Inequalities in Disposable Income

Recent household consumption data reveals substantial differences in how disposable income is spent across India, especially amid rising inflation, notably in food expenses due to increasing food prices. These disparities are evident not only between states but also within them, and across urban and rural regions. This highlights growing inequality across different areas. Understanding these trends is key to tackling India’s economic challenges and overcoming the primary barrier to the government’s vision of making India, or Bharat, viksit — a developed nation.

What data reveals?

• India’s states reveal significant contrasts in household spending and disposable income. States such as Kerala and Andhra Pradesh boast higher average disposable incomes, while Bihar, Assam, and Chhattisgarh struggle with much lower levels.
• Chandigarh, for instance, has the highest average disposable income at Rs 41,917, while Bihar shows a worrying negative disposable income of -Rs 4,298.
• A key factor driving economic disparity is the urban-rural divide.
• Urban households across India tend to spend more than rural ones, reflecting better job prospects, higher wages, and broader economic activities available in cities. Urban dwellers in states like Chandigarh and Delhi spend nearly twice as much as their rural counterparts.
• In rural areas, where agriculture is the main source of income, a significant portion of the limited household budget is spent on basic necessities like food, leaving little for other expenses such as healthcare, education, or housing.
• In states like Bihar and Assam, low wages and reliance on subsistence farming make rural populations especially vulnerable to economic challenges like rising food prices.
• Food inflation has become a pressing issue in India, particularly for states with lower incomes. The rising cost of essential food items – grains, vegetables, and oils – is driven by erratic weather, global supply chain disruptions, and urbanisation, putting financial strain on households. Poorer states and rural regions, where food takes up a large share of household budgets, are hit hardest by inflation.
• In states such as Bihar, Odisha, and Chhattisgarh, more than 50% of household spending goes toward food, while wealthier regions like Chandigarh and Tamil Nadu allocate only around 30%.
• Urbanisation has fueled food inflation, as migration to cities increases the demand for processed and premium food items. Higher disposable incomes in urban areas have led to greater demand for dining out, while supply chain issues, like insufficient cold storage, have exacerbated the problem by driving up costs.
• Spending patterns reflect the broader economic divide across India. Wealthier states like Chandigarh, Delhi, and Tamil Nadu report much higher monthly household expenditures, with spending on housing, healthcare, and education dominating. Chandigarh, for example, has the highest average monthly expenditure, closely followed by Delhi.
• Disposable income trends further highlight the gap between regions. Prosperous states such as Kerala show higher disposable income, a reflection of their more developed economies and diverse employment opportunities.
• The link between disposable income and food inflation is particularly evident in poorer states. As households in regions like Bihar and Chhattisgarh spend a large proportion of their income on food, any increase in food prices disproportionately impacts their financial stability.
• This economic divide has serious consequences for food security and inequality. In states with low disposable incomes, rising food prices heighten the risk of food insecurity, forcing families to spend even more of their limited earnings on essentials.

Reasons for economic disparity

• Urbanisation: States with higher levels of urbanisation, such as Kerala, generally report higher disposable incomes and household spending. Urban areas offer greater job opportunities, higher wages, and access to industries like IT, real estate, and services.
• Economic Structure: States with diverse economies, including Andhra Pradesh, Kerala, and Tamil Nadu, gain from a balanced mix of industries such as manufacturing, services, and agriculture. This economic diversity enhances employment opportunities and wage growth, leading to higher disposable incomes and household expenditures.
• Infrastructure: The development of infrastructure plays a critical role in raising disposable incomes. States with advanced transportation, healthcare, and education systems see increased economic productivity and household spending. The disparity in infrastructure between urban and rural areas is a key contributor to the urban-rural income divide.
• Education and Employment Opportunities: Higher literacy rates and better access to education are directly tied to greater disposable incomes. States like Kerala, with a strong focus on education, benefit from a skilled workforce that secures better-paying jobs in sectors like technology and services.

To tackle the economic inequalities between states and the urban-rural gap, targeted policy measures are essential. Policymakers should prioritize balanced regional economic growth by investing in infrastructure, education, and employment opportunities, with particular emphasis on rural regions and lower-income states. Enhancing food security programs and stabilising food prices are vital to safeguarding vulnerable groups from the adverse effects of rising inflation.

The End of the Blog: Inequalities in Disposable Income