Household Consumption Expenditure Survey 2022-23

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Why in the News?

The Ministry of Statistics and Programme Implementation (MoSPI) recently released the Household Consumption Expenditure Survey (HCES) 2022-23 report. It shows how rural and urban households in different states spend their money.

What is the Household Consumption Expenditure Survey?

The HCES is carried out by the National Statistical Office (NSO) every 5 years to gather data on household consumption of goods and services. This information also calculates key economic indicators like GDP, poverty rates, and the Consumer Price Index (CPI).

The average Monthly Per Capita Consumer Expenditure (MPCE) is calculated based on 2011-12 prices. The survey includes almost all of India, except for a few remote villages in the Andaman and Nicobar Islands. The results from the last survey in 2017-18 were not released due to "data quality" issues.

Information Generated:

• Details typical spending on goods (food and non-food items) and services.
• Helps estimate household MPCE and analyze how households and individuals fall into different MPCE categories.

What are the Highlights of the Recent Household Consumption Expenditure Survey?

Food Expenditure Preferences:

Beverages, Refreshments, and Processed Food:

• This category was the largest part of food spending in many states.
• Tamil Nadu had the highest spending in this category, with rural areas at 28.4% and urban areas at 33.7%.

Milk and Milk Products:

• Northern states like Haryana and Rajasthan showed a strong preference.
• In Haryana, rural households spent 41.7% and urban households 33.1%.
• In Rajasthan, urban households spent 33.2%.

Egg, Fish, and Meat:

Kerala had the highest spending in this category, with rural areas at 23.5% and urban areas at 19.8%.

Overall Food vs. Non-Food Expenditure:

Food Expenditure:

• In rural India, food makes up about 46% of total household consumption.
• In urban areas, it is around 39%.

Non-Food Expenditure:

• There has been a shift towards more spending on non-food items.
• Rural non-food spending rose from 40.6% in 1999 to 53.62% in 2022-23.
• Urban non-food spending increased from 51.94% to 60.83% in the same period.

Major Non-Food Expenditure Categories:

Conveyance:

• Top non-food expenditure in both rural and urban areas, highest in Kerala.

Medical Expenses:

• High in rural areas of Kerala, West Bengal, and Andhra Pradesh.
• High in urban areas of West Bengal, Kerala, and Punjab.

**Durable Goods:**

- Highest expenditure in Kerala for both rural and urban areas.

Fuel and Light:

• Significant spending in West Bengal (rural) and Odisha (urban).

Regional Variations:

• Spending preferences on specific food and non-food items vary by state, reflecting cultural and regional economic differences.

Growth in Consumption Expenditure:

• There has been a significant increase in consumption expenditure over the past decade.
• Rural monthly consumption per person increased by 164% from 2011-12 to 2022-23.
• Urban monthly consumption per person grew by 146%.
• Rural consumption has grown faster than urban consumption.
• The gap between urban and rural MPCE has decreased from 90% in 2009-10 to 75% in 2022-23.

 

Financing of Large Infrastructure Projects

Why in the News?

Recently, the Reserve Bank of India (RBI) proposed a new framework to better regulate financing for long-term projects in infrastructure, non-infrastructure, and commercial real estate sectors. This initiative aims to address common challenges these projects encounter, such as delays and cost overruns.

What are the Key Provisions Proposed by RBI for Project Financing?

Mitigating Credit Events

• The framework focuses on preventing credit issues such as:
• Loan defaults
• Extensions of the project's commercial operation start date (DCCO)
• Additional debt requirements
• A decrease in the project's Net Present Value (NPV)

Increased Provisioning

To protect against potential losses, the framework proposes:

• Raising provisioning from 0.4% to 5% of the loan amount during the construction stage.
• This increase will be phased in 2% in FY25, 3.5% in FY26, and 5% by FY27.
• The extra provisioning is expected to be 0.5-3% of banks' net worth and could affect the CET1 (Common Equity Tier 1) ratio.

Reduced Provisioning During Operations

Provisioning can be reduced if a project:

• Shows positive net operating cash flow (enough income to cover repayments)
• Reduces total debt by 20% after starting commercial operations

Potential Impacts of the Proposed Framework

Impact on Banks

• Higher provisioning requirements could reduce bank profitability in the short term.
• Loan pricing might increase slightly to reflect the higher perceived risk.
• State-owned banks are cautiously optimistic, suggesting the impact on pricing might be moderate.

Impact on Borrowers

• Borrowers might face stricter financing terms and higher interest rates.
• However, the framework aims to improve project viability and reduce overall risk in the long term.
• Rating agencies predict a potential rise in funding costs by 20-40 basis points.

What are the Financing Issues Faced by the Large Infrastructure Projects in India?

Fiscal Burden on Government

• The government has traditionally been the main funder for infrastructure projects, leading to high fiscal deficits.
• This heavy spending limits funds available for other important areas like education and healthcare.
• In 2022, the government's infrastructure spending was about 3.3% of GDP, which is an improvement but still below the desired level.

