India households feel the inflation burden, savings fall 45%
Inflation is having an adverse impact on the households in India with the lower and middle income groups most hit even as the ruling UPA government says it has taken effective measures to stem the rising price levels. In the last six years, household savings rates have fallen dramatically due to exorbitant increased price of essential commodities, fuel, education, burden on housing loan installment and increase in health insurance premia, according to a survey conducted by Associated Chamber of Commerce and Industry (ASSOCHAM) in metro cities in the country..
Majority of the respondents said that they have been falling behind financially and their standard of living has deteriorated. The standard of living is one quarter less than it was in the year 2006 further reveals the ASSOCHAM survey on “If middle class people are suffering so much due to Inflation, what about poor and below poverty line citizens?” conducted under ages of ASSOCHAM Social Development Foundation (ASDF) in which over 5,000 employees took part.
In the last six years, the salary of common man has gone up by 30% but on the other side the discretionary spending has shrunk by 35%.
The survey highlighted that the per capita income of an average Indian estimated about Rs.46,000/- per annum in FY 2009-10 went up by about Rs. 8,000/- in 2010-11, amounting to Rs. 54,000/- per annum. The ASSOCHAM adds that the rise in inflation and per capita income was utterly disproportionate.
The survey was conducted in a period of three months beginning January to March 2011 in major places like Delhi, Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabd, Pune, Chandigarh, Dehradun etc. About 500 employees from the different sectors were covered by the survey from each city on an average.
Around 55 per cent of the survey respondents fall under the age bracket of 20-29 years, followed by 30-39 years (26 per cent), 40-49 years (16 per cent), 50-59 years (2 per cent) and 60-65 years.
The survey was able to target employees from 18 broad sectors, with maximum share contributed by employees from IT/ITes sector (17 per cent). After IT/ITeS sector, contribution of the survey respondents from financial services is 11 per cent. Employees working in engineering and telecom sector contributed 9 per cent and 8 per cent respectively in the questionnaire. Nearly 6 per cent of the employees belonged from market research/KPO and media background each. Management, FMCG and Infrastructure sector employees share is 5 per cent each, in the total survey. Respondents from power and real estate sector contributed 4 per cent each. Employees from education and food& beverages sector provided a share of 3 per cent each. Advertising, manufacturing and textiles employees offered a share of 2 per cent each in the survey results.
Nearly 58% of the respondent said that they have cut back on protein intake like eggs, have switched to a coarser rice that costs less, consumes less cooking oil, uses the less washing powder for utensils and for clothes and also stopped using the cosmetic things. Despite these sacrifices, they are unable to save any money.
Releasing finding of the Survey, Secretary General, Mr. D S Rawat said, “In an average salaries structure of Rs. 40,000/- per month, the amount available for discretionary spending is not more than Rs. 17,000/- as average employee shells out over Rs. 6,000-8,000 on housing loan or rent, 5,000 loan on cars/ two wheelers, 7,000-10,000 on education cost and FMCG . The share of Insurance premia including health insurance is over Rs. 3000-5000 each month as employees need to ensure themselves including their families as there social security net in it.”
The upward spiraling inflation has pinched all the middle class families across the country. Rising inflation forcing middle class to curtail spending, more than 40% of employees surveyed by ASSOCHAM said that they shell out between Rs. 4,000 to 5,000 in honoring the office loan advance on various petty activities such as repair & renovation, on education, marriage in relation etc.
However, 60% of the respondents said that their take home currently is not more than 35% of their total package and left over amount of 15,000 is spent for food, commuting costs, utilities, doctor and education bills, disclose the survey.
70% of the respondent said that the premium insurance cannot afford to skip due to policy cover will cease to exist. The current scenario is to borrow money or cut down the costs but continue paying your term insurance policy premium.
42% said that they borrow within their means and thus even after paying the EMI rate of 40-50 per cent of income. Such are worst hit by interest rate rise since they have no choice but to cut down on expenditure and thus lifestyle when EMI’s increase. They cut down on other costs less frequent eating out, smaller mobile bills, avoiding impulsive shopping and fewer vacations.
In metropolitan cities, couple work together earning about 35,000 to 50,000 with a take-home pay of roughly 20,000 a month after taxes and some deductions for EMI, medical insurance, car, home loan etc. Even couples in full-time employment are 'really struggling' hard to live. 78% of the respondent said that it is all the little pressures that are adding up to hurt households and erode their income.
60% of other Double Income No Kid couples who don't have any budget but use a substantial part of their income for loan repayment like EMIs add up to over Rs 20,000 a month for home, car/auto and spend about Rs 3,000-5,000 on luxury items.
85% of the respondent belonging to the middle class spent for basic necessities like essential commodity, fuel cost, home loan, education, insurance premia toward the future of their children as their top priorities, followed by lifestyle goods.
The majority of metropolitans are slashing spending, trying to save money and shopping in cheaper shops, according to an ASSOCHAM survey. One in four said they are going to try to increase their income to try to stay financially afloat, such as switching to a better-paid job, taking a second job or working overtime hours.
Mr. Rawat further added that the demand is also a factor of consumer sentiments, changes in real income after netting out the impact of movement in price of goods and services is a critical determinant of consumption as if the value of money that an individual takes home declines, may tighten expenses.
High inflation is putting lots of pressure on companies not just in terms of high input cost, but with demands for higher salary hikes. 72% of the respondent said that “the salary hike last year it was not in sync with the cost of living which has gone up by almost 30-40 per cent. Right from vegetables to petrol prices to house rent, everything has gone up so much and savings are also reduced to half.
