In a groundbreaking revelation, the State Bank of India (SBI) Research recently published a report shedding light on the sharp decline in the rural-urban divide in monthly per-capita consumption expenditure (MPCE) over the past decade. The report, based on the latest Household Consumption Expenditure Survey (HCES), presents a comprehensive analysis of the evolving economic landscape in India.

Key Findings

Rapid Decline in Rural-Urban Gap: The report highlights a substantial reduction in the rural-urban gap in MPCE, decreasing from 88.2% in 2009-10 to 71.2% in 2022-23. This indicates a significant convergence in consumption patterns between rural and urban areas.

Factors Driving Change: Approximately 30% of the rural MPCE is attributed to endogenous factors within the rural ecosystem. Government initiatives, such as Direct Benefit Transfer (DBT) transfers, investments in rural infrastructure, and increased farmer incomes, have played a pivotal role in enhancing rural livelihoods.

Surprising Improvements in Lagging States: States traditionally considered as laggards, including Bihar, Uttar Pradesh, and Madhya Pradesh, are witnessing substantial improvements in narrowing the rural-urban gap. This suggests the effectiveness of policies targeting the rural ecosystem.

Projected Trends: The urban-rural gap as a percentage of rural consumption is expected to further decrease to 65.1% by 2029-30. Even in the lowest decile, urban consumption is only 46% more dissimilar than its rural counterpart.

Poverty Decline

Significant Reduction: The report highlights a substantial decline in rural poverty by 440 basis points since 2018-19, reaching 7.2% in 2022-23 compared to 25.7% in 2011-12. Urban poverty has also seen a decline of 170 basis points post-pandemic, reaching 4.6%.

Impact of Government Initiatives: The decline in poverty is attributed to government initiatives focused on the bottom of the economic pyramid. This reflects positively on the efficacy of policies aimed at uplifting rural livelihoods.

Consumption Inequality Trends

Vertical Consumption Inequality: The report reveals a decline in vertical consumption inequality across fractile classes within rural and urban areas. The Gini Coefficient has decreased from 0.365 to 0.343 for rural and from 0.457 to 0.399 for urban India, indicating a trend towards more equitable distribution.

Horizontal Consumption Inequality: Using the Gini Coefficient, the horizontal consumption inequality between rural and urban areas has declined from 0.560 to 0.475. This signifies a reduction in disparities across different income groups.

New CPI Weights and Inflation Analysis

CPI Weights Adjustment: SBI Research suggests that substituting existing weights with new weights in the Consumer Price Index (CPI) results in a lower headline CPI in recent periods. The decline is primarily due to lower food inflation.

Impact on Inflation: The report estimates that April 2022 inflation could have been higher at 8%, against the existing 7.8%, while January 2024 inflation would be 4.8%, compared to 5.1%. This underscores the importance of understanding the dynamics between food and core inflation in shaping overall inflation trends.

The SBI Research report underscores a transformative shift in India’s economic landscape, with a significant reduction in the rural-urban gap and poverty levels. Government initiatives and improved consumption patterns showcase a promising trajectory for inclusive development. As we navigate through these changes, policymakers can draw insights from the report to further tailor interventions that promote economic equity and sustainable growth.