How India Earns, Spends and Saves

This report presents the findings of an all-India household survey which was aimed to determine the current level of well-being of Indian households through objective assessment of earnings, spending and saving patterns of households. A probability sample comprising of 63,016 households, out of a preliminary listed sample of 440,000 households, spread over 1976 villages (250 districts) and 2,255 urban wards (342 towns) covering 64 NSS regions in 24 states/UTs was interviewed while executing the survey. Key Highlights

Indian households have come a long way during a 20-year period that has seen dramatic changes in the way Indians live, earn, consume and save. And to truly understand the potential of Indian households it is necessary to map them in terms of their earning and spending patterns. What are the factors that determine the income of a household and thereby its saving and expenditure trends? This book seeks to explore this question. As we will see in the following chapters, level of well-being is dependent on a whole host of factors ranging from occupation to education and location of households. Some of these factors include constraints imposed by individual capabilities and behaviour such as willingness and ability to take risks. Other factors could be non-availability of capital, high cost of education and institutional factors such as inheritance laws and barriers to mobility. Since the impact of these factors is, to a large extent, non-measurable, we have focused on discerning the differences in the income levels associated with certain demographic and socio-economic characteristics of chief earners and households. In respect of the chief earner, his occupation, education and age have significant bearing on his income, spending and saving levels. The sectors of employment, major sources of income, state of residence are also critical in ascertaining income, expenditure and saving levels in different parts of the country. What light this survey throws for the conduct of similar surveys in the future? It has demonstrated that it is not impossible to collect reasonable data income, expenditure and saving which cannot be obtained satisfactorily through other means and which are needed for an understanding of the economic process and also for the policy purposes. It is true that all the data collected in any survey do not possess the same degree of accuracy and certain estimates are likely to be subject to large non-sampling errors. This, however, is likely to result in an underestimation of financial assets rather than overestimation. Finally, the only method of reducing non-sampling errors and increasing efficiency of survey estimates is to limit the scale of the survey operation and invest more time and energy in better training the field staff in substantive matters and interviewing techniques and improving survey instruments the most important of which is the questionnaire. The highlights of the book include: Primary data based research: We present the findings of an all-India household survey whose objective was to determine the current level of well-being of Indian households through objective assessment of earnings, spending and saving patterns of households. A probability sample made up of 63,016 households out of a preliminary listed sample of 440,000 spread over 1,976 villages (250 districts) and 2,255 urban wards (342 towns) covering 64 NSS regions in 24 states/UTs was interviewed.

Objective analysis of household income, expenditure and saving: There is deeper analysis of the economic well being of the Indian population flowing through socioeconomic and demographic indicators at the level of the household (e.g. rural-urban, sector of employment, major source of income, state of residence, social group), and chief earners (their occupation, education and age, etc.). These have significant bearing on earning, spending and saving. Dynamics of income distribution: Income distribution is presented through the Income Quintile Framework, which is universally accepted as it requires the least assumption and is not easily influenced by under-reporting the quintessential problem with income data. Rural well-being: The dynamic changes happening in rural India; the transforming structure of the rural economy; their overall impact on consumerism, and, the larger ramifications carried for overall well being of households. Urban well-being: Finally, we explore how our cities have been growing by studying rural-to-urban migration trends as well as population shifts from the smaller towns to the metro cities. How these set a trend for the future, apart from impacting the well being of households, was studied.

How India Earns- Income Disparity is rampant 1. Urban households earn 85% more than rural households and spend three- fourths more and save nearly double that of rural households 2. Average number of earners per household remains more or less the same across urban and rural areas 1.43 persons in rural India, 1.34 persons in urban India and 1.4 persons is all India average Only 28% of the population is engaged in remunerative occupation; only 17% of women are engaged in remunerative occupation 3. Households with the same occupation earn more in urban India than rural India 4. Level of education makes significant differences to earning levels in all cases. 5. Two-thirds of the poor reside in the 10 low-income states 30% of households in low-income states are poor (lowest quintile- Q1) Vs. 11.4 % poor households in high-income states 6. Level of earning is also impacted by size of town Cities like Greater Mumbai and Delhi have twice the share of urban income than the urban population Greater Mumbai- 6.5% of urban population and 13% of Urban income Delhi- 5% of urban population and 11% of Urban income Delhi has highest household income among cities which is almost double that of Jaipur How India Spends: Large non-routine expenditure prevails 1. The average Indian household spent about three-fourth of their income on routine[1] and non-routine [2] expenditure Routine expenditures account for around 64% of incomes in rural areas, the figure is marginally lower at 62% in urban areas for the country as a whole it is 63%.

