Corporate profits

Falling “household savings and consumption” and rising corporate profits point to tense times ahead

Almost a quarter of Indian households, covering at least 75 million Indians, have no personal transport and do not own a bicycle, motorbike or car. Only a quarter of the population has air conditioners or air coolers. While bottled water manufacturers go to the bank laughing, a large majority of the population cannot afford drinking water. From the kitchen to the hospital, there are products that the Indians need but access to which is only accessible to the privileged and those entitled to them.

The labor force participation rate, the proportion of the population working or looking to work, was 42% in May 2022, one of the worst in the world (it is 65% in the United States).

Data from the Center for Indian Economy (CMIE) suggests that millions of Indians, including women, have stopped looking for jobs. Moreover, of the currently employed labor force of 430 million Indians, only 20% are in salaried jobs, 50% are self-employed and the remaining 30% are daily wage earners.

The median monthly household income was only 15,000 rupees and consumption expenditure was 11,000 rupees. That’s why any Indian earning 25,000 rupees a month is among the top 10% earners in the country, according to the State of India’s Inequality Report compiled by the Gurugram-based Institute for Competitiveness. Ninety percent of Indians do not earn even Rs. 25,000 per month, according to the report.

How many of them save money? The poorer they are, the greater the incentive for them to have cash or cash. At the same time, they have less and less incentive to save because of soaring costs for health care, transport, education and food. Lower interest rates for deposits and savings instruments in banks are also a deterrent.

In a column published on the Money Control website, Finsave India founder Mrin Agarwal shared data from a survey conducted by his company. Only 27% of the 5,769 individuals surveyed, all employees, admit to having an emergency corpus and insurance. They were clearly unprepared for medical emergencies and job losses. Almost half of them (45%) did not know how to manage their expenses in the event of job loss. About 56% said planning expenses and setting financial goals were difficult with their salary level. Most respondents were worried about medical bills and paying off credit card debt.

For a long time, the focus has been on incentivizing and increasing savings with higher interest rates. Pronob Sen, India’s former chief statistician, when asked if the common Indian really saves anything, said: ‘While it’s fantastic for affluent middle class Indians, the weak liquidity is more important. So how do you encourage them to save by giving them a good return while preserving liquidity? A daily wage earner out of work for the next two days needs cash to draw on. This is how the government should think.