Prices, Expenditure and Nutrition in India

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 calorieincome/
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.