In the first-ever direct income estimate, a Centre for Monitoring Indian Economy survey found that the average household income in India in 2008-09 was Rs 1,40,000. As The Indian Express reported on Monday, the survey has delivered really good news on the distribution front, finding that 58.2% of the total income was earned by 45% households?suggesting a swell middle. At 25%, food expenditure (excluding money spent on eating out) continues to draw a significant chunk of average household income. This will change as incomes rise?the average US consumer spends only 12.4% of income on food. Returning to the upbeat front, education spends confirm that this sector holds a growing attraction for an increasing number of people with faith in opportunities for upward mobility. From a more directly financial perspective, we must especially flag the national household savings rate of 40.41% and the fact that around 59% households are investing households. Placing these findings next to those of the Indian Express-Indicus Analytics study reported on New Year?s Day, a common point emerges: whether the strengths of Indian households grow exponentially or stodgily is going to be a factor of whether reforms take place or not. We illustrate this point in two categories.
First, take education. It?s the second-highest component of consumer spending in China, at 10-14%. For Indian households, the figure is a much lower 3.21% as per CMIE findings, but reflects positive growth. And India has the oft-celebrated demographic advantage. Factors like rising incomes and the Sarva Shiksha Abhiyan mean that school enrolment is growing. But what we now need is a massive sectoral expansion, including in higher education. This means deregulation must be expedited, which means legislations like the Foreign Universities Bill shouldn?t be delayed any more. Second, take the fact that while 26% of households described themselves as borrower households, only around 25% of these borrowed from banks. The rest still relied on the same networks that used to characterise pre-modern economies: friends, relatives and moneylenders. Why? An important reason has to be that 375 of India?s 611 districts are under-banked. Here, mergers will help improve banks in mobilising funds, disbursing credit, creating dissimilar networks and so on. Mobile banking will also help?at present, people with mobiles outnumber those with bank accounts. A high number of households have healthy savings; a high number are also investing households. But these strengths can?t draw full and just rewards till the base of banking and other financial services becomes broader, just as the demographic advantage will only bear big fruit if it?s educationally shored up.
