Originally Published 2015-10-27 10:23:15 Published on Oct 27, 2015
China's ruling Communist Party, at its plenum, will deliberate on the economic and social agenda for China over the next five years focusing on financial reforms and how to maintain growth of around seven per cent. Contrast this with India where the new administration appears somnolent.
What are we doing even as China tries to fix its economy?

What happens when the illusion becomes real? In China's case, the world is watching them like never before. Are they putting the ducks in a row or are they like moths to the flame going to crash and burn? The world's attention is riveted. The catechism is brutal, fine tooth comb just a mild nomenclature. On Monday, the highly secretive Plenum opened in Beijing. The event normally held at the Jingxi Hotel in western Beijing, will end with a long communique released by Xinhua, and will then probably be followed by a more detailed statement about a week later, according to Reuters.

China's ruling Communist Party is caught in a bitter maelstrom where the internal war on corruption is revealing the warts about its fragile economic mainframe. It will deliberate on the economic and social agenda for China over the next five years focusing on financial reforms and how to maintain growth of around seven per cent. Conscious about its currency and equity crisis in recent times, the Party will once again reset on its appetite for structural reform and equally on the rapid pivot lately from industrials to services and whether this is sustainable and tenable in the long term.

The Central Committee which has more than 200 full members, is gathering until Thursday to finalise the 13th Five-Year Plan, a blueprint for economic and social development between 2016 and 2020. Curiously, the People's Bank of China cut interest rates for the sixth time in less than a year on Friday, more or less on the eve of the Plenum, once again showing its intent on why it means business. Monetary policy easing in the world's second-largest economy is at its most aggressive since the 2008/09 financial crisis, as growth looks set to slip to a 25-year-low this year of under 7 percent. China's economy grew 6.9 percent in the July-to-September quarter from a year earlier, data showed last week.

For China, a brawler in the globalised world, it is brass knuckle time as it wants to reclaim its title as the fastest growing economy in the world. The Plenum where extreme brainstorming and idea exchanges take place will provide the directional call for China. Contrast this with India where the new administration appears somnolent. India ushered in the new BJP under PM Modi with great hope and expectation. All this has been belied over the last 17 months as a stop-start style of functioning is awaiting deliverance from the arms of Morpheus. A poor dispersal of the monsoon, weak domestic demand both rural and urban, even weaker credit growth and investment pipelines, hardly any structural reform has left a bad after taste in the mouths of investors. More than that, India wants to know what the BJP's economic agenda for India is over the next few years.

A great opportunity has been wasted. What India and global investors would have preferred was a big picture from the BJP on what it believes its economic policy apparatus looks like. This economic policy imperative has to be in consonance with a changing India. An India with changing lifestyles, consumption patterns, ideas, habits, the whole ball of wax. Right wing as a rule is good for economics, though the present BJP dispensation seems to be overly focused on winnability in the hustings. Winnability will come with roll outs and quick implementation of government policies. Sloganeering can no longer shut people's mouths, shrinking space for tolerance is equally destructive. Lurching from election to election is misgovernance, more so when people expect so much. A charter on what the BJP reckons is required to double India's GDP every five years would be more welcome. Statements translating into action are the way forward. Domestic demand has to be pump primed, we need policies and stimuli to jump start demand and investment in parallel. Neither is happening. More than short term quick fix solutions, India awaits a new economic paradigm, one articulated by the BJP policy cars on the road ahead with outcomes attached. For a decade India waited for a change and now that we have it, it is incumbent on the BJP to spell out its plans and ideas for reform. Reform that is transformative and beneficial, reform that percolates down, reform that shows up in the building of capital assets, reform that touches and changes lives, reform that goes beyond rhetoric and slogans, reform that not only feeds a young India but provides jobs and employment. Wonder when we will get that?

German statistician Ernst Engel as far back as 1857 created what is known as Engel's Law which states the percentage of income allocated for food purchases decreases as income rises.

Essentially, this translates into - as household income rises, the percentage of income devoted to food decreases while proportion of income on other goods (clothing, housing, automobiles, leisure etc) spikes.

While the change in consumption patterns may be because of income, price, taste or preference; ironically 80 per cent of malnourished children come from countries which have an agricultural surplus, in India's specific case mountains of buffer stock are shown repeatedly when the perceived threat of drought or an agrarian crisis are thrown into stark relief.

Given that India is a consumption economy, consuming 67 per cent of its $1.86 trillion GDP - $325billion is merchandise exports and $110billion is software export earnings - $435bn ($70bn in NRI remittances) it is vital that demand stimulation begins in right earnest to set the wheels in motion.

That consumerism has taken root in urban agglomerates and is driving the changing equations is a given, but it is also leading to disparity. Though the chasm is growing, the trajectory of incomes is rising in rural Bharat also. A function of higher minimum support pricing for crops during the 10-year-rule of the UPA. The most recent National Sample Survey Office data for 2011-12 was revelatory. Household Consumption of various goods and services report based on information collected during 2011-12 from 10,1651 households in 7,469 villages and 5,268 urban blocks spread over the entire country offers a wealth of data for marketers.

