8
2022-23 46.4 39.2 42.8
2023-24 47.0 39.7 43.4
Source: NSO; SBI Research; *Average of Rural and Urban

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Consumption demand is elastic….

❑ Our research estimates the impact of change in food inflation on the consumption demand of rural and urban economy – for
states with different income levels i.e high-income states, middle-income states and low-income states

❑ We used MPCE data from current (HCES) and previous report (HCES-2022-23), and food inflation data of similar periods to
estimate the impact, where impact is calculated with following cross-price elasticity formula –

(𝑀𝑃𝐶𝐸𝑡 − 𝑀𝑃𝐶𝐸𝑡 − 1)ൗ

𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 = 𝑀𝑃𝐶𝐸𝑡
(𝜋𝑡 − 𝜋𝑡 − 1)
Where, t is FY24

❑ We found that consumption demand is elastic ( |e| > 1), both at rural and urban level. This means that change in food
prices has significant impact on not just food expenditures, but overall expenditure in general….

Rural Elasticity Urban Elasticity

Low income states -12.52 -12.45
Middle income states 6.11 27
High income states -8.19 -1.7

All India Average -4.87 4.28

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Middle income states sustains consumption demand…. Rural Economy is more risk averse comparatively….

❑ Further, we found that elasticity is negative for low- and high-income states indicating that increase in inflation has led to fall
in monthly per-capita consumption expenditure (MPCE), which is in sync with universal law of demand
❑ The fall in food inflation in middle income states has led to increase in MPCE in analysis period, as reflected by positive
elasticity

❑ Observing magnitudes, we inferred that the impact of rise in food prices is severe on rural consumption demand, particularly
for low-income states.

𝐸𝑅 > 𝐸𝑈

❑ Further, the impact is asymmetric. The rural-urban differential impact for lower income states is negligible while it is stark for
high income states reflecting that rural people are comparatively more risk-averse in low-income states, than in high-income
states
❑ Conclusively, the middle-income states are mainly responsible for sustaining the consumption demand in Economy. Urban
segment of middle-income states has registered significant rise in MPCE with fall in food inflation

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Substituting Existing weights with new weights in Headline CPI….Nov’24 inflation numbers at 5.0%
instead of current 5.5%
❑ By substituting existing weights with new weights, the new headline CPI is lower than the old headline CPI in the recent period
❑ The lower headline CPI is due to lower food inflation
❑ However, core inflation on the other hand is larger in the new weight system
❑ We estimate that April 2022 inflation could have been higher at 8% against existing 7.8%, while Nov’24 inflation would be 5.0% against
5.5%...thus the overall impact on headline inflation would be a combination of how food outstrips the core, or the core outstrips the
food… If core is declining…. This will have a sobering impact on headline inflation…

CPI with old and new weights (%)

Change in
Apr'22 Mar-24 FY24 Nov'24 FY 25 YTD bps(Nov 24-
Apr 22)
CPI with old weight (2011-12) 7.8 4.9 5.4 5.5 4.9 -232
of which, Food weighted contribution 3.7 3.5 3.2 3.9 3.6 17
Fuel weighted contribution 0.7 -0.2 0.1 -0.1 -0.2 -84
Core weighted contribution 3.4 1.6 2.0 1.7 1.6 -165
CPI with new weight (2023-24) 8.0 4.6 5.3 5.0 4.6 -293
of which, Food weighted contribution 3.6 3.1 3.0 3.2 3.0 -32
Fuel weighted contribution 0.7 -0.2 0.1 -0.1 -0.2 -79
Core weighted contribution 3.7 1.7 2.2 1.9 1.8 -183
Repo Rate 4.0 6.5 6.5 6.5 6.5 250

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Rural areas is exhibiting lower headline CPI with new weights…down by 60 bps in Nov’24

19
In Urban areas, the new headline CPI with new weights is not so profound…down by 10 bps…

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Volatile and Non-Volatile Components in Food CPI… with a lower weight of vegetables, it is likely
that the volatility in food inflation could be favorably impacted during periods of high inflation…
❑ Oils & fats, vegetables, pulses and sugar and confectionary are more volatile items contributing to food CPI
❑ Reduction in weights of these items is positive for CPI inflation dynamics
❑ Food and beverages inflation has lower volatility during periods of declining CPI inflation
❑ Vegetables, and Pulses are the most volatile component of food inflation is more volatile during the phase of declining
inflation…however its weighted contribution during that phase is lower compared to increasing CPI period

Volatility in components of food inflation (since Jan'16)

Average
Average
Coefficient CV during CV during contribution
Old New contribution
Components of variation increasing declining during
weightage weightage during declining
(CV) CPI period CPI period increasing CPI
CPI period
period
Food and beverages 45.9 43.4 62% 70% 62% 2.35 2.11
Cereals and products 9.7 4.4 84% 75% 71% 0.44 0.57
egg, fish & meat 4.0 4.2 82% 73% 78% 0.12 0.10
Milk and products 6.6 7.8 53% 54% 49% 0.25 0.31
Oils and fats 3.6 2.3 233% 520% 373% 0.07 0.05
Fruits 2.9 3.9 93% 123% 75% 0.09 0.13
Vegetables 6.0 5.1 245% 143% 703% 0.78 0.08
Pulses and products 2.4 1.7 256% 583% 309% 0.01 0.12
Sugar and confectionery 1.4 0.7 183% 105% 196% 0.04 0.05
Spices 2.5 2.8 98% 159% 84% 0.13 0.23
Beverages, refreshments, processed food 6.8 10.5 53% 52% 28% 0.15 0.19
Source: SBI Research, CES, volatility calculated by excluding pandemic period 21
Unravelling State-wise savings rate…

❑ We estimated state-wise savings rate leveraging MPCE and Per Capita Income. We have elicited the weighted average annual expenditure of
the states by incorporating the proportional distribution of rural and urban demographics

Weighted average expenditure = MPCE Rural * w1 + MPCE Urban *w2

Where w1= Share of Rural population in Total population
w2= Share of Urban Population in Total population
❑ Most of the high-income states delineate a savings rate greater than National Average (31%). Uttar Pradesh and Bihar show low savings rate
possibly due to higher outward migration

Saving Rate (%of GSDP)

49%

41% 40%
39% 38% 38%
37%
35% 34% 34%
33%
31% 31.10% 31% 30% 30%
28%
27%

22%

16%
Kerala

TN
Haryana

Chhattisgarh

Punjab

WB

Jharkhand
Goa

AP

HP

Assam
Rajasthan

UP
Gujarat

Telangana

Odisha

Bihar
Karnataka

All India

MP
Maharashtra

-6%
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opinion expressed is of Research Team and not necessarily Group Chief Economic Adviser
reflect those of the Bank or its subsidiaries. The contents State Bank of India, Corporate Centre
can be reproduced with proper acknowledgement. The write- Nariman Point, Mumbai - 400021
up on Economic & Financial Developments is based on Email: [email protected]
information & data procured from various sources and no [email protected]
responsibility is accepted for the accuracy of facts and Phone:022-22742440
figures. The Bank or the Research Team assumes no liability :@kantisoumya
if any person or entity relies on views, opinion or facts &
figures finding in this Report.