Engel’s law and Pandemic’s impact on our food expenditure

News

The recent budget has seen a reduction in the amount allocated for food subsidy, mid-day meals and for the Mahatma Gandhi National Rural Employment Guarantee Act. These steps may worsen the situation of the poor who have been struggling to even cope with the disruption to their food budget as shown by a recent analysis.

What is this study?

An analysis was done on the basis of Centre for Monitoring Indian Economy monthly data. Experts studied the data based on Engel’s law and analysed pandemic’s impact on the food budget of the households.

What is Engel’s law?

The poorer a family, the greater the proportion of its total expenditure that must be devoted to the provision of food.

What were the causes for Nutritional disruptions in the pandemic?

Nutritional disruptions arose from both the production side (food production, processing and distribution) and demand side (economic and physical access to food) during the pandemic.

Food supply chains were interrupted by restrictions on the movement of food and closure of wholesale and retail outlets. The hikes in food prices, along with unemployment and loss of incomes led to a decline in overall demand.

How these disruptions affected food expenditure of households?

Pandemic-induced lockdowns resulted in a sharp increase in the share of food in total expenditure across rural and urban India.

The share of food in total expenditure in rural India ranged from 45% to 50%, and, in urban India, from 41% to 45% before the Pandemic.

However, the corresponding shares rose to 61% in rural India and 59% in urban India during the first wave and even reached higher levels in the second wave.

In rural areas the before(pandemic)-versus-after gaps in food-budget was widest for the poorest. That the poorest in rural areas were worst affected by the lockdown.

Although overall Engel curve shifted downward once lockdown restrictions were lifted but there was no reversal to pre-pandemic levels. This shows that the income levels have not fully recovered and changes in relative food prices induced substitutions within the household consumption basket.

This means that households may have been prompted by the massive price and income shocks due to the pandemic to shift from good-quality nutritious food to inferior food.

Source– This post is based on the article “Engel’s law and Pandemic’s impact on our food expenditure” published in Live Mint on 16^th Feb 2022.