[1]

Routine expenditure includes consumption expenditure on food, housing, health, education, transport, clothing, durables and other such expenses household generally incurs. [2] Unusual expenditure includes unplanned large expenditure on ceremonies (such as weddings, births, etc), medical, higher education, leisure travel, etc.

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Non-routine expenditures account for around 14% of incomes in rural areas, the figure is marginally lower at 11% in urban areas for the country as a whole it is 12%. Indian households spend the bulk of their expenditure on food (rural households more so than urban households) 51% of Indians spend on food 11% spend on transport expenditures 7% on education 5% on housing and health each Like earnings, expenditure patterns too are a function of age, occupation, education, landholdings and location. Urban households spend lot more on non-food routine items as compared to rural households. Low income quintile spend significantly higher portion of their income on food Salaried spend more on non-food items than on food items Share of food expenses comprise about 59% for labourers, falls to 55%for agriculturists, and to 45% salaried households. Similarly, share of food expenses comprise about 57% for landless and falls to 47% for large farmers. Social ceremonies and medical expenses largely make up for the non-routine expenditure of the households. Weddings and ceremonies accounts for 52% Medical emergencies is the next major item with about 27% Large expenses on education 8% The main source of borrowings is the financial institution at an all-India level which is followed by borrowing from a money lender. Households' borrow from banks for different reasons. 51% borrow to buy consumer durables. 55% have done so for other borrowings. 47% of households have borrowed to buy machinery from financial institutions. 1/4th of households borrow for social occasions such as death, birth and marriages in the family. 19% households borrow for education related expenses. 14% house holds borrow for health related expenses. A fourth of Indian households are financially vulnerable Around 3/4th of these vulnerable households live in rural India Vulnerable households have significantly lower income as compared to nonvulnerable households Occupation and vulnerability are correlated

How India Saves: Penny wise pound foolishstory of Indian households 1. Indians have a high propensity to save - 81% of Indian households save. 2. Saving for old age: This appears to be a trend mainly among educated urbanites. 74% of urban households save for old age compared with 67% of rural households. Thus, nearly 66% of households in low-income states, 71% in mid-income states and 72% in high-income states save for old age. While 76% graduate chief-earner households save for their old age, 66% of illiterate households, 66% of households with a primary-educated chief earner and 69% of households whose chief earner is higher secondary educated also save for their old age. 3. Saving for social ceremonies: Rural India appears to save more on this account than urban India.

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63% of households save for social ceremonies with 64% of rural households saving specifically for this reason versus 60% of urban households. Nearly 68% and 66% households respectively in low-income and high-income states save for social ceremonies compared to 54% households in mid-income states. Urban India saves more Share of surplus income[3] is around 28% for urban areas and 22% in rural areas. Of the surplus income, around 10-15% was invested in financial instruments[4] (except bank deposits) in both rural and urban India. Urban India though form only 30% of total households, they save almost as much as rural households in absolute terms In absolute terms urban households save around Rs.1678 billion whereas rural households save around Rs.1643 billion It would be short-sighted to ignore the rural market because in terms of market size it is as big as urban market. Salary earners are the highest savers, whereas households that earn income from labour save the least. Labour group constitute 33% of all households and invest less than 4% of their income. Regular salary comprise 18% of all households and is the highest earning group with an annual income of Rs 108,620 these households save up to 7.1 % of their income. Bank deposits constitute the most preferred form of savings but heres the surprise more than a third of Indians simply prefer to keep their money at home More than half of Indian households (51%) prefer to save by keeping their savings in bank deposits. Almost 36% prefer to keep it at home. Households opting for post-office deposits account for just 5%. Cooperative Society deposits, chit funds, purchasing bonds are some of the other modes of saving. Only 2% of households opt for buying insurance policies. Indians are inherently optimistic about their future financial security, have a shortterm view of investments but most of the time with long term objectives. 41% of Indians confident about their financial well being. 13% feel most confident about their financial well being. 19% of households are little uncertain about their financial status. 12% are least confident about the status. Only 15% are not sure about their financial status.

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Surplus income = Total household income expenditure (routine + unusual). In this report, saving is used frequently as synonyms to surplus income to provide a better readability. [4] Financial instruments include investment made in stock market, small savings and life insurance only for the year 2004-05.