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ECONOMICS (MINOR)

Submitted by: - Submitted to: -

Name – AVIK AGGARWAL MS. JASMINE KAUR

Roll Number - 19071 (Assistant Professor of Economics)
Group - 04 RGNUL, PUNJAB

Rajiv Gandhi National University of Law

2019
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Acknowledgement
On completion of this project, it is my privilege to express my heartfelt gratitude

and indebtedness towards my teachers for their valuable suggestion and

constructive criticism. Their precious guidance and unrelenting support kept me

on the right path throughout the whole project so I am very much thankful to my

teacher in charge and project coordinators for giving me this relevant and

knowledgeable topic.

I wish to express my sincere gratitude to my teacher MS. JASMINE KAUR for

her guidance and encouragement in carrying out this project work.

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RAJIV GANDHI NATIONAL UNIVERSITY OF

LAW, PUNJAB

SUPERVISOR’S CERTIFICATE

MS. JASMINE KAUR

Patiala (Punjab)
Date:
26-oct.-2019

Rajiv Gandhi National University of Law, Punjab

This is to certify that the Dissertation titled: Aftermath of Jallianwala Bagh

Massacre submitted to Rajiv Gandhi National University of Law, Patiala in partial
fulfilment of the requirement of the B.A.LLB (Hons.) course is an original and
bona fide research work carried out by Mr. AVIK AGGARWAL under my
supervision and guidance. No part of this project has been submitted to any
University for the award of any Degree or Diploma, whatsoever.

MS. JASMINE KAUR

(Assistant Professor of Economics)
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Contents

1. INTRODUCTION…………………………………….5

2. HOUSEHOLD DEMAND…………………………….7

3. RURAL HOUSEHOLD DEMAND IN INDIA….......8

4. DATA ANALYSIS OF RURAL HOUSEHOLD

DEMAND IN INDIA…………………………………11

5. KEY FINDINGS……………………………………...12

6. BIBLIOGRAPHY………………………………….....16
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1.INTRODUCTION
Agriculture, which is the predominant occupation of rural India, is still restricted to just 15% of
GDP in terms of overall contribution. But it directly and indirectly employs more than 70% of
the all-India workforce. That share would be a lot higher in rural areas. In other words, the rural
household economy and demand generation is largely farm dependent. Another aspect is the
rural consumption pattern.

The importance of rural and semi-urban consumption was highlighted when the CFO of Parle
hinted that the company may have to cut nearly 8,000 jobs due to weak demand. Now, Parle sells
biscuits at the market entry point and has a strong presence in the rural and semi-urban areas.
This was a clear indication that rural demand was faltering to the extent that even a biscuit
packet at Rs 5 was not finding willing buyers. That brings us to a much bigger question; why is
rural demand so critical for India. The rural households have a large marginal propensity to
spend and therefore any increase in income can have a multiplier effect on consumption and jobs
creation. That perhaps explains why most FMCG and consumer companies are chasing rural
consumers aggressively. In fact, according to Nielsen estimates, the rural FMCG goods
consumption alone is expected to increase 3-fold from the current $35 billion to $100 billion in
2025. That is how big rural consumption story is and that is why rural demand matters a lot to
the economy in general and consumption driven companies in particular.

Indian Economy Snapshot -

India is the seventh largest economy in terms of Gross Domestic Product (GDP)
in current US$ and has emerged as the fastest growing major economy (Figure 2).
The average growth rate of India was not only higher than China’s during 2014-15 to
2017-18 but much higher than that of other top major economies (measured in terms of GDP at
current US$ terms) as well. With Purchasing Power Parity (PPP) adjustments, India’s GDP at
current international dollar, ranks third in the world.
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Importance of rural demand matters for Indian economy

In an interesting study conducted by CSFB, it was found that the willingness of the Indian
consumer to postpone purchases of consumer durables had touched a high of 1 year. Effectively,
consumers were willing to put off purchase of durables like white goods, two wheelers, entry
level cars, etc. by up to one year as they were not confident of the economic conditions. The
liquidity crunch in the aftermath of the NBFC crisis has also created problems for rural demand
as NBFCs and MFIs were virtually acting as the last mile delivery agents for banks. That has hit
fund flows into rural areas in a big way.

