How much do Indian households spend compared to what they earn? Is the earning-spending gap higher in villages or cities? What about debt? Are the rich more indebted or the poor? These questions are important at a time when household debt has become a key driver of overall credit growth in India and aspirational spending, as well as politically motivated cash transfers are the highest they have ever been. HT has analyzed government data on wages, consumption and assets/liabilities to
One-fourth of Indian households live beyond their means
If one were to track the share of households who spend more than they earn – in keeping with the process described above – 26.4% spent more than what they earned. The share shows little variation across rural and urban areas. The share of households who spend half or less of what they earn is also the same: roughly one-fourth.
The viability matrix follows the intuitive logic of rich doing better than the poor
Who is more likely to spend beyond their means in India? The answer, HT’s data analysis shows, is on expected lines. Only about 10% of the poorest 20% households by wage income – this would not include things such as rent or interest which is more likely to accrue to the rich than the poor – can earn enough to match their spending. Less than 1% of the top 20% spend beyond their means. In fact, it is much better for the rich than these numbers suggest. 70% of the richest 20% spend, at the most, half of what they earn in wages. For the poorest 20%, this number is almost zero or 0.2% to be precise.
The rich, despite a better income-spending balance, tend to borrow more
The data is slightly dated on this count, as the 2019 All-India Debt and Investment Survey (AIDIS) which tracks assets and liabilities of Indian households, gives data as of June 30, 2018. The data shows that indebtedness – share of households which reported having a debt, either formal or informal – increases as one moves up the monthly per capita consumption spending (MPCE) ladder. In fact, not only does indebtedness increase with improving economic fortunes – as seen in rising MPCE levels – even the level of debt as a share of assets owned by households shows an increase. The debt-asset ratio, as is to be expected, increases significantly if one tweaks the data to take into account only those households which reported having a debt. To be sure, this could very well be a result of a rise in credit-worthiness as households/people become richer.
This data explains why cash transfers are popular during elections
The results described above should not come as a surprise to anybody who follows India’s political economy. These numbers also put in perspective why cash transfers even for a couple of thousand rupees matter so much in Indian politics. An average household which spent more than what it earned made ₹5375 in income from employment and spent ₹11,122. To be sure, the numbers given above, especially for the well-off classes, could be underestimates. India’s consumption expenditure surveys also do not ask about mortgage payments from households, which could very well be among the biggest expenditure heads for a lot of Indian middle-class households.
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