Strategy: Services substitute food as expenditure patterns evolve:: Kotak Sec

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Strategy
GameChanger
Services substitute food as expenditure patterns evolve. NSSO survey results show
the Indian consumption basket (across rural and urban India) changing towards services.
Consumption expenditure is up between 10.5% and 11.0% CAGR across India over
the last five years. There is significant disparity in rural and urban consumption and
across both the inter-deciles disparity is high. Southern and western India typically has
higher consumption than eastern and northern India. We await more data and clarity.
Increasingly services is a large expenditure item
Expenditure on services has replaced expenditure on food (see Exhibit 1) over the last quarter
century in India. A 10.4% points and 15.7% points fall in food expenditure in rural and urban
India respectively has been taken up by services (9.5% points and 14.6% points). Fuel and light
and durable goods now consume a greater share of the wallet even as basics like clothing and
bedding start to fall in relevance. An increasing proportion of expenditure on services implies an
economy no longer subsisting at the basics but one which is at a more mature state of evolution.
Overall consumption is up between 10.5% and 11.0% CAGR
The Monthly Per Capita Expenditure (MPCE) for the mixed reference period (MRP) is up 10.5%
and 11.0% CAGR in rural and urban India respectively to `953 and `1,856 from `579 and `1,174
five years ago. Comparing this with the 11.4% to 15.1% points rise in wages (as we noted in our
earlier note, “Where have all the girls gone?”), this possibly points to increased savings, though it
may be too early to draw conclusions as we note below.
Inter-region and inter-deciles show wide divergence in data
MPCE charts for both rural and urban India (see Exhibit 2) show that average consumption for
both categories cuts across at the seventh deciles, implying that more than 70% of the population
in both areas consume less than the average consumption. There are wide divergences interdeciles
(urban India highest decile consumes 10X more than the lowest decile) and across rural and
urban India (the latter’s consumption is 88% more than the former). Exhibit 3 shows that southern
and western India typically has higher consumption than eastern and northern India.
Miscellaneous is broad word
Miscellaneous goods and services, as defined by NSSO, include (1) education, (2) medical, (3) rents,
(4) taxes, (5) entertainment, (6) goods for personal care and effects, (7) toilet and sundry articles,
(8) consumer services (like sweeper, barber, priests, etc.) and (9) conveyance. We wait for detailed
data to understand the sub-segment growth that the survey points to.
Reconciling numbers – need more clarity
Converting MPCE to annual numbers, the annual per capita consumption is now `11,437 and
`22,272 in rural and urban India. We wait for more clarity on these numbers so that we can read
them in conjunction with the CMIE data which shows an overall per capita personal disposable
income of `42,684 and private final consumption expenditure of `31,632 in FY2010.
Take a test – fill in the survey
To get a sense of the NSSO survey, take a test – fill in the survey attached with this email.