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It is said that the behavior of the people directs the economy in an optimistic way or into a pessimistic one.
Consumption Function is an economic concept that brings up a relation between income and spending. The government surveys to know this relation at a household level and understand the circular flow of an economy and where the economy is flowing with the behavior of purchase. To understand buying behavior, a consumption basket comes into the picture where the Government considers products like - food, cereal, education, durable goods, conveyance, etc. of the people living in rural and urban areas and how many percentages of the income in both areas allot to satisfy their needs.
The Government conducts an all-India Household Consumption Expenditure survey which surveys an average of 2.6 lakh households (1.55 lakh rural and 1.07 lakh urban).
The data that comes out of the survey plays a vital role in allocating the components of GDP and their weights as well as for policymaking and Consumer Price Index. In the survey which came out after 10 years due to quality issues in 2017-18 data. The new data states that in the last decade, people have reduced food from their basket from 52.9% in 2011-12 to 46.38% in 2022-23 while for urban households food holds up 39%. The reduction in expenditure of food from urban baskets indicates that people have framed their baskets by putting importance on other products like conveyance in urban families. Monthly expenses saw a hike from 6.52% in 2011-12 to 8.59% in 2022-23. The data has also given a shocking exposure to the education spending reduction from the baskets of every segment. The urban area saw a fall from 6.9% in 2011-12 to 5.78% in 2022-23. The positive which this data has provided is the amount spent on consumer durables, this segment saw a hike in urban baskets from 5.6% in 2011-12 to 7.17% in 2022-23. But, the growth of the cereals also saw a decline from 6.6% to 3.62% in the current data.
What led to reduction and increase is going to be an elaborative discussion as it can be predicted that, certain Government schemes through the last decades have made it easy for the consumers to frame their basket easily by giving out less percentage to food and still be able to fulfill their needs and directing the percentage in other sections like fulfilling their needs by buying more of other things led to an increased shift. If the Government reduces the prices of fuel today, the consumers can get more of an option to shift their demand into other things which can cause a shift increase in other sectors as well. Reduction in education can be worrisome but if seen optimistically, opportunities are certainly growing and if we see people can push the economy to better space, so reduction in consumption of fees can help the rural and urban people to design their basket by fulfilling their other demands. It would be great to see how the Government comes up and what initiatives are soon going to come into the picture.
Thank you.
Regards,
Vansh Chaturvedi,
Kautilya, IBS Mumbai.
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