The Indian economy has grown at an average of 7% in the current decade, with per capita income rising 78% to Rs29,642 by 2006-07 in this period. How has this impacted the average Indian’s ability to earn, willingness to spend, and propensityto save? Insurance company Max New York Life commissioned Delhi-based National Council for Applied Economic Research, a think tank, for a Financial Protection Survey in June 2005.
The agency covered 63,016 households,spread over 1,976 villages and 340 towns in 24 states and Union territories. The survey results confirm the wide disparity between urban and rural people. On average, the urban Indian earns 85% higher than his or her rural counterpart, spends 71% more and saves nearly double—Rs26,762 compared with Rs11,613—every year.
According to the survey, a person’s occupation, education,age, location and landholding directly influence his or her income. Households with graduates earn 3.5 times more than those with illiterate ones, and incomes nearly double between the ages of 25 and 66. Salary earners are the cream of urban India, while agriculturists with land are the richest in rural areas.
Wage labourers are the poorest, comprising 62% of the lowest-income households. And 67% of this quintile also belong to the not-so-rich states, with the poorest among them being Bihar with a per capita income of Rs6,277. The average Indian saves only about a quarter of what he or she earns—Rs16,039, out of an income of Rs65,041, according to the survey. Some 12% is spent on weddings, social ceremonies and unusual medial expenses. Rural, uneducated and poorer households spend more on food, while expenses on transport, durables and clothing are still quite similar among both urban and rural households. Only about a third of rural households have colour TVs and blenders, with the share rising to more than half in the case of urban India. And financial vulnerability affects both urban and rural India—25% of households spend more than they manage to earn. While more than 80% of Indians save mainly for children’s education and old age security, the salaried class saves the most, 33%, of its income. Most of that,though, is eventually spent on medical emergencies. Still, even as Indians like to stock up on cash, they are optimistic about their financial future, and urban Indians are more so. Barely 3% of the household income goes into small savings instruments, stocks or insurance policies. And of this, almost two-thirds goes to insurance policies.