Home / Opinion / This Independence Day, each can easily free two

Food prices are seriously out of control. Vegetables that would cost me Rs300 for a week are now at least double that budget. The grocery bill is significantly higher, too. Therefore, I think we need to give raises to household help, driver, car cleaner, press-wallah, the kid who brings the takeaway and the other service providers who make our urban mass affluent life possible.

One of most ungainly sights of urban mass affluent India is the crib about food prices, even as we nurse a mojito in ring-encrusted hands. A remnant of the past when prices did actually hurt, this crib has no place in a household that earns at least Rs50,000-75,000 post-tax, post-rent or after paying one EMI a month.

The last 10-12 years have seen a quantum leap in salary levels of new entrants and the middle-level worker. The experience of the wealthier world shows that as disposable income rises, the proportion spent on food gets progressively lower, leaving a larger pie for discretionary spends and investing. India is no different.

The 63rd round of the National Sample Survey shows in its Household Consumer Expenditure in India report that the monthly per capita expenditure in urban India stood at Rs1,312 in 2006-07, up from Rs1,022 in 2003. Of this, 39% was spent on food in 2006-07, down from 42% in 2003. This number was 56% in 1987-88. Remember, this is the average expenditure.

Also Read Monika Halan’s earlier columns

A few financial planners I spoke with agreed that the monthly spend on the kitchen was not more than 20% of the household expenditure pie.

Another interesting detail coming from household balance sheets is that the savings rate in some households is as high as 60-80%. These are families which are steeped in middle class values but earn mass affluent urban Indian salaries.

For both these sections of the urban household, rising food prices may mean a cut in discretionary expenses or a slightly lower savings rate, but we’re not going to eat any essential any less. But the cook may begin to resent the plenty when she has to go without onions for the third day in a row.

Redistribution takes on an urgency in times of food inflation. Regular schemes of redistribution include the government welfare schemes that our taxes fund. The leaky pipeline loses most of the money and we will have to wait for Nandan Nilekani’s biometric number card before we see a better use of our taxes in spreading out the money.

The non-governmental organization’s (NGO) work to help those at the bottom of the pile. Our options of making a difference are restricted to finding an NGO that is genuinely doing good work in the area or the other option directly under our control is to give lots of employment around the house and then help them with their lives. In the absence of a true welfare state, their welfare becomes our responsibility.

If a straight monthly raise is not what we like, there are several other ways of transferring cash.

Any event (birthday, some religious ceremony, festival, good marks, promotion, job change, new vehicle) in the house can become an excuse for giving a small tip to all the workers attached to the household. Especially when it comes towards the end of the month, a Rs50 note may become the reason the family eats vegetables that night.

Taking over the education expenses (fees, books, uniforms) of kids is another way of transferring cash. Annual holidays of the domestic workers can become fully paid. Diwali can become the time for a large bonus.

Don’t want to give cash? There are other ways to reach out a hand. Buy medical insurance for them. A family of four with a cover of Rs1 lakh costs around Rs3,000 year.

Food inflation leaves a family vulnerable to sudden shocks in household finances and many urban poor households are just one illness away from actual poverty. Research conducted by Anirudh Krishna, a professor at Duke University, shows that medical expenses are one of the three major reasons why households fall into poverty in states such as Rajasthan, Gujarat and Andhra Pradesh. A serious illness in the family can pull it under and indebt it seriously. The odds of a medical emergency needing a stint in a hospital are significantly higher than that of death of the breadwinner. It is not death that is the larger risk for a family with no savings, it is a medical emergency.

On this 62nd birthday of free India, as we move towards our own financial goals, some of us who have benefited from the economic freedom of the last two decades and have the ability to reach out a hand, should. Each one can easily free two.

Monika Halan is a certified financial planner and is currently working as adviser, Pension Fund Regulatory and Development Authority. Your comments and personal finance queries are welcome at expenseaccount@livemint.com

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