The results of a survey of income expenditure and savings brought out jointly by the National Council of Applied Economic Research (NCAER) and Max New York Life offer some interesting insights on the earnings of Indian households. The survey covers areas and issues that our official studies usually don?t, and thus helps deconstruct some myths?like the one about the meagre earnings of India?s self-employed, especially in the non-agriculture sector. Per capita income in this segment turns out to be almost 90% of the figure for regular salaried workers, who are the highest earners across all income groups. The survey also takes apart the myth of rural Indians failing to rise much above subsistence levels. While rural earnings are only half that of their urban counterparts, an expected inequality, their savings rate of 22% is only a little below the urban figure of 28%. This is reassuring. It is also a signal that rural outreach programmes by financial players could be commercially viable. Though economic theory speaks of a host of factors?like interest rates, inflation, development of financial institutions?that influence household savings, the survey reveals that, in reality, savings are motivated by disparate elements which show surprisingly little variation across varied income strata. The top motivations for savings are the need to meet exigencies and support the education of children. Old age needs and social traditions come next.
As for saving instruments, while more than half the salaried respondents and non-farm self-employed stuff their money into bank deposits, more than half the farmers and labourers keep their savings at home. This could be construed as both a challenge and opportunity for Indian banks that have devised various no-frill relationship models, but have still been unable to draw enough people into formal banking. Issues of trustworthiness need to be addressed. The scope for banking expansion is also highlighted by the fact that only a fourth of all Indians have outstanding loans. Households self-employed in agriculture have the highest level of indebtedness. More than a quarter of them have outstanding loans. Around a quarter of the labour households are also indebted, most probably to local moneylenders. Among salaried households, less than a fifth are similarly burdened.
