AbstractThis study presents some evidence of monthly consumption functions in the rural areas of the North Indian State of Uttar Pradesh. Since this region constitutes one of the largest and least monetized in India, attention is specifically focused on the cash and kind (or non‐cash) components of (a) expenditure on food articles and (b) total consumption expenditure. Dynamic demand functions of a stock‐flow variety are obtained for these broad groups. It is shown that cash outlays act as an inventory‐adjustment mechanism whereas non‐cash expenditure indicates a habit formation process. This behavioral difference of rural households with respect to cash and non‐cash components of consumption expenditure has not yet been demonstrated and is regarded as one of the major results of this paper. With the use of a stock‐flow adjustment system, numerical estimates of the instantaneous and steady‐state equilibrium elasticities are derived with respect to total expenditure (a proxy for income) and prices.