I was a bemused onlooker to a recent discussion between my wife and her partner in shopping crime. They were discussing family budgets. The main point was that while family incomes have increased almost beyond imagination over the last 10 years, spending has grown apace.
I am quite sure that’s also the experience of most Indian families which have benefited from the recent burst of economic growth. The bank balance doesn’t quite meet the targets set when we get our new salary deals and our annual bonuses.
What my wife and her friend were talking about is backed by numbers—including a new set of data on savings and consumption trends in India, released a couple of weeks ago by the government statistics office. These numbers show that there have been vast changes in how India accumulates and spends money. Family budgets today are radically different from what they were at the end of the last century. And they will change even further in the years ahead.
First, consider savings behaviour. India as a whole now stashes away a far bigger proportion of its national income than ever before. But that’s because of a jump in corporate and government savings, rather than in household savings.
The gross financial savings of Indian families have risen from 13.9% of the gross domestic product in 2003-04 to an estimated 18.4% in 2006-07. But that’s what we collectively squirrel away before servicing our debt. Once that factor is taken into account—the money we have borrowed from banks to buy houses and consumer goods and (alas) overpriced initial public offerings as well—it’s clear that the net savings rate of Indian families has barely budged over the past four years.
But this doesn’t mean that the story on the spending side of the family financial ledger has been just one of uniformly climbing expenses: buying the same stuff we always did, only lots and lots more of it. In fact, how we spend our money has changed drastically over the past few years as incomes have increased.
We splurge a larger share of our incomes on mobile phones, eating out, transport and recreation—but surprisingly, not as much as we believe on education and health. We also eat differently, as even a cursory glance into our fridges and kitchens shows. And as far as indulgences go, tobacco is losing importance and what the bean counters call intoxicants have become more important in our lives.
There are hard numbers to back our individual experiences. New spending data captures the vast changes within middle-class family budgets in recent times.
The quick estimates of national income, consumption expenditure, saving and capital formation for 2006-07 were released by the Central Statistical Organization on 31 January. They show that total private final consumption expenditure—largely made up of household spending—increased at an annualized rate of 8.12% in the five years between 2002 and 2007. That’s at current prices. At constant prices, the rate at which private consumption spending has increased at 5.03%. The difference between the two rates of growth—3.09%—is a proxy for consumer price inflation.
But there have been deep changes within this overall trend. In 1999-2000, spending on food, beverages and tobacco accounted for 51.5% of the total spending by Indian families at current prices. That dropped to 42.7% in 2006-07. (The drop after taking inflation into account is less sharp). This means that we are spending a relatively smaller part of our incomes on food than before, which is quite natural in a country that is emerging from poverty.
There are signs of growing prosperity within this category as well. Consumer eating preferences have shifted from the traditional cereals, bread and oilseeds towards stuff such as fruit, milk, meat and even intoxicants. Spending on tea, coffee and cocoa has actually dropped in nominal terms—not quite in tune with our daily experience of umpteen cups of caffeine and crowded city cafés.
On the other hand, our expenditure on communication has exploded, increasing from 1.2% of spending in 1999-2000 to 2.7% in 2006-07 (at current prices), undoubtedly helped by the mobile telephony revolution and deflation in call charges. Indians now spend more on communications than they do on tobacco or hotels and restaurants. And even on education. It was not so at the beginning of this decade.
India is still a country with too much poverty. But there are signs of change. We see this in the broader data on average incomes, which have crossed $1,000 a year. But the consumer spending statistics also show how India is changing—from the daily struggle of getting food to the growing aspiration to eat better, send children to school, own a mobile phone and perhaps have a drink or two.
Your comments are welcome at email@example.com