India’s poor often pay more for what they consume because limited cash forces smaller purchases, shorter product lives and repeated repairs, turning poverty into a hidden cost.
Having little cash can be an expensive way to shop. The household that cannot afford to buy more today often pays more for the same consumption tomorrow. A Rs 10 sachet is an extraordinary piece of commercial engineering. It turns a Rs 100 purchase into a Rs 10 decision. But if the same consumer must buy ten sachets instead of one larger pack, pay more per unit, make ten trips instead of one and replace the product sooner, cheap becomes expensive. The problem is not the sachet. It is the liquidity constraint behind it. A rich household can pay more today to lower its cost over the next five years. A poor household often has to minimise the cash it spends today, even when that raises the cost over time. That is how poverty acquires a price.
The poor pay a premium for scarcity
That distinction will matter as India grows richer. The next stage of mass consumption will involve refrigerators, phones, vehicles, housing and healthcare, where value depends on how long something works, not simply whether the household can buy it. The harder test is this: can the poorest consumer afford the product that is cheapest over its lifetime?
The poor pay more for The same consumption
India is not alone. Small packs are a standard response to low and irregular incomes across emerging markets. Bain found Indonesian consumers showing a strong preference for smaller packs and more frequent shopping. Similar “affordable unit” strategies are common across Africa and Latin America. India’s scale makes the economics more consequential.
Economist Vijayendra Rao documented this mechanism in three South Indian villages. Poor households paid higher unit prices for some identical food products because they purchased smaller quantities. Accounting for these differences increased measured real-income inequality by 12-23% compared with measures based on nominal incomes. The household with savings gets the bulk discount. The household without savings pays for flexibility.
The Rs 10 economy is commercially rational
A Crux study of 2024 found that Rs 1, Rs 5, Rs 10 and Rs 20 packs accounted for 29% of India’s consumer-goods market. Small-pack sales were growing 14%, against 8% for the rest of the market. Consumers were also making more shopping trips while buying less per trip: 966 grams against 1,033 grams two years earlier.
A consumer with Rs 20 cannot buy the Rs 100 pack, even if it is cheaper per gram. The Rs 10 pack turns an impossible purchase into a sale. Sachets have therefore been one of India’s most effective distribution innovations. The consumer pays for that flexibility through higher packaging costs per gram, more frequent purchases and lost bulk discounts.
Inflation makes the difference sharper. A salaried household can buy five kilograms instead of two. A cash-constrained household may simply buy two. The two households can therefore face different effective prices even when the shop displays the same price.
India has already shown how to remove the penalty
The strongest counter-example comes from India itself: the Public Distribution System. The PDS separates access to essential food from the household’s ability to pay the full market price. The World Bank estimates that it reaches nearly 800 million people through more than half a million fair-price shops.
World Bank analysis found that sugar bought through the PDS was about 30% cheaper than market purchases, while rice and shift The risk, not The price
The 2023-24 Household Consumption Expenditure Survey puts average monthly per-capita consumption at Rs 4,122 in rural India and Rs 6,996 in urban India. At the bottom 5%, those figures fall to Rs 1,677 and Rs 2,376. For someone spending Rs 1,677 a month, Rs 100 is almost 6% of monthly consumption. A family with enough cash to buy Rs 1,000 of groceries can choose the lowest unit price. A family with Rs 100 available today buys what fits its cash balance.
wheat were less than half the market price. A household receiving subsidised grain needs less cash to maintain consumption and has more income available for other needs or emergencies. Research on PDS reforms has found that better-performing systems helped protect poor households from food-price increases and reduce poverty during drought and high inflation.
The PDS proves that the liquidity penalty is not inevitable. But it also exposes the limit. Government can specify five kilograms of rice. It is much harder to specify a the poorer household may spend more over time. refrigerator that should last ten years, a shoe that should survive a working season or construction material that will prevent a repair bill five monsoons from now. Price can be subsidised. Lifetime quality is harder to verify.
Cheap quality becomes an economic cost
Consider a fan. A household with savings can spend Rs 3,000 on a durable model. A household with little cash may spend Rs 800 on a cheaper one. If the first lasts ten years and the second requires replacement every three years, But it cannot borrow against ten years of future durability.
Lifetime value requires upfront liquidity
Housing creates the same problem. The World Bank has documented poor construction practices and inadequate quality control in low-income housing across South Asia. A cheaper structure can reduce the initial bill while increasing maintenance and repair costs later.
Healthcare is harder still because quality is difficult to observe before purchase. Research on Indian healthcare found that technically better providers were not necessarily able to charge more for that quality. Patients could observe visible effort more easily than technical competence. Poor households have the least room to absorb the cost of getting that choice wrong.
Repeated repairs consume savings. Replacements divert money from education or investment. Poor housing affects health and working time. The cost eventually appears as lower savings and productivity. It simply does not appear on the product’s price tag.
India has made extraordinary progress in reducing poverty. The World Bank estimates that extreme poverty at the $3-a-day line fell to 5.25% in 2022, from 16.2% at the earlier comparable poverty line in 2011-12 to 2.3% in 2022-23. But escaping poverty does not eliminate the cost of being cash-constrained.
Durable goods now account for 6.89% of rural and 7.17% of urban monthly consumption, up from 4.85% and 5.60% respectively in 201112. As households buy more expensive goods, the cost of a bad choice rises sharply. A Rs 10 mistake can be corrected tomorrow. A Rs 30,000 mistake can stay with a household for years.
This is where policy matters. Japan’s Top Runner programme, introduced in 1998, used the performance of the most efficient appliances to set future standards. India need not copy Japan, but it can apply the principle where consumers cannot easily judge quality.
A buyer can compare two prices. It is much harder to compare ten-year electricity costs, durability or repair rates. Standards, lifetime-cost information and longer warranties can shift some of that uncertainty from households to producers.
The goal is not to make everything cheaper. It is to make being poor less expensive.
India’s consumption revolution will be complete when a household no longer has to choose between what it can afford today and what costs less over time. The poor should not have to pay tomorrow for what they could only afford today.
*Prof. Vikas Singh is a Professor at IIM Nagpur and Visiting Faculty at the Indian School of Business (ISB), and writes on business, policy and India’s economic transformation.
