Is welfare behind falling consumption

the reasons for falling demand for foodgrain are yet to be firmly established, though several theses have been advanced to explain this phenomena. statistics indicate that between 1972-73 and 1993-94, foodgrain consumption fell by 5 per cent in urban areas and by 12 per cent in rural areas. however, rural consumption of foodgrain is 26 per cent more as compared to urban areas, though it is reported that the difference has narrowed over the period under consideration. further disaggregating the data, the bottom three deciles of the population by income have registered a marginal increase in cereal consumption, whereas the next four and the top three deciles have shown declines in consumption, the decline being the sharpest for the top three deciles. notably, the rural-urban difference in per-capita consumption of cereals declined from 64 per cent to 40 per cent, which is still a high difference. according to one school of thought advanced by c h hanumantha rao (epw, 2000), declining consumption of foodgrain is indicative of increasing welfare caused by substitution out of cereals into fruits, vegetables, fish and eggs allowed by an increase in per-capita incomes in india. in the paper, he devotes much attention advancing explanations for the observed difference in rural-urban foodgrain consumption, and in the course of that explanation identifies parameters by which the welfare conclusion that he has reached would be open to question. it is held that as income levels rise, both the per capita expenditure on, and consumption of, foodgrain exhibit declining trends, as more expensive and varied foods are consumed. however, hanumantha rao himself points to the fact that poor rural infrastructure (markets, roads and power) makes it uneconomical to provide non-foodgrain other 'urban' products, and obtaining them from the urban market adds to the real cost to rural consumers. in other words, real rural income is lowered if we consider a diversified basket of goods, incuding better food. the paper also shows the inverse correlation between road length, power generation, mechanisation in agriculture on one hand, and the declining cereal consumption on the other, implying that greater connectivity and lower calorie expenditure would be responsible for declining consumption through increased access and lower effort expenditure. though this is valid as a thesis, it is debatable whether the state of rural infrastructure has shown such remarkable improvement as to be the sole reason for the decline, to the exclusion of other factors like income and prices this is especially so if one takes into account the recent debate on pds and how the pricing policies followed by the government led to outpricing of both bpl and apl consumers in the late '90s, contributing to the pile-up of foodgrain. further, the paper points out that the gap in per-capita total expenditure between urban and rural india has sharpened over this period from 30 to 39 per cent. this is consistent with rising per capita incomes, as long as one admits that absolute income inequalities have also sharpened. and although the paper reveals that over these 20 years average cereal prices were lower in rural as compared to urban areas by 16 per cent at the end of the period (11 per cent in the '70s), this is only a spatial comparison of prices that says nothing about incomes. so, lower comparative prices across time are again wholly compatible with falling rural consumption (in the top 7 deciles only, as hanumantha rao points out) as long as one admits the role of income.

Is welfare behind falling consumption

THE REASONS for falling demand for foodgrain are yet to be firmly established, though several theses have been advanced to explain this phenomena.

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