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Monday, 24 March 2014 00:00
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Urban spending on education more than on cereals

Given how patterns of consumption in India have changed over the years, it is obvious the UPA has got it horribly wrong on the Food Security Act. Apart from the cost of the huge leakages—between 45% and 55% by various estimates—there is the issue of whether citizens really want subsidised food and rice. In even rural areas, data just out from the National Sample Survey show that spending on cereals is down dramatically, from 24.2% of total expenditure in FY94 to 12% in FY12—for urban households, this is down from 14% to 7.3%. Expenditure on milk and milk products, on the other hand, is around 8-9% of household budgets, suggesting direct cash transfers may be appreciated more—and the government would be able to transfer double since there would be no leakages in an Aadhaar-based system, for instance.

Looking at data over longer periods allows spotting of trends, and perhaps the biggest trend in recent times has been the use of mobile phones and what it has done to spending patterns. National Accounts data, for instance, shows that while just 1.6% of all private consumption expenditure was on mobile phones in FY05, this rose to 4.7% by FY12—that on cereals and bread is down from 8.6% to 5.9%, suggesting that in another few years, if not already, people will be spending more on mobile phones than they will on rice and wheat. That, of course, also means huge disruption in spending patterns. Since the mobile industry adds around 6 crore new subscribers each year, even assuming they spend R1,500 in the first year to buy an instrument and for airtime, that’s R9,000 crore that won’t be spent somewhere else—to put R9,000 crore in perspective, that could buy you 2.2 lakh entry-level cars, or roughly a fourth of Maruti’s capacity. And we’re not even talking of the expenditure of the existing 88 crore subscribers.

Though you don’t see the same trend at the all-India level, at 6.9% of household expenditure, urban spending on education exceeds the 6.6% on cereals. Throw in the expenditure on medical support, and we’re talking of 12.66% which is roughly double that on cereals—even in rural India, the spend on education and health is roughly similar to that on cereals. What’s interesting is how the equation has changed. In FY05, education spending in urban India was just 5%—10.2% if you add medical expenditure—versus 10.1% for cereals. It is, of course, in response to this that the political class has, for instance, come up with the Right to Education Act. The problem, however, is that this isn’t delivering either. As soon as parents are able to afford it, they move their children out of government schools into private ones, or hire private tuition—add the two, and 46% of children in even rural India are getting privately tutored. The combination of rising incomes and rising aspirations, when confronted with the reality of poor public service delivery—and on the wrong things, as the Food Security Act shows—is a potent one. The sooner the political class realises this, the better.

 

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