There are 3 principal reasons why this rural slowdown impacts consumption in general.
1. Rural India accounts for 37% of overall FMCG spend and, according to Nielsen, this is
likely to get closer to 50% in the next 5 years. That is a very large chunk of the
consumption market and that explains why consumption stories are under strain.
2. Rural sector consumption demand for FMCG products has traditionally grown at 3-5%
more than the urban demand growth and that differential has been the key to creating alpha
for the FMCG companies
3. Finally, the high marginally propensity to consume among the rural population makes it
an important and lucrative consumption market.
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2. Household Demand
Households are the main sector for the consumption of an economy. Household spending is the
most important part of aggregate demand. It can be broken down into a number of categories,
covering major spending items such as transport, food, fuel, holidays, and clothing. The
households are the final consumers of goods and services produced by the firms. They create
demand in the market and according to their tastes and preferences. The firms produced and
supplied goods in the market, as per their demand. Therefore, households determine the
production line of a country.
Consumer spending is what households buy to fulfill everyday needs. This private consumption
includes both goods and services. Every one of us is a consumer. The things we buy every day
create the demand that keeps companies profitable and hiring new workers.
Almost two-thirds of consumer spending is on services, like real estate and health care. Other
services include financial services, such as banking, investments, and insurance. Cable and
internet services also count, and even services from non-profits. The remaining one-third of our
personal consumption expenditure is on goods. These include so-called durable goods, such as
washing machines, automobiles, and furniture. More frequently, we buy non-durable goods, such
as gasoline, groceries, and clothing.

The pattern of spending changes over time as a result of changes in:

● Household income – some goods are normal goods while others are inferior, so increases
in income encourage households to shift spending from goods with a low income
elasticity of demand, like food, to those with high income elasticity of demand, like
holidays.
● Tastes and fashions – over time spending on certain items that are ‘in fashion’ increase
relative to those that go out of fashion.
● Taxes and subsidies – as indirect taxes and subsidies rise and fall, households will be
encouraged or discouraged from spending.
● Relative prices – as the prices of certain goods and services rise in relation to others,
household spending will adjust.
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The data from NSSO Household Consumption survey also shows the increase in share of non-
food expenditure in total consumption over time. First interesting point to note is that the share
of food in total consumption is more than 10 percentage points lower in urban areas (in 1999-00,
2004-05 and 2011-12 as well) as compared to rural areas. Secondly, share of food in total
consumption has gone down by around 6.5 percentage points in rural areas and 5.5 percentage
points in urban areas from
1999-00 to 2011-12. Within food, cereals have accounted for almost the entire decline. The share
of cereals has reduced to half between 1999-00 to 2011-12 in both urban and rural areas. Overall,
the share of non-food expenditure has increased with the expenditure share increasing for
education, medical, conveyance and durable goods.

This shows that the shift towards discretionary spending has been increasing while with the
spending on necessities has been gradually decreasing.

The level of spending is determined by a number of factors, including:

The current level of national income :

Some extra spending is induced by changes in the current level of national income. As income
rise, consumers tend to increase their spending on higher income elastic goods and services, such
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as luxuries, holidays and leisure goods. When income falls households may postpone spending
on these luxuries until incomes rises again.

The level of savings :

Spending and saving are mutually exclusive, which means that if income is fixed, any
change in households savings will inversely affect spending. Many of the determinants of
consumption have an inverse effect on saving.

Expectations
If households are confident, and have positive expectations about the future, current spending
can rise. This can lead to economic growth, and re-enforce the positive expectations.

