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India's HCES 2023: Engel's & Bennet's Laws



  Apr 16, 2024

India's HCES 2023: Engel's & Bennet's Laws



The Household Consumption Expenditure Survey (HCES 2023) highlights notable changes in how Indian households spend their money. Specifically, there's been a decrease in the amount of money spent on food relative to total income, with spending on food dropping to 46.4% in rural areas and 39.2% in urban areas. Traditionally, such trends are interpreted using Engel’s Law and Bennet’s Law, suggesting that as people earn more, they spend less of their income on food and more on varied diets.Bennet's Law states that as incomes rise, people consume fewer starchy staples and more diverse, nutrient-dense foods like meats, fruits, and vegetables, reflecting an upgrade in dietary quality and variety with increased economic prosperity.

However, when looking closely at income versus spending, the picture becomes more complex. Real income growth has been slow according to the Periodic Labour Force Survey (PLFS), with incomes barely keeping pace when you account for inflation. This slow growth challenges the expectation from Engel’s Law that higher incomes lead to less spending on food proportionately.

Moreover, there’s an increase in spending on items like transportation, but this seems driven more by rising prices than by actual increases in wealth. Data from various sources confirm that there hasn't been significant growth in real income, as things like train travel and car sales have not increased much.

Even spending on essentials like cereals has only slightly increased nominally, and actually decreased when adjusted for inflation, which contradicts the expectation that people would buy more food items as they become richer.

In essence, the survey shows that the decrease in the percentage of income spent on food may not necessarily indicate increased affluence, but rather reflects the impact of higher costs for other necessities. This situation indicates significant economic pressures and disparities, suggesting a need for policies that genuinely raise incomes and manage inflation, to improve living standards for all.

ENGEL'S LAW WITH HCES 2023

What is Engel's Law?

Engel's Law states that as people earn more money, they spend a smaller percentage of their income on food. This doesn't mean they spend less money overall on food, but that they have more money to spend on other things too.

How does Engel's Law relate to the latest survey findings?

The HCES 2023 shows that in India, both in rural and urban areas, people are spending a lower percentage of their income on food. This could suggest that people are earning more. However, the reality is more complex because the data also shows that incomes aren't growing much.

Is there real support for Engel's Law in the survey?

The survey's findings challenge Engel's Law. Although people are spending less of their income percentage on food, it's not because they are getting richer. Instead, prices for other necessities have gone up, which means people must spend more on those and less on food, proportionally.

What does it mean if Engel's Law isn't working as expected?

If Engel's Law isn't holding true, it might mean that economic growth isn't benefiting everyone equally. Some people might not be earning enough to increase their spending on non-food items freely. This situation requires attention from policymakers to help increase people's earnings and manage the cost of living.


SRIRAM’s


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