Indian households are earning more as economic growth accelerates and putting aside savings, but they continue to remain financially at risk, according to a new, large survey of households.
An overwhelming 96% of 63,016 Indian households responding to the survey indicated that they wouldn’t be able to cope for more than one year on their current savings if a major source of household income is lost. There is also a widespread “misplaced financial optimism” in the country and 54% Indians suffer from “nothing-will-happen-to-me” syndrome, the survey notes.
These are some of the findings of a study done by the National Council of Applied Economic Research (NCAER) India and sponsored by Max New York Life, a private player in the life insurance space.
Max and other insurance companies are rolling out new products as the insurance sector opens up to more competition in the country, and as they seek to get more people to consider buying life and other insurance offerings for income as well as financial security.
The survey notes that awareness of life insurance stands at a high 78% on an all-India level, with more urban households (90%) aware of it than rural ones (73%).
Yet, only 24% of Indian households actually own life insurance policies—the bulk in urban India. Only 19% of households in rural India own life insurance. About 4% of Indian households bought policies in the last year—6% in urban households and 3% in rural ones.
A sample of 63,016 households, out of a preliminary listed sample of 4.4 lakh households, spread over 1,976 villages in 250 districts and 342 towns covering 24 states and Union territories, was interviewed for this survey.
According to the survey, an estimated 81% of households save in one form or other. This is true of even financially at-risk households. The intent of savings is for the long-term—for emergencies, children’s education and old age.
Around 51% deposit their savings in banks and 36% simply keep them at home.
At the lowest income group, urban India invests almost 6% of income, though they have an overall deficit of roughly Rs9,500 per annum, whereas rural India invests a little over 3%, having a deficit of approximately Rs6,000.
Almost 40% of rural Indian households and a fourth of urban Indian households borrow from the moneylender to meet expenditures towards health and medical treatment.
Nearly a fourth of rural Indian households leverage this source to meet routine household expenditure.
In urban areas too, this proportion is significant—at nearly a third.
One of the findings of the survey is that only 4% Indian households feel they can survive for more than a year on their current savings in case of death or disability of the chief breadwinner.
The “risk” has been defined in two ways for the purposes of this study—level one risk, which determines crude savings by subtracting routine expenditure from income; and level two risk, which is determined by subtracting routine expenditure and unusual expenditure from income.
At level one, most Indian households are financially protected and only 10% of Indians in the bottom income groups each in rural and urban India suffer from extreme financial risk.
However, level-two estimates of financial vulnerability suggest that majority of Indians, even in relatively better-off households, are financially at risk. At this level, 28% of Indian households are financially at risk.
Financial risk is a gap between the income and expenditure and indicates the household’s inability to meet their needs through the financial resources at their disposal. This is in no way related to the prosperity of India, which is growing.