Household consumption trends in India

household finance
Household consumption trends in India

In our discussion on household economics in past two days, We have discussed the changes in the composition of household savings, debt and avenues for deployments of savings over past few years. In the concluding part, We would like to highlight some interesting trends in the household consumption in past 5-6years.

Household expenditure in India has grown at a rate of ~13% CAGR over 6years during FY12-FY18.

(i)    The expenditure on health has recorded the highest growth of 17.5% during this period. The available data does not clarify if the rise is due to rise in affordability or rise in incidence of disease. However, the anecdotal evidence suggests that it is a mix of both; though the rise in incidence of disease may account for almost three fourth of the incremental expenditure on health.

(ii)   Miscellaneous goods and services now account for one sixth of the total household expenditure, and have the highest share in consumption basket after food. Personal care expenditure accounts for almost 8% of this category.

(iii)  Clothing and footwear account have the same share as education. Footwear is growing at the rate of 16% CAGR. Affordability is one major factor in this. But a more significant factor is the social reform. A lot of people from socially backward communities who were traditionally not allowed to use footwear are now using it.

(iv)   Household are spending almost double the sum on communication as compared to recreation and culture. Spending on festivals etc seems to growing at much slower pace.

(v)    Food and non-alcoholic beverages account for just one fourth of the total household expenditure. The inflation basket needs to take cognizance of this fact. In this category Meat is the fastest growing item, growing @16% CAGR. Seafood and Eggs are also growing over 13%. Milk, edible oils, Sugar are the slowest growing categories. Non Specified food items (Junk Food) is growing at 20% CAGR.

(vi)   Alcohol, tobacco and narcotics account for 2% of the consumption basket. But the fastest growing element in this is narcotic which is growing @14% CAGR.

(vii)  Expenditure on transport accounts (15%) for more than health, education and communication taken together. It is growing at a faster rate of ~14% CAGR vs overall expenditure growth of ~13%CAGR. The fastest growing element in this category is “cost of operation of personal vehicles”, which is growing over 16% CAGR. Poor public transport and misplaced priorities of household could be responsible for this trend.

(viii) Housing (rent, water, electricity) and house maintenance (furnishing, appliances etc) account for one sixth of the household expenditure and growing in proportion to the overall expenditure. In this category, Furniture, carpets and home textile is the fastest growing segment. Electricity and Water expenses are growing 13-15% CAGR.

(ix)   Education now accounts for ~7% of total household expenditure and this expense is growing ~15% CAGR. The consumer inflation basket may not be accounting for this category appropriately.

A deeper study is needed for this category. The high growth rate in this category may not necessarily mean higher affordability or improving skill conditions. The anecdotal evidence suggests that “private education & coaching”, which essentially indicates to abject failure of public education system, may be a significant part of the expenditure on this item.

(x)    The slowest growing consumption category for households is mineral water, soft drinks & juices.

Author: Midas Finserve

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