How Kerala Leads in Reducing Consumption Inequality in India
- Remin Francis I R
- Oct 8
- 4 min read
India’s journey towards economic growth is often talked about with optimism. Yet, the conversation is typically centred around the challenge of rising income inequality, commonly referred to as the “K-shaped recovery”(a post-pandemic trend where the wealthy recover quickly while the poor stagnate or decline). But a recently released government survey, the Household Consumption Expenditure Survey (HCES) 2022-23, challenges this narrative, suggesting that when it comes to actual living standards, India is becoming more equal, not less.
Understanding Consumption vs. Income Inequality
Before diving into national trends and state comparisons, it’s important to distinguish between two types of inequality: income inequality and consumption inequality. Income inequality measures the gap in what people earn, whether through salaries, profits, or rents. This can fluctuate significantly, depending on factors like job changes or bonuses.
On the other hand, consumption inequality measures the gap in what people actually spend on goods and services, such as food, housing, and transport. It gives us a more stable, long-term picture of living standards because people often adjust their spending to smooth out income fluctuations. In other words, income is your paycheck, but consumption is your lifestyle. Even if you have a bad paycheck month, your lifestyle doesn’t usually collapse.
The National Trend: India is Converging
The HCES 2022-23 survey reveals an encouraging trend: consumption inequality is decreasing across India. This is especially true for poorer households, whose consumption has been growing faster than that of wealthier families. Interestingly, this trend is most pronounced in urban areas, where the disparity between the rich and the poor is narrowing.
Another significant finding is that the rural-urban divide is narrowing. While urban households still spend more on average, the gap between urban and rural areas has steadily decreased since 2009-10. This suggests that even though income inequality remains high, consumption inequality is declining, indicating that living standards are becoming more similar across regions.
However, there's an important caveat: for the poorest 30% of households, the consumption gap between urban and rural areas has actually widened. This highlights a critical challenge: while overall convergence is happening, the benefits are not yet reaching the most vulnerable households as effectively. This calls for targeted interventions to address the needs of these households.
Kerala: A Model of Inclusive Growth
While these national trends are promising, Kerala stands out as a true success story. The state has managed to achieve impressive poverty reduction and maintain a relatively high standard of living. Here’s a closer look at Kerala’s exceptional journey.
Astonishing Poverty Reduction
Kerala has made extraordinary strides in reducing poverty, achieving some of the lowest poverty rates in India. According to the updated Rangarajan poverty line, rural poverty in Kerala plummeted from 7.3% in 2011-12 to an almost unbelievable 1.4% in 2022-23. Even urban poverty saw a dramatic fall, from 15.3% to 4.3% over the same period. These results are staggering and speak volumes about the state’s commitment to poverty alleviation.
Bridging the Urban-Rural Gap
Kerala has also excelled at reducing the consumption gap between urban and rural areas. Despite being a high-consumption state, it has managed to ensure that its rural populations enjoy similar standards of living to those in urban centres. This achievement is particularly noteworthy because many other states continue to see a sharp divide between urban and rural consumption.
A Higher Bar for Poverty Line
Kerala has one of the highest poverty lines in India, meaning the cost of living there is higher compared to other states. Despite this, the state’s success in reducing poverty is even more impressive. It’s like winning a high-jump competition where your bar is set higher than everyone else’s. This means that Kerala’s citizens have had to meet a higher standard of living to be considered “not poor,” making the state's poverty reduction achievements even more remarkable.
The Trade-Off of Maturity
However, as a more developed state, Kerala’s consumption growth has been slower than some of the poorer states that are catching up rapidly. This is part of the natural convergence process; poorer states tend to experience faster growth in consumption as they catch up to wealthier regions. While Kerala’s growth may seem slower, it is still a crucial part of the broader trend of convergence happening across the country.
What Does This Mean for the Future?
The broader takeaway from the HCES 2022-23 data is that inequality in India, when measured by consumption rather than income, is less severe than often portrayed. The trend towards reduced consumption inequality suggests a more equitable society is emerging. While income inequality still presents challenges, the shrinking consumption gap is a promising sign that India is moving toward a more inclusive future.
This convergence is likely driven by factors like better-targeted government welfare schemes, increased labour mobility, and financial inclusion. These forces empower households to smooth their consumption, allowing them to maintain a stable standard of living even when their incomes are unpredictable.
Learning from Kerala
To build a truly inclusive future, policymakers must focus on metrics like consumption, which reflect real living standards. Kerala’s success offers valuable lessons for other states, showing that economic growth can be inclusive when paired with strategic investments in education, healthcare, and welfare. By turning growth into shared prosperity, Kerala has managed to bridge gaps and uplift millions, offering a powerful model for the rest of India to follow.
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