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The decade in economic behaviour

The decade in economic behaviour
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First Published: Mon, Jan 31 2011. 10 22 PM IST

Updated: Mon, Jan 31 2011. 10 22 PM IST
Guiding light: Daughters of farmers at KGBV School in Lucknow. In emerging India, people are keeping aside more money to spend on education, health, entertainment and communications: items that enable them to prepare for the future and also help them better enjoy the present. Priyanka Parashar/Mint
Twenty years after the advent of radical economic reforms and at the very end of a decade of unprecedented growth, it is worth asking a simple question: has all this made any difference to the lives of ordinary Indians?
The popular view is that a narrow elite has captured the benefits of high growth, while the condition of the vast majority has either stagnated or actually deteriorated. From this comes the rhetoric about how there are two Indias living next to each other in an uneasy truce. It is time to bust that myth.
There can be no doubt that far too many Indians still hover at the edge of crushing poverty. They have been denied the opportunity to participate in a booming economy: lacking the skills to take a modern job, unable to grow tiny businesses because they have been shut out of the financial system, and bullied by a government apparatus that is either corrupt or violent. A million mutinies can still explode around us.
Yet, there is also evidence that the lives of ordinary Indians are gradually improving. Growth is benefiting at least eight out of every 10 Indians. The United Nations Development Programme said in its Human Development Report 2010 that India has been one of the star performers in advancing human development since 1980. It is sixth in the list of countries that rapidly improved their human development indicators. What is even more interesting is that the past decade saw the biggest advances in human development compared with the 1980s and the 1990s.
The National Council of Applied Economic Research said earlier this year that there are now more high-income households in India than low-income households—46.7 million versus 41 million. At the start of the decade, there were 13.8 million high-income families and 65.2 million low-income families. Sixty-two percent of Indian households are now in the middle class, earning between Rs45,000 and Rs1.8 lakh a year, an income range the think tank believes provides enough income for discretionary spending on consumer goods.
Real incomes have doubled in the past decade. Higher incomes usually change the economic behaviour of people. They tend to eat better, getting more of their nutrition from protein-rich foods such as pulses, meat, eggs and milk rather than from cereals. The higher consumption of meat and eggs may also indicate that traditional caste barriers are weakening.
The proportion of money kept aside in the average family budget for food declines in tandem with higher incomes. Relatively more is spent on education, health, entertainment and communications: items that enable people to prepare for the future and also help them better enjoy the present. We see a lot of this already happening in India; you can call it aspirational spending or crass consumerism, depending on your political beliefs.
Government data on consumer spending indicates that spending on food, as a proportion of total family budget, has expectedly gone down in the past 10 years. Rs4 out of every Rs10 spent by an average Indian at the turn of the century was on food; that proportion is now down to Rs3 out of every Rs10. One-tenth of the spending budget has been released for other uses.
What are we doing with this money? The data shows that proportionately more money is being spent on items such as healthcare, communications, transport and education. Consumer goods for household and personal care have also grown in importance in private spending. The spread of mobile phones is a known story. But few know that perhaps seven out of 10 homes now have ceiling fans. Radios and wristwatches are almost ubiquitous.
People are putting their children in school, even private schools that have mushroomed in urban slums. School enrolment numbers have soared though studies by activist group Pratham show that few children can read and write adequately. Dropout rates are still too high. However, the fact that nearly all children enter primary school is no small achievement. Indicus Analytics chief economist Sumita Kale has pointed out that India accounted for 25% of the world’s out-of-school population in 2001; that is now down to less than 10%. Keeping children in school and ensuring the school system works are the next big challenges.
Look at some other random signs around you: ordinary people on the move, better dressed than before, with the omnipresent mobile phone, dreaming of a scooter, ready to buy a shampoo sachet or a small packet of biscuits, and, above all, uniformly certain that they want their children to have a better life than theirs.
These are the first signs that the raw battle for survival is receding and Indians have become more aspirational.
What does this all amount to? There is perhaps a pointer to the future here.
We can think of the process of national change in four stages. The first stage of mass poverty is dominated by the struggle for survival. The second stage leads to growing personal consumption. Then comes the stage when people start looking to a better family future through higher spending on health and education. The fourth stage is when people are less worried about their present and immediate future; they start demanding better social and physical infrastructure.
In the language of economics, the social discount rate starts falling as affluence spreads.
India, in the first decade of this century, was perhaps in the third stage of progress. Sustained growth over the next decade could put India at the cusp of a political revolution, when ordinary voters become less obsessed with immediate handouts and start demanding better schools, hospitals, roads, electricity supply, and the like. Opportunity would then become a more potent issue that entitlements.
Four Themes
Eat, pray, live
The malnourishment numbers are frightening, and per-capita cereal consumption has stagnated over the past few decades. But there are also encouraging signs that diets are growing richer, with more consumption of protein-rich foods such as milk, eggs and pulses.
We don’t need no education?
The Pink Floyd anthem may still be hummed by children spoilt for choice, but the poor desperately want to send their children to school. Primary school enrolment has soared, though subsequent dropout rates continue to be high. Also, a broken schooling system ensures that Pappu can’t read.
Munni, zandu balm and all that
Higher incomes mean that the average family has to keep aside relatively less money for food. A bigger proportion of the family budget is available to basic consumer goods such as shampoo sachets and biscuits. Most homes now have electric fans, and wrist watches are ubiquitous.
India calling
A lot has been said and written about India’s magnificent telecom boom. And it shows no signs of abating. A telephone was once considered a luxury. It is now an essential tool for living in a connected world—be it college kids tweeting or farmers using mobile phones to get price information.
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First Published: Mon, Jan 31 2011. 10 22 PM IST