The study is based on NSS secondary data collected for the years 1977-78, 1987-88, 1993-94 and 1999-00. The study showed that in rural areas the major portion of expenditure was spent on total food items which decreased from 65.66 per cent in 1977-78 to 56.00 per cent in 199900. Cereals dominated the food expenditure followed by milk & milk products. The nonvegetarian food items were given the least priority over the years. The results for urban areas for all the NSS rounds under investigation indicated that the expenditure on food items was highest and cereals accounted for the largest share. However, the expenditure on food items dropped from 57.97 per cent in 1977-78 to 31.92 per cent in 1999-00. The expenditure on milk & milk products showed a decreasing trend over the years under study. The percentage expenditure on cereals was higher in rural areas. Reverse trend was observed for fruits and nuts. Within non-food items, consumers gave first priority to miscellaneous goods & services followed by clothing, fuel & light and durable goods in both the areas. The findings depicted that the expenditure on non-food items was higher in urban areas. The expenditure on education was 2.84 per cent and 4.11 per cent in rural and urban areas respectively during 1999-00. The percentage change in expenditure in urban areas was higher as compared with rural areas over the same period. The expenditure in urban households in 1977-78 was 59 per cent higher over their rural counterparts which rose to 65 per cent in 1987-88, 113 per cent in 1993-94 and 158 per cent in 1999-00 thereby indicating that the gap between rural and the urban households increased over time. The study, thus, suggests that to increase expenditure (income) in the rural sector there is need to improve farm productivity through better infra-structural facilities in terms of input availability, marketing facilities etc. which will vary significantly due to diverse agro-climatic conditions; improvement in the non- farm sector; higher emphasis on technical education etc.