1. Rich vs poor consumption story: A study of contrasts

Rich vs poor consumption story: A study of contrasts

There exist considerable differences between the rich and the poor with respect to expenditure on healthcare, education and communications

By: | Updated: November 6, 2015 8:18 AM
There exist considerable differences between the rich and the poor with respect to expenditure on healthcare, education and communications

There exist considerable differences between the rich and the poor with respect to expenditure on healthcare, education and communications

Domestic consumption has been the key driver of India’s economic growth in the past couple of decades. While this has put the spotlight on the middle class and their consumption patterns, there is a tiny segment of households whose purchasing power has been growing significantly. According to the Credit Suisse Global Wealth Report, about 0.3% of the population (or 2.4 million people) accounts for net worth of over $1,00,000. The report further estimates that there are 2,54,000 Indians who are placed at the top 1% of global wealth holders, which equates to a 0.5% share: 2,080 persons have wealth over $50 million and 940 people own more than $100 million.

Apart from this small niche of super-rich consumers, there exists a bigger segment of people who constitute the top 10% rich Indian segment in the country. The ICE 360 Survey 2014 estimates that there are roughly 128 million people who account for 30% of India’s income, 23% of household expenditure and 64% of India’s surplus income.
The income/expenditure pattern of this segment is in sharp contrast to that of the bottom 10% who need to borrow money to meet their basic needs. The differences become more apparent when one looks at the ownership patterns of household goods. Nearly one-third of rich Indians own cars, 60% own life insurance, 55% own motorcycles, compared to negligible penetration of such items among bottom 10% households.

poor-consumption

The sheer size of the country, coupled with its staggering heterogeneity, makes identifying the area of residence of this target segment an extremely difficult exercise. Results reveal that almost 63% of the top 10% rich Indians reside in urban India, whereas 85% of the bottom-segment households reside in rural India. Of the urban rich (85 million), roughly two-thirds reside in the metros, boom towns and niche cities, and the remaining one-third live in smaller towns.

That is not to say that the rich are not to be found in rural areas. Most of the rural rich (52%) are concentrated in developed rural districts (such as Jamnagar, Surat, Thiruvananthapuram, Indore, Pune, Ludhiana, Amritsar, Coimbatore, Dehradun, Meerut, Nagpur, etc) and 26% in emerging rural (such as Kamrup, Chittoor, Ahmedabad, Vadodara, Belgaum, Mysore, Nashik, Madurai, Lucknow, Varanasi, Bhopal, Medak, etc). Nearly 21% of the rich are also to be found in the underdeveloped rural regions such as Purba Champaran, Bhagalpur, Raigarh, Raipur, Bastar, Bokaro, Bellary, Gwalior, Satna, Jaisalmer, Udaipur, Bahraich, Maldah, Nadia, Purulia, South 24 Parganas, Mahbubnagar, etc.

It’s not surprising that most of the rich Indians are to be found in locations with the highest level of urbanisation and thus development. Metros take the lead (34%) followed by boom towns (25%), niche cities (24%) and rest of urban (16%).

Comparing the top-most and bottom-most quintiles also reveals just how stark the picture is in terms of income and occupational profiles of these two segments. The average per capita income of the rich Indians (R1,27,000) is almost 11 times that of the bottom 10% Indians (R11,200). With respect to their occupational profile, 46% of rich Indians are salaried and 31% are self-employed professionals and/or non-professionals (businessmen). On the other hand, those at the bottom of income pyramid are predominantly (78%) engaged in casual labour (agriculture and non-agriculture) including small and marginal farming.

On the spending front, rich Indians’ share is one-fourth of the total household consumption expenditure, making it a critical part of the India growth story. While rich Indians spend 52% (R66,250 per capita per annum) of their total personal disposable income on routine consumption, and have surplus earnings of 48%, the poorest Indians have negative savings and borrow about 16% (R1,800 per capita per annum) to meet their routine consumption expenses.

Analysis of the spending patterns of the top decile and juxtaposing it with that of the bottom 10% sheds light on not only the purchasing power of the richest consumers but also on the disparity in spending power (see table). For each particular item, the all-India average expenditure has been equated to 100, against which the average spends of the top and bottom deciles are calculated. This then shows the distance between the end points of the distribution and their purchasing power with respect to the average Indian.

In the case of food items, a significant difference is observed for packaged food, beverages and milk and milk products: rich Indians spend six to ten times more than poor Indians. However, this margin drops to less than half in the case of cereals, pulses and other food items. It is therefore only logical that the impact of inflationary prices of these products affects both the wealthy and the poor. On the other hand, discretionary spending (non-food items), which has risen quite significantly over the past decade, makes up a large proportion of the total household budget of the rich. With respect to expenditure on healthcare, education and communications, there exist considerable differences between the rich and the poor.

The changing patterns of consumption in India are similar to those observed in other developing economies. Growth leads to a decrease in the share allocated to basic necessities and an increase in discretionary spending. As economic growth percolates to those at the bottom of the pyramid, a similar shift in their consumption basket will be observed, although the magnitude of such a shift will vary. As India continues its upward trajectory, rise in aggregate purchasing power will lead to the creation of a better and more dynamic consumer economy.

The author is director & CEO, People Research on India’s Consumer Economy—ICE 360°

Get latest news and updates on Auto Expo 2018, check breaking news on Budget 2018, like us on Facebook and follow us on Twitter.

  1. Ajeet Ekbote
    Nov 6, 2015 at 10:59 pm
    Very informative,but then this is only statistics. The real picture maybe totally different.
    Reply

    Go to Top