Unemployment
Unemployment has two potential effects on household spending. Firstly, the unemployed spend
less because of their lower personal income, and secondly, unemployment causes negative
expectations, even for those employed, and this can act as a curb on spending and a stimulus to
saving.

Rates of income tax

Changes in tax rates can clearly affect disposable, post-tax income, and hence affect household
spending.

Interest rates
By altering the level of savings – a rise in interest rates will stimulate more savings, and less
spending.

By altering the cost of funding existing debts, such as mortgages and bank loans. For example, a
rise in interest rates will divert household funds towards the higher loan payments and away
from general spending.

By altering the cost of new credit, and thus encouraging or discouraging household borrowing.
For example, a rise in interest rates will deter new borrowers, who may postpone borrowing until
rate fall back
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By altering expectations and confidence. For example, rising interest rates will subdue
confidence and create a ‘wait and see’ attitude by households, who may postpone certain
spending until expectations improve.

4.Rural Household Demand in India

India is predominantly a rural country with two third population and 70% workforce
residing in rural areas. Rural economy constitutes 46 per cent of national income. Despite the
rise of urbanisation more than half of India‟s population is projected to be rural by 2050.
Thus growth and development of rural economy and population are a key to overall growth and
inclusive development of the country.

This report is based on the Situation Assessment Survey (SAS) of Agricultural Households
conducted in the 70th round of NSS during January 2013 to December 2013. The survey,
conducted in the rural areas of the country with its two visits, was spread over 4529 villages
covering 35200 households. Some of the key estimates related to the income, expenditure,
productive assets and indebtedness of the agricultural households with respect to the agricultural
year July 2012 – June 2013 as obtained from this Survey are presented here-
● The average monthly income per agricultural households during the agricultural year
July 2012- June 2013 was estimated as ₹6426
● Net receipt from farm business (cultivation and farming of animals) accounted for about
60 percent of the average monthly income per agricultural household during the
agricultural year July 2012- June 2013. Nearly 32 percent of the income was contributed
by wage/ salary employment.
● The average monthly consumption expenditure per agricultural household during the
agricultural year July 2012- June 2013 was ₹6223.
● Average monthly expenditure on productive assets used for farm and non-farm business
per agricultural household during the agricultural year July 2012- June 2013 was ₹1087.
● Out of the average monthly expenditure on productive assets, nearly 33 percent was
spent on agricultural machinery and implements, 18 percent was on livestock and
poultry and another 42 percent was on ‘other assets in farm businesses’.
● Expenditure on productive assets used in non-farm business accounted for about 7
percent of the total monthly expenditure.
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5.Data Analysis of Rural Household

Demand In India.

The report is based on information collected during 2011-12 from 101651 households in
7469 villages and 5268 urban blocks spread over the entire country.

● Pulse and Pulse Products consumption trends - Fig 1 shows the composition of pulse
consumption in quantity terms. In value terms, monthly per capita consumption was
Rs.41.58 in rural India and Rs.53.66 in urban India

● Edible Oil consumption trend - Monthly per capita edible oil consumption was
estimated as 674 gm in rural India and 853 gm in urban India. The breakup of edible oil
consumed per capita at all-India level by type of oil is shown in below for rural and urban
sectors.
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● Milk, egg, fish and meat consumption trends : Milk and milk products commanded a
share of 8% of consumer expenditure in rural
India and 7% in urban India.

