One level above the bottom of the pyramid, according to the five income categories in the Indicus Urban Consumer Expenditure Spectrum, are households earning Rs 1.5-3 lakh annually. This layer accounts for nearly one-quarter of the population in urban India, mostly in the northern states. Household size varies, and on an average there are more than six members per household in Uttar Pradesh and Bihar, while the smallest household sizes of less than four members each can be found in Chandigarh and Himachal Pradesh. The household size is large either because of larger families or because migrant relatives and friends share accommodation in cities. This segment accounts for around 17% of Indian urban expenditure and 12% of savings.
As income levels fall, the burden of food rises in the consumption basket, forming more than one-third of expenses. Miscellaneous goods and services take up the largest share of expenses at 45.5%, but this is lower than the weight these items take up in richer households. Travel and conveyance, and consumer services account for 10% of household expenditure. Fast-moving consumer goods are third-placed with a share of close to 12%. The largest item in the household budget is basic food, which accounts for more than 13% of consumption expenditure. Vegetables and fruits, and rent are both second-placed with a 10% share each. This is different from the three richer segments, where travel and conveyance, consumer services and rent dominate.
Photo Pradeep Gaur/Mint
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The eastern states spend more on eggs, fish and meat compared with other regions; the northern states spend more on milk and milk products; the southern states on rent and processed food items; while the western region has the highest per-household medical expenses.
Across cities, households are relatively more homogenous in their income and savings levels, with average income varying between Rs 2 lakh and Rs 2.3 lakh. Yet, there are differences in consumer behaviour across the cities. Among the top 25 cities with more than 100,000 households in this segment, Lucknow and Kolkata spend the highest per household on education, and cities in Gujarat—Ahmedabad, Surat and Rajkot—have the lowest per household spend. Kolkata, Hooghly and the urban areas of North 24 Parganas spend the highest on health, while households in Delhi spend the lowest. Mangalore spends the highest per household on processed food; Aizawl on eggs, fish and meat; Hissar and Rohtak on milk and milk products; Nadia on vegetables and fruits; and urban areas of Gautam Budh Nagar (Noida) spend the most per household on basic food. When it comes to the share in consumption, households in smaller towns including Bilaspur, Haridwar and Jalgaon spend much more proportionately on basic food than households in larger cities such as Delhi, Kolkata and Chennai. Households in this segment in Hyderabad, Bangalore, Chennai and Madurai spend significantly more on rent than those in Rohtak, Thrissur and Jamnagar.
Because of lower levels of education and skills in this segment, earning opportunities are limited. But there is a trend to spend more on education for younger generations, with English-medium private schools being the favoured option. Households, particularly in the North, spend proportionately more on education, with Lucknow, Kanpur, Panipat, Indore, Dehradun, Bhopal and Faridabad leading here. These households have already made it past the lowest rung of income and, with aspiration levels high, the next generation in these households will definitely be looking to move up the ladder as soon as it can make it.
Graphic by Ahmed Raza Khan/Mint