I have picked out some of the more revealing data which offers empirical and corroborative evidence to how Engel's Law has taken effect in the real Indian economy. It is understood that with rapid urbanisation, the country's income pyramid will alter.

*Consumption of eggs during a 7-day period was reported by 29% of rural and about 38% of urban households. Per capita consumption of eggs was 1.94 per month (0.45 per week) in rural India and 3.18 (0.74 per week) in urban India.

*Per capita consumption of fish in rural areas was slightly higher (266 gm per person per month) than in urban (252 gm). Also, the percentage of households reporting consumption during a 7-day period in case of fish was higher was in rural India (over 26%) than in urban India (21%) but was higher in urban India for milk, eggs, goat meat and chicken.

*Consumption of carrots, lemons, cauliflowers, cabbages and tomatoes was appreciably more common in urban areas of the country, while potatoes, onions, gourds/pumpkins and brinjal were reported to be consumed by a greater percentage of households in rural areas in a 7-day period. The average rural Indian consumed about 1 kg 965 gm of potatoes a month, about 350 gm more than the average urban resident.

*Per capita urban consumption of all the commonly consumed fruits and nuts exceeded rural consumption whether measured in terms of value or quantity. Rural-urban disparities in consumption were relatively low in case of coconuts, mangoes, groundnuts and bananas, and high for apples, grapes and oranges.

*Expenditure on tea (tea leaf plus purchased ready-to-drink tea) was about Rs.28 per person per month in rural India and about Rs.48 in urban India.

*In the urban sector the contribution of purchased cooked meals to food expenditure per person per month was Rs.58. Purchases of ready-to-eat cooked snacks from restaurants, food stalls, etc. were reported by nearly 60% of urban households during the last 7 days and amounted to about Rs.37 per person per month in urban India.


Rice consumption per person per month in rural India was estimated as 5.98 kg in 2011- 12 compared to 6.38 kg in 2004-05 - a fall of 0.4 kg in 7 years. In urban India the fall in rice consumption between these two years was 0.2 kg per person per month - from 4.71 kg to 4.49 kg. Per capita consumption of PDS rice has, however, doubled in rural India and risen by 66% in urban India since 2004-05, implying that the share of PDS purchases in rice consumption has risen substantially.

Per capita consumption of wheat in 2011-12 showed a slight rise since 2004-05 of about 0.1 kg per person per month in rural areas and a fall of 0.35 kg in urban areas. As in case of rice, the share of PDS purchase in wheat consumption has increased considerably, per capita consumption of PDS wheat having more than doubled since 2004-05 in both sectors.

For the pulses-and-pulse-products group as a whole, per capita consumption rose by 77- 78 gm between 2004-05 and 2011-12 - from 705 gm per month to 783 gm in the rural sector and from 824 gm to 901 gm in the urban sector. Of this rise, however, as much as 69 gm in the rural sector and 57 gm in the urban sector was contributed by the four items split gram, whole gram, pea and besan.

The four pulses -- arhar, moong, masur and urd - which in 2011-12 together made up about 64% of consumption of pulses and pulse products in rural India and 68% in urban India - registered a total increase in monthly per capita consumption of only 14 gm in the rural sector and 18 gm in the urban sector over this 7-year period.

Monthly per capita edible oil consumption was estimated as 674 gm in rural India and 853 gm in urban India. Among the different kinds of edible oil, mustard oil had the largest share - about 45% - in the rural sector and refined oil (which includes sunflower oil and soyabean oil) had the largest share - 47% - in the urban.

And as incomes rise, the share of wallet of consumer spending will also go up. Right now Indian households have a preponderance to spend on what is called FB&T (food beverages and tobacco) but as lifestyle change communication, transport and healthcare will assume enormous significance. A McKinsey study details the change in spend over the next few years reflecting Engel's wisdom.

India has to play to its strength which is to stimulate demand in the local economy. Look at an old economic theorem - economic activity moves on wheels - and one will understand why this is our strongest suite.

Manufacturing of more cars, two wheelers and trucks means more consumption in the domestic market spurring overall consumption and generating economic activity. Both the One Rank One Pension and the Seventh Pay Commission payouts are likely to spur domestic demand for automobiles and other consumer goods and may well emerge as game changers.

India is changing rapidly, the new dispensation was brimming with ideas which unfortunately are taking too long to fructify, commerce and economics is the only axis and the centrifuge of an emerging economy's discourse. We shouldn't be caught out as the ground is shifting beneath our feet. Prepping for the change is paramount. Play to your strength, jumpstart domestic demand. Show your vision and provide a blueprint.

(The writer is a Visiting Fellow at Observer Research Foundation, Delhi)

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