Relief or worry? The share of food spending is declining among Indians

For the first time in modern India, the average household expenditure on food has fallen below 50% of the monthly expenditure.

According to a survey on the changes in India’s food consumption, food purchases made 53% of the total expenditures rural households made in 2011-12, which came down to 46.5% in 2022-23. 

For urban households, the share of food expenditure declined from 42.7% to 39.2%. 

Overall, the report alludes to Indians spending a smaller amount of their total expenses on cereals and vegetables as the primary driver of this shift.

Why is it a matter of rejoicing? Or are we missing something?

If a person is spending as much as 50% of their total expenses on food, they probably earn a limited and small amount of income. A person with limited income usually does not have enough to save. They end up spending most of what they earn.

When income levels rise, people can spend more on other things than food. They can also save more or start saving.

The report highlights the growth in overall expenditure. Monthly per capita expenditure (MPCE) increased by 164% for rural households and 146% for urban households. The increased share of milk and milk products, fresh fruits, eggs, meat & fish contributed to this growth. Expenses on consumables and services also increased.

Can we rejoice and conclude, then, that income levels have risen enough for people to spend more on discretionary and non-food purchases? That doesn’t seem to be the case.

The report elaborates that the free wheat and rice provided by central and state governments under various schemes primarily led to a decline in the share of food expenditure.

The government-funded free wheat and rice rations were extended to more families during the Covid-19 pandemic, and that scheme continues apart from the various ongoing state-level schemes. 

Clearly, government policies have been instrumental in easing the burden on the economically weaker population.

However, this also means that general income growth has not been the primary driver of a lower share of food expenditures in total expenses.

And it also begs the question: What if the government were to roll back subsidies? The outcome could be any or a combination of these.

• Cereals could become more expensive in the open market
• Consumers with limited income might have to adjust their spending on milk, meat & fish, etc., downwards, impacting those industries.
• Discretionary and non-food spending could decrease.
• Food expenditures could again take a larger share of one’s total monthly expenditure.
• New businesses building on the back of India’s growing consumption story could see a slowdown due to reduced discretionary spending.

The political fallout of rolling back a subsidy could be vast and varied. Let’s not even set out to explore that.

The report is rich with several other insights into the changing consumption patterns. The share of paan, tobacco, packaged processed foods, and beverages has been going up in an average consumer’s monthly purchases.