Asset-Liability Mismatch of Commercial Banks

• Commercial banks prefer short-term loans with quick returns, making long-term infrastructure projects less attractive.
• Delays and cost overruns in many projects lead to financial stress for banks, discouraging them from lending to large projects.

Subdued Investments in Public-Private Partnerships (PPP) Projects

• Private sector participation in PPPs has been lower than expected due to an uncertain regulatory environment, complex project structures, and land acquisition issues.
• A 2023 report by CARE Ratings indicates that private sector investment in infrastructure projects has been around 5% of the total needed.

Inefficient and Underdeveloped Corporate Bond Market

• India's corporate bond market is still relatively small and lacks liquidity, making it hard for infrastructure companies to raise funds through bonds.
• In 2023, the size of India's corporate bond market was approximately USD 1.8 trillion, much smaller compared to developed economies like the US, which has a bond market of USD 51 trillion.

Investment Obligations of Insurance and Pension Funds

• Regulations often require insurance and pension funds to invest a large portion of their funds in government securities, limiting their ability to invest in infrastructure projects.
• According to the World Bank, only around 2% of Indian pension funds' assets are invested in infrastructure projects, compared to a global average of 5-10%.

What are the Government initiatives Related to Financing Large Infrastructure Projects in India?

Key Initiatives for Infrastructure Development

National Infrastructure Pipeline (NIP)

• The NIP aims to provide a comprehensive vision for infrastructure development in India, encompassing projects across various sectors to ensure coordinated and efficient execution.

National Bank for Financing Infrastructure and Development (NaBFID)

• NaBFID is a dedicated financial institution established to fund infrastructure projects, addressing the gap in long-term financing and helping mitigate risks associated with large-scale projects.

National Investment and Infrastructure Fund (NIIF)

• The NIIF is a government-backed fund that aims to attract both domestic and international investment into infrastructure projects, providing a significant boost to funding availability.

Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs)

• InvITs and REITs are financial instruments designed to pool investment into infrastructure and real estate projects, offering a way for investors to gain exposure to these sectors while providing companies with a source of funds.

Public-Private Partnerships (PPP) Model Reforms

The government is working to make PPPs more attractive by:

• Reducing legal complexities
• Simplifying the approval process
• Streamlining dispute resolution processes

• Example: The Ministry of Finance has established a dedicated PPP cell and model concession agreements to address private investors' concerns and facilitate faster project clearances.

Sovereign Wealth Funds (SWFs)

• The Indian government is actively engaging with countries like the UAE and Norway to attract investment from their large SWFs.
• SWFs can provide a stable source of long-term funding for infrastructure projects, reducing the financial burden on the government and mitigating risk.

What Measures can be taken to Improve Financing of Large Infrastructure Projects in India?

Enhancing Project Preparation and Risk Mitigation

• Conduct thorough feasibility studies to accurately assess project viability, costs, and potential risks, which is crucial for attracting investors.
• Establish a fair and transparent risk allocation framework to balance the interests of both public and private sectors.

Attracting Private Sector Participation

The government can offer grants or subsidies (Viability Gap Funding) to make projects more attractive by bridging the gap between project costs and what private investors are willing to pay.

Diversifying Funding Sources

• Encourage the creation of more Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) to attract investments from pension funds, insurance companies, and other institutional investors.
• Consider creating a sovereign wealth fund in India to leverage the country’s foreign exchange reserves for long-term infrastructure financing.

Streamlining Approvals and Clearances

• Simplify land acquisition procedures to ensure timely availability of land for project development, addressing a major bottleneck.
• Develop a more efficient system for environmental impact assessments and clearances, balancing environmental protection with project timelines.

 

Improving Project Execution and Efficiency

• Promote the use of new technologies like prefabrication and modular construction to enhance project efficiency and reduce costs.
• Implement stricter performance monitoring and accountability measures to ensure the timely completion of large projects and avoid cost overruns.

 

United Nations Global Supply Chain Forum

Why in the News?

Recently, the first United Nations Global Supply Chain Forum (UNGSCF) was held by the UN Trade and Development (UNCTAD) and the Government of Barbados. They discussed important issues and initiatives to tackle growing global supply chain disruptions.

What are the Key Issues Highlighted at the UNGSCF?

