Household Consumption Expenditure Inequality in Rural India (1993–94 to 2011–12)

The comparative role of determinants of household-level consumption expenditure inequalities (henceforth, inequalities) in rural India between two sub-periods, 1994–2005 and 2005–12 are examined, using three rounds of the National Sample Survey Consumer Expenditure Survey. The changes in the components of consumption expenditure and population characteristics are explored that explain inequalities during the two sub-periods, which represent distinct policy environments. We use both a priori and regression-based decomposition methods for the analysis. We find that there is a complete reversal of the role of education in explaining inequalities. It shifted from being an inequality-increasing factor during 1994–2005 to an inequality-equalising factor during 2005–12. This reversal is induced by decreasing consumption returns to education due to the depressed job market. The role of locational factors has increased in explaining the increase in inequalities over time. The non-food components induce an increase in the overall inequalities via an increased expenditure on durables. The within-group component contributes the most to the level of and change in inequalities.

This paper has benefited from discussions at the Advanced Graduate Workshop on Poverty, Development and Globalization 2019, jointly organised by the Azim Premji University, Bengaluru and Institute of New Economic Thinking, New York, and Winter School 2020, jointly organised by the Centre for Development Economics, Delhi School of Economics, New Delhi and the Econometric Society, New Haven, United States.

India experienced much higher real per capita gross domestic product (GDP) growth after embarking on the market-based reforms in 1991. It spiked to around 4.2% annually during 1991–2004 as compared to around 2.7% during 1981–91. Further, increasing to around 5.2% during 2004–12. The economic crisis of 1991 led to the implementation of reforms in several arenas. However, post 2005, distinctive inclusive growth policies were announced and implemented. These were in the form of various development schemes and programmes in the areas of infrastructure, nutrition, employment and human capital, which were implemented with the objective of reduction of inequalities and poverty, improvement in the well-being of vulnerable groups and an increase in wages (Drèze and Khera 2013; Dev 2017). Such policy changes have implications for the determinants of inequalities (Atkinson 2015).

After liberalisation, inequalities increased during 1994–2005 and the increase was chiefly determined by education and the state of residence (Cain et al 2010). Inequalities increased further during 2005–12 despite policies aiming at inclusive growth (Basole and Basu 2015). Although, several studies (Basole and Basu 2015; Singh 2012) looked into the change in the components of inequalities during 1994–2012. The question of the comparative role of the determinants affecting an increase in the inequalities has not been addressed yet. Also, the vital question of tracking the role of education in light of it being a single dominant factor influencing inequalities in general (Piketty 2017) and in India in particular (Cain et al 2010) has remained unaddressed. Thus, it is pertinent to investigate the levels of and changes in inequalities. However, the paper investigates the inequalities in consumption expenditure only in the rural areas. The reasons for this are: (i) the consumption expenditure data is less affected by measurement errors vis-à-vis income data, especially in rural areas; and (ii) consumption expenditure reflects the long-term well-being status of the households better than the income variable. Given the availability of data on the consumption expenditure in India after 1991, we have used the three rounds of the National Sample Survey (NSS) Consumer Expenditure Survey (CES): 1993–94, 2004–05, and 2011–12 (1994, 2005, and 2012, henceforth). The first period of our investigation is 1994–2005 where government policies did not focus on inclusive growth whereas our second period, that is 2005–12, government policies were focused towards inclusive growth.