Estimating the Demand for Food and Non-Food Items Using an Almost Ideal Demand System Modelling Approach

An Almost Ideal Demand System model is used to examine consumer behaviour in India using household survey data for the period 1973-74 through to 1993-94. The empirical results indicate that, for commodity groups, demand is inelastic, except for other foods and non-foods. The expenditure elasticity estimates indicate that milk and non-foods are luxury goods, while pulses, cereals, edible oil, meats, fruits and vegetables and other foods are necessities in the Indian diet. The results indicate that, for any increase in future expenditure, the largest percentage increase will be allocated to non-foods, followed by cereal, other foods, milk, fruits and vegetables, edible oil, pulses and meats, in that order. Estimates of future food supply and demand growth in India indicate that the gap between growth in domestic demand and domestic production is large, particularly for commodities such as pulses (deficit growing at 2.47% p.a.), but low for others like edible oils (0.02% p.a. deficit) and cereal (0.26% p.a. deficit). As a result, India is likely to see large increases in food imports in the future