Consumption Landscape

India’s evolving expenditure patterns are heavily influenced by urbanization, demographic shifts, and a transforming socioeconomic landscape. In pursuit of sustainable economic growth and social upliftment, government expenditure has increasingly targeted social welfare, healthcare, education, and infrastructure. Post-COVID, consumption trends reveal marked contrasts between rural and urban markets, driven by divergent priorities, wealth stratification, and recovery dynamics. Notably, rural markets now contribute to over 40% of India’s FMCG sales and 50% of two-wheeler sales, underscoring rising rural affluence. Intriguingly, vehicle ownership among the lowest income quintile surged from 6% in 2011-2012 to 40%, signalling upward economic mobility.

The National Sample Survey Office’s (NSSO) 2022–2023 Household Consumer Expenditure Survey reveals that the Monthly Per Capita Consumption Expenditure (MPCE) stands at ₹3,773 in rural areas and ₹6,459 in urban regions, reflecting a 71% differential. This urban-rural consumption gap has narrowed significantly from a 90% disparity in 2004–05, indicating stronger consumption growth in rural areas. The average monthly per capita expenditure surged by 164% in rural households and 146% in urban households, underscoring substantial increases across segments. This upward trend highlights a gradual shift in consumption power, showcasing a more balanced distribution of economic prosperity across the country.

A particularly significant trend in India’s expenditure pattern is the pronounced decline in the proportion of household spending on food. For the first time since independence, food expenses constitute less than half of total monthly household expenditures, marking substantial progress from previous levels of widespread poverty. This shift illustrates a transition towards a more diversified consumption basket, as households allocate a larger share of their budgets to non-food categories, reflecting rising discretionary spending and structural changes in living costs. Currently, food accounts for 46% of the consumption basket in rural areas—down from over 60% in 1999–2000—while in urban regions, this share has declined from 48.1% to 39% over the same period. This realignment signals an increasing allocation toward sectors like transportation, durable goods, and housing. Notably, within the food category, expenditures on milk products, beverages, and prepared foods have overtaken cereals as the primary expense, indicative of evolving consumption preferences and rising standards of living.

Within the food expenditure basket, the proportion allocated to cereals—such as wheat and rice—has declined substantially across both rural and urban demographics, with an even steeper decline among the lowest income quintile. This trend aligns with rising per capita GDP, suggesting a continuing shift away from staple cereals as consumer affluence grows. However, this evolving demand creates a policy dilemma. The Food Corporation of India’s (FCI) wheat procurement for the 2024-25 Rabi marketing season has already surpassed last year’s total, reaching 26.3 million tones, largely driven by supply from Punjab and Haryana.

This divergence between consumer demand and production focus suggests that government procurement strategies, including the Minimum Support Price (MSP) regime—primarily oriented toward cereal crops—may increasingly miss the mark in terms of promoting long-term welfare for farmers. Punjab and Haryana’s agricultural landscape, almost exclusively dedicated to wheat and rice, could face challenges as procurement adjustments become inevitable. Therefore, without diversification and a recalibrated MSP framework that aligns with shifting consumption patterns, the current procurement model risks constraining the agricultural economy and narrowing the benefits farmers receive from policy support, especially as dietary patterns continue to evolve.

In conclusion, India’s expenditure trends reveal a complex interplay between economic progression, policy evolution, and consumer behavior shifts. The decline in food expenditure as a proportion of household spending underscores a broadening consumption basket, indicative of increased discretionary spending and greater economic security across both urban and rural segments. This transition reflects a nuanced redistribution of income towards non-food categories, propelled by urbanization, rising per capita GDP, and demographic realignment.

However, the structural shift away from staple cereals towards a diet that includes fruits, milk & milk products, eggs, fish and meat poses a strategic challenge to India’s procurement and support policies. With the Food Corporation of India’s elevated procurement levels—especially in wheat from agriculturally intense states like Punjab and Haryana—the policy’s alignment with consumer trends appears increasingly misaligned. The existing MSP framework, predominantly focused on cereals, risks becoming less effective for farmer welfare in the face of evolving consumption patterns. To optimize agricultural incentives, a recalibrated MSP policy that fosters crop diversification and enhances income security for farmers is crucial. As the rural-urban expenditure disparity narrows, signalling convergence in consumption power, future fiscal and procurement strategies must integrate these dynamic demand patterns to support both sustainable agricultural productivity and balanced economic welfare.