3/4 of all Indian households are debt-free, 69% save in banking instruments

An overwhelming 69 per cent of all households in India have saved in banking instruments while barely 4 per cent of the country’s households save in post office, revealed a survey conducted by the People Research on India’s Consumer Economy (PRICE) an independent, not-for-profit think tank.

The survey covered over 40,000 households, both rural and urban from 25 states.

Insurance policies are another big saving instrument for 14 per cent of all households. Even among the poorest households, more  are saving in banking instruments (41 per cent) as opposed to keeping saving in post office (3 per cent). Saving in gold and gold related products is the third preference across all income households.

Digging deeper into the savings behaviour of households, the survey found that  almost all Indian households have a savings bank account and 82 per cent have a bank account that is linked to an Aadhaar account. 

The percentage of the latter dipped to 61 per cent among the poor income group households.

Why are Indians saving? 

Emergencies was the major reason for saving, across all income groups. Higher education is the second highest priority followed by wealth creation.  

PRICE defines a middle-class Indian as one earning between Rs 1.09 lakh and Rs 6.46 lakh per year in the 2020-21 prices, or  Rs. 5 lakh to Rs. 30 lakh annually in household terms. The rich are categorised as those earning upwards of Rs 30 lakh annually, while the super rich are those with income of over Rs 2 crore in a year. The aspirer is those that fall in the income bracket of Rs 1.25-5 lakh a year, while destitutes are those that earn less than Rs 1.25 lakh in a year. 

The top three income groups are almost identical in terms of their priorities for saving. Clearly as income rises, households are displaying a tendency towards saving for reasons of wealth creation, retirement planning, future risk mitigation and tax relief. 

Middle class and rich households have a more diverse savings portfolio

While destitute and aspirer income groups hold most of their savings in bank accounts, a certain percentage of this is also being saved in gold and jewellery and informal saving. The Middle Class and Rich households are exposed to a more diverse savings portfolio with banking accounts, insurance policies and gold being among the top three options.

Saving in capital market instruments is primarily used by Rich households, revealed the survey. 

Three-fourths of all Indian households are debt-free

Significantly, nearly three fourths (73 per cent) of all Indian households report they are debt free or have no running loans or borrowings. The percentage of debt-free households is lowest among the low-income earners and highest for the top earning groups, revealed the survey.

Quantum of inherited debt is larger for rich households

The survey found inherited debt as also mortgaged assets are major concerns for the rich income households’ group. While 25 per cent of poorer households have at least some assets currently mortgaged, the figure is 44 per cent for the rich income households. Surprisingly, almost three times more rich households than poor have inherited debt. 

High income households take formal loans to buy real estate

At an all-India level 38 per cent of formal borrowing is used to meet agricultural and livestock requirements. Nearly 40 per cent of formal loans that the rich households take are related to purchase of real estate compared to just 11 per cent for middle class households.

In contrast, the main reason for taking a formal loan among the Destitute groups is to meet agricultural and/or livestock requirements, followed by medical emergencies and meeting social obligations such as expenses for weddings, etc, revealed the PRICE study.

Low-income households take informal loans to meet medical emergencies

Ten per cent of all Indian households use informal loans to purchase land and 25 per cent of such loans go towards meeting medical emergencies and health related issues. Social obligations constitute 21 per cent of such loans, said the survey.

Low-income households spend 30 per cent of such loans to meet medical emergencies compared to 18 per cent for the rich income households; this ratio is 23 per cent and 19 per cent respectively for meeting expenses for social obligations.

Long term indebtedness a major concern for low-income households.

 At an all-India level, 44 per cent of formal borrowers and 45 per cent of informal borrowers claim they will be able to repay their loans within a one to-three-year period. Almost 19 per cent formal borrowers and 21 per cent informal borrowers respectively are not sure as to when they will become debt-free.

Among low-income households, almost 31 per cent of informal borrowers and 37 per cent of formal borrowers are unsure as to when they will become debt-free.

Nearly 58 per cent of all cars are owned by the middle class, compared to just 23 per cent by the rich

 

In India, the motorcycle is the symbol of an upwardly mobile Indian household. While the proportion of Destitute households that own a bicycle is significantly large (63 per cent), almost 34 per cent such households own a two-wheeler (moped or motorcycle or scooter). For Aspirer and Middle class households this percentage is 47 per cent and 70 per cent respectively.

Even among rich households, 75 per cent own a two-wheeler (mostly luxury motorbike) compared to 100 per cent who own a car.

Television and refrigerator are the consumer durable goods that are commonly found in a majority of households – at an all-India level, the percentage of TV and refrigerator owning households is 78 per cent and 47 per cent, respectively. 

An overwhelming 93 per cent of all Indian households today have mobile connections

The most dramatic change that is being witnessed across all households is in the digital infrastructure space. An overwhelming 93 per cent of all Indian households today have mobile connections, 64 per cent have dish or cable connections and 52 per cent have internet connections. Computer/laptop ownership is lower at 8 per cent.