The group “egg, fish and meat”, on the other

hand, had a share of 4.8% in rural and 3.7%
in urban consumer expenditure

● Energy (excluding vehicle fuels)

consumption trends:

● Nearly 71% households in urban

areas and over 21% in rural areas reported
consumption of LPG for household use during
the last 30 days Electricity made up about 50%
of fuel expenditure in the average urban
household and 22% in the average rural
household. Electricity was consumed by 96%
households in urban areas and 74% in rural
areas.
● Clothing and bedding consumption
trends - The clothing expenditure of a
household during a 365-day period is usually
spread over a large number of items and a
number of months; the value of a purchase is frequently small and difficult to recall. In an
effort to minimise recall lapses, as many as 25 clothing items were provided in the
schedule of enquiry. The estimated value of consumption was a very small component of
MPCE for most of these items. Monthly per capita consumption expenditure on all
clothing was estimated as only about Rs.81 in rural India and Rs.133 in urban India.
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Findings - cloth for shirts and trousers had greater importance in the clothing
budget of the rural Indian compared to the urban. The shares of readymade garments such
as shirts, trousers, kurtas, pyjamas, etc. were all greater for urban India than for rural
India. Saris accounted for 16% of the clothing budget in both sectors.

● Education expenditure trends: Per capita educational expenditure was, however, as

much as 3.6 times higher in the urban sector than in the rural. Educational expenditure
per person per month (including the entire population in the denominator and not only
students) was about Rs.50 (3.5% of MPCE) in rural India and Rs.181.50 (about 7% of
MPCE) in urban India.
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The largest component of educational expenses was tuition and other fees, which had a
share of 56% in the rural sector and about 67% in the urban sector. Private tuition had a
hare of around 12-13% of educational expenditure in both sectors.

● Medical Care expenditure trends : Expenditure on medical care has two components:
institutional (incurred as in-patient of a medical institution) and non-institutional. Data
were collected with a reference period of 365 days for the institutional component and 30
days for the other.

non-institutional medical expenditure during the last 30 days was reported by about 79%
of rural and 75% of urban households. Medicine accounted for nearly 80% of non-
institutional medical expenses in rural India and 75% in urban India. Institutional medical
expenditure during the last 365 days was reported by about 14-15% of households in each
sector. Here, too, medicine was the largest component but, as might be expected, its share
was smaller – 44% in the rural sector and 34% in the urban.
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5. Key Findings :

Apart from the highlighted data results in the analysis, following were the key findings as per
NSS Report No.558: Household Consumption of Various Goods and Services in India, 2011-12 :
● In rural India, telephone expenditure per person increased to about Rs.25 per month in
2011-12, which was about 4.6 times its value in 2004-05. While 32% of rural households
reported telephone expenditure in 2004-05, the proportion of households in 2011-12
reporting expenditure on mobile phones alone was 77%.
● Rural per capita expenditure on petrol rose in 2011-12 to about Rs.23, about 4.2 times its
level in 2004-05. Petrol expenditure per capita in urban India increased about 2.7 imes
during the same period, from Rs.31 to about Rs.85 per month.
● Expenditure per person on cable TV subscription in rural India rose in 2011-12 to 5.9
times its value in 2004-05, and the proportion of households incurring such expenditure
increased by 270%, from 88 per 1000 households to 326.
● Rural per capita expenditure on taxis and auto rickshaws was in 2011-12 about 3.7 times
its value in 2004-05.
● Urban expenditure per person on house rent (taking the entire population in the
calculation and not rent-paying households only) rose from about Rs.55 per month in
2004-05 to Rs.159 in 2011-12 – a nearly threefold increase over 7 years.
● While the proportion of urban households incurring expenditure on mobile phone charges
and cable TV subscription rose by 45% (at least) and 60% respectively between 2004-05
and 2011-12, per capita expenditure on these services grew at a slower rate than overall
MPCE in urban India during this period, indicating a fall in their budget shares.
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6.Bibliography

Following are the list of sources -

1. NSS Report No. 558: Household Consumption of Various Goods and Services in India,
2011-12
2. State of the Economy in 2018-19: 01 A Macro View
3. GDP at Factor Cost at 2004-05 Prices, Share to Total GDP and % Rate of Growth in
GDP (31-10-2014)
4. https://www.ibef.org
5. https://www.livemint.com
6. Wikipedia
7. Journals/Newspapers etc.