• The forum emphasized the volatility in global trade and the need to make supply chains more inclusive, sustainable, and resilient. It addressed how global disruptions are increasing sea time for ships and greenhouse gas emissions.
• The discussions focused on the compounded effects of climate change, geopolitical tensions, and the Covid-19 pandemic on global supply chains. Ports were highlighted as key to maintaining global value chains through technology and sustainable practices, with the Port of Bridgetown in Barbados showcased as a model for other Small Island Developing States (SIDS).
• The forum explored the challenges of reducing carbon emissions in global shipping, especially for developing countries with renewable energy resources. It launched the "Manifesto for Intermodal, Low-Carbon, Efficient and Resilient Freight Transport and Logistics," advocating for zero-emission fuels, optimized logistics, and sustainable value chains to limit global warming to below 1.5°C.
• SIDS faces heightened risks from climate change impacts on transport infrastructure. The forum emphasized the need to prioritize improvements in multimodal transport networks and customs procedures. Ministers from SIDS called for international financial institutions and donor countries to fund projects promoting resilience and sustainability in their transport and logistics sectors.
• Blockchain-enabled traceability and advanced customs automation were highlighted as crucial for optimizing trade facilitation and enhancing transparency. UN Trade and Development presented guidelines for an electronic single window for trade to streamline processes. A new Trade-and-Transport Dataset, developed with the World Bank, was launched. Covering data on over 100 commodities and various transport modes, this free, comprehensive dataset aims to enhance the understanding and optimization of global trade flows.

What is the Need for Supply Chain Resilience for India?

Supply Chain Resilience

Overview:

Supply chain resilience in international trade involves diversifying supply sources across multiple nations rather than relying on just one or a few. This approach helps mitigate risks from unexpected events, such as natural disasters (volcanic eruptions, tsunamis, earthquakes) or pandemics, as well as human-caused issues like armed conflicts. Disruptions in supply chains can negatively impact the economies that depend on these supplies.

Need for Supply Chain Resilience:

1. Covid-19 Realisation:

• The COVID-19 pandemic highlighted the risks of dependence on a single nation for supplies, which can harm both global and national economies.
• Many assembly lines are heavily reliant on supplies from China.
• If the source country stops production due to involuntary reasons or as a measure of economic coercion, importing nations can be severely affected.

2. USA-China Trade Tensions:

• Trade disputes between the United States and China, involving tariff sanctions, can escalate problems for the global supply chain.

3. India as an Emerging Supply Hub:

• Businesses are increasingly viewing India as a potential "hub for supply chains.
• This shift necessitates the development of robust supply chains within India.

4. Chinese Imports to India:

• In 2018, China accounted for 14.5% of India's imports, especially in key areas like Active Pharmaceutical Ingredients and electronics, where China supplied 45% of India's imports.

 

Initiatives to Enhance Supply Chain Resilience:

1. Indo-Pacific Economic Framework for Prosperity (IPEF)

2. Supply Chain Resilience Initiative (SCRI):

• Aims to enhance supply chain resilience for strong, sustainable, balanced, and inclusive growth in the Indo-Pacific region.

3. Semiconductor Supply Chain Partnership:

• India and Japan have a Memorandum of Cooperation to develop a semiconductor supply chain partnership.

4. G-7 Summit 2023:

• India made significant contributions to enhancing supply chain resilience and provided several suggestions.

5. Critical Minerals Acquisition:

• India is increasing its efforts to acquire critical minerals from Africa, challenging China’s dominant position.

Other Key Initiatives:

1. PM Gati Shakti National Master Plan.

2. National Logistics Policy (2022).

3. Atmanirbhar Bharat Initiative.

4. Production-Linked Incentive (PLI) Schemes in Key Sectors.

5. Liberalized FDI Policy.

What are Suggestions for India for Improving Supply Chain Resilience?

Strategies for Supply Chain Resilience

Diversification of Suppliers and Manufacturing Base:

• Reduce reliance on a single source for raw materials, components, or finished goods. For example, over 60% of electronic components are imported, mainly from East Asia.
• Encourage domestic manufacturing and diversify import sources across multiple countries to mitigate risks from geopolitical tensions or natural disasters. This supports the Atmanirbhar Bharat (Self-reliant India) initiative.

Integration of MSMEs in Global Value Chains (GVCs):

• Integrate Indian MSMEs with Global Value Chains (GVCs) by enhancing regional innovation systems and establishing a science and technology commission in SME clusters.

Increase Share of Indian Fleet:

• Currently, the Indian fleet comprises only 1.2% of the world's fleet capacity and carries just 7.8% of India’s EXIM trade. Efforts are needed to increase the Indian fleet's share.

Enhance India's Share in Global Trade:

• India's share in world exports of goods and services increased from 0.5% in the early 1990s to 2.1% in 2018. However, to integrate into global supply chains, India needs to gradually increase its share.

Investment in Logistics Infrastructure:

India's logistics costs are relatively high, estimated at around 13-14% of GDP, compared to 8-11% in developed economies.

Upgrading transportation networks, including roads, railways, waterways, and ports, is essential.

Boost Domestic Production of Critical Inputs:

• Identify and prioritize critical raw materials and components heavily imported, such as Active Pharmaceutical Ingredients (APIs).
• Provide incentives and support for domestic production through mechanisms like the Production-Linked Incentive (PLI) Scheme to reduce vulnerability to external disruptions.

Strengthen Digital Integration:

• Promote digitalization across the supply chain to enhance transparency, visibility, and risk management.
• Implement robust cybersecurity measures and foster collaboration through shared data platforms.