Prices, expenditure and nutrition in India

Abstract

Building on a recent important contribution by Deaton and Dreze (2009), our analysis sheds new light on why the calorie Engel curve shifted down-especially in rural India- over the period 1993-2004. The puzzle for the longer period analysed by Deaton and Dreze (2009) is that despite higher incomes per capita calorie consumption was lower at a given level of per capita household expenditure, across the expenditure scale, in 2004. In trying to resolve this puzzle, they are emphatic that the decline in calorie intake reflects lower calorie requirements due mainly to better health and lower activity levels. Using a standard demand framework, our resolution is different. The important role of food prices in inducing changes in consumption-through both own and cross-price effects "is confirmed. Although calorie-income/expenditure elasticities are large, stagnation of incomes in rural areas over the period 1993-2004 suggests that prices had a decisive role in lowering calorie intake. Controlling for all these and unobserved effects, there was a significant negative effect of a time dummy which is arguably linked to improvements in health and lower activity levels. Policy interventions designed to stabilise food prices and expand livelihood opportunities in rural areas thus remain an important concern despite differing views on whether pervasive nutritional deprivation is real.