Consumer Class Put At 550 M

Poverty is declining, rural prosperity is booming and even low-income households are increasingly buying consumer durables. This good news comes from by the biggest consumer survey of recent times, conducted in 1992-93 by the National Council of Applied Economic Research (NCAER).

For years, critics have declared with much passion but no data that the economic reforms since 1991 have impoverished the poor. Nobody really knows, since the main data source, the National Sample Survey, is undertaken only once in five years, and the results of the 1993 survey will be published only in early 1995. Now the NCAER report provides post-reform data for the first time, covering a large sample of 300, 000 people, and explodes several myths,

It shows that the proportion of low-income households fell steadily from 65.2 per cent in 1985-86 to 58.8 per cent by 1989-90, before the reforms. After the reforms, the ratio fell again, though marginally, to 58.5 per cent in 1992-93.

The low-income definition of the NCAER is Rs 18, 000 per household in 1992-93, just above the official poverty line for urban areas but distinctly above the line in rural areas where prices are lower and a rupee goes further. So the NCAER figures are not strictly comparable with NSS poverty data, but the two seem close enough to warrant the conclusion that poverty was roughly unchanged between 1989-90 and 1992-93. Subsequently, poverty should have gone down with economic acceleration.

Austerity in the first year of reform, 1991-92, must have squeezed living standards, but these must have gone up in the next three years, as GDP per head has risen. So it seems India is one of the very few countries to over come a debt crisis while actually reducing poverty.

Critics have alleged for years that liberal economic policies benefit only a limited middle class of 100 million to 200 million, not those below. An eye-opener from the survey is that 107 million households, corresponding to a population of 550 million, own wrist-watches, which constitute a good measure of the consuming class. So this class now accounts for almost two- thirds of the population, a veritable revolution.

Remarkably, low-income households have a sizeable share of consumption of consumer durables — 39 per cent of transistor radios, 34 per cent of bicycles, 22 per cent of pressure cookers, 23 per cent of black-and-white TVs, 27 per cent of sewing machines, 26 per cent of electric irons. They also account for 33 per cent of nail polish, 18 per cent of lipstick, 20 per cent of face cream and 16 per cent of shampoo. Clearly cosmetics are not the luxuries of the rich.

These figures will astonish lay folk who have been led to believe that those below the poverty line have just enough to eat. In fact even the poverty line leaves a small margin for other goods. A puzzling fact is that share of food in total consumption has fallen for virtually all income classes since the early 1970s, releasing a larger share of income for other purchases. Possible reasons are: (a) Urban areas use less calories than rural ones, and India is urbanising; (b) Mechanisation of agriculture has reduced the sweat in farming and better rural transport has reduced walking, and hence also the need for calories; (c) Better road networks and marketing have made goods available in villages where they were unavailable earlier; and (d) Rural electrification has sparked the purchase of electrically-driven gadgets.

I doubt whether this is a complete explanation, and more research is needed. Some people claim TV advertising is persuading poor people to buy durables even at the expense of nutrition. I find this very unlikely:rural people have a better idea of how much food they need than professors in Jawaharlal Nehru University.

The new data also have a lesson for those who think that the middle class has been benefiting at the expense of the poor. The consuming class of 550 million did not drop down from heaven — it was tiny at independence, and has grown because of promotees from the ranks of the poor. Far from being at the expense of the poor, the expansion of the consuming class is a sign that the poor are rising up the income ladder.

Finally, some critics claim that only city-slickers are benefiting from liberalisation, not rural folk. The NCAER explodes this notion too. Between 1989-90 and 1992-93, the rural market has increased its share of black-and-white TVs from 44 per cent to 47 per cent, of VCR/VCPs from 5 per cent to 8 per cent, of electric bulbs from 30 per cent to 32 per cent, of washing powders from 48 per cent to 52 per cent, of toilet soaps from 50 per cent to 54 per cent. Notable is the rising rural share of goods making food preparation convenient-of refrigerators from 15 per cent to 18 per cent, of mixers/grinders from 21 per cent to 23 per cent, of pressure cookers from 37 per cent to 45 per cent. This reduces drudgery in rural life.

Some economists will caution that the NCAER survey is not the last word, and more data are needed before we whoop with joy. Fair enough. But at least there is no cause for lament.

What do you think?