India’s high savings rate is touted as a strong defence against any economic slowdown. These savings help in routing funds towards greater investment that in turn fuels growth. However, the spread and sustainability of India’s savings rate is unclear. Many believe that since households in the metros have higher incomes, they would also be the highest savers. The numbers do not bear this out.
The disparity in savings rate in urban India point to many factors that influence such behaviour.
People in large cities earn more but save a smaller proportion of their income compared with residents of smaller cities. There are many reasons for this.
First, larger cities usually have a greater share of slum population that typically save less. Secondly, many large cities also have a large number of immigrants who repatriate their monthly surpluses to families, which would otherwise have been saved. Thirdly, larger cities have greater avenues to spend.
The disparity in savings rate in urban India point to many factors that influence such behaviour. Ahmed Raza Khan / Mint
Better roads lead to more people buying automobiles, and better entertainment options and higher property rentals eat away a greater share of incomes. Hence, it is no accident that Mumbai, which has among the highest average incomes in India, does not have the highest savings rate.
If India’s top 112 cities are classified into metros, state capitals and other cities, we see that metros on an average have the lowest savings rate and highest per capita income, while capital cities earn more and save more than non-capital cities.
This is because capital cities typically have a larger share of people in government jobs where incomes tend to be higher and more stable for the same level of education as someone in the private sector, except at the top levels.
However, there are significant differences within state capitals. Chandigarh, for instance, has a different economic structure than, say, Bhopal.
Better infrastructure in state capitals, compared with other cities in the same state, has also led to greater levels of new economic activities coming up in these, whether it is Lucknow or Patna.
The numbers indicate a clear pattern. Out of the top 30 cities, the smaller ones save at a much higher rate than the larger.
Also, there are no north-south or east-west divides. In other words, it is not that people in southern India save more and those in the northern parts of the country save the least.
There may be cultural differences across India’s economic geography, but they do not play out strongly where savings rates are concerned.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and markets. Your comments are welcome at email@example.com