The survey also reveals that another major item of essential consumption has also increased in price that of drugs and medicines which has gone up by 5 per cent which obviously impacts upon the entire population, but especially the bottom half of the population which may find it extremely difficult, if not impossible, to meet such expenditures in times of stringency.
Mr. Rawat also added that the real estate prices are also at record highs making life miserable, especially for people who have migrated to cities for job. Inflation affect saving and as prices rise, the purchasing power of money falls too. Inflation severely hits retired folk and people with fixed income.
To cope with inflation, Middle income group have cut back consumption where possible, buy cheaper products given alternatives, postpone the purchase of little indulgences and cut out discretionary spend altogether. With food sucking up more of their incomes their saving is likely to disappear altogether, reveal the ASSOCHAM survey.
About 54 percent of their income is spent on food and about 5-7 percent each on housing, education, clothing, durables, health, transport and other nonfood items. But now, their spending on food has gone up to 65-70 percent of their income. To cope up with this, they are making even greater sacrifices than they are normally used to. However, it is hardly making any difference on their savings.
It will also lead to down trading, with consumers buying cheaper products as they seek to make up for rising prices. While consumption attitudes may be severely affected in Middle India, life will continue as usual for the high income groups. High income group seems to have been least affected as there is nearly no change in their spending habits.
All this leads to a spiraling effect as it becomes more difficult for poor people to improve their conditions and lead a life where they are not devoid of basic amenities. The survey has clearly explained the plight of the working class in recent times. It is high time to address this issue of rising inflation with urgency and keep it in suitable limits.
Majority of the respondents said that they have been falling behind financially and their standard of living has deteriorated. The standard of living is one quarter less than it was in the year 2006 further reveals the ASSOCHAM survey on “If middle class people are suffering so much due to Inflation, what about poor and below poverty line citizens?” conducted under ages of ASSOCHAM Social Development Foundation (ASDF) in which over 5,000 employees took part.
In the last six years, the salary of common man has gone up by 30% but on the other side the discretionary spending has shrunk by 35%.
The survey highlighted that the per capita income of an average Indian estimated about Rs.46,000/- per annum in FY 2009-10 went up by about Rs. 8,000/- in 2010-11, amounting to Rs. 54,000/- per annum. The ASSOCHAM adds that the rise in inflation and per capita income was utterly disproportionate.
The survey was conducted in a period of three months beginning January to March 2011 in major places like Delhi, Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabd, Pune, Chandigarh, Dehradun etc. About 500 employees from the different sectors were covered by the survey from each city on an average.
Around 55 per cent of the survey respondents fall under the age bracket of 20-29 years, followed by 30-39 years (26 per cent), 40-49 years (16 per cent), 50-59 years (2 per cent) and 60-65 years.
The survey was able to target employees from 18 broad sectors, with maximum share contributed by employees from IT/ITes sector (17 per cent). After IT/ITeS sector, contribution of the survey respondents from financial services is 11 per cent. Employees working in engineering and telecom sector contributed 9 per cent and 8 per cent respectively in the questionnaire. Nearly 6 per cent of the employees belonged from market research/KPO and media background each. Management, FMCG and Infrastructure sector employees share is 5 per cent each, in the total survey. Respondents from power and real estate sector contributed 4 per cent each. Employees from education and food& beverages sector provided a share of 3 per cent each. Advertising, manufacturing and textiles employees offered a share of 2 per cent each in the survey results.
Nearly 58% of the respondent said that they have cut back on protein intake like eggs, have switched to a coarser rice that costs less, consumes less cooking oil, uses the less washing powder for utensils and for clothes and also stopped using the cosmetic things. Despite these sacrifices, they are unable to save any money.
Releasing finding of the Survey, Secretary General, Mr. D S Rawat said, “In an average salaries structure of Rs. 40,000/- per month, the amount available for discretionary spending is not more than Rs. 17,000/- as average employee shells out over Rs. 6,000-8,000 on housing loan or rent, 5,000 loan on cars/ two wheelers, 7,000-10,000 on education cost and FMCG . The share of Insurance premia including health insurance is over Rs. 3000-5000 each month as employees need to ensure themselves including their families as there social security net in it.”
The upward spiraling inflation has pinched all the middle class families across the country. Rising inflation forcing middle class to curtail spending, more than 40% of employees surveyed by ASSOCHAM said that they shell out between Rs. 4,000 to 5,000 in honoring the office loan advance on various petty activities such as repair & renovation, on education, marriage in relation etc.
However, 60% of the respondents said that their take home currently is not more than 35% of their total package and left over amount of 15,000 is spent for food, commuting costs, utilities, doctor and education bills, disclose the survey.
70% of the respondent said that the premium insurance cannot afford to skip due to policy cover will cease to exist. The current scenario is to borrow money or cut down the costs but continue paying your term insurance policy premium.
42% said that they borrow within their means and thus even after paying the EMI rate of 40-50 per cent of income. Such are worst hit by interest rate rise since they have no choice but to cut down on expenditure and thus lifestyle when EMI’s increase. They cut down on other costs less frequent eating out, smaller mobile bills, avoiding impulsive shopping and fewer vacations.
In metropolitan cities, couple work together earning about 35,000 to 50,000 with a take-home pay of roughly 20,000 a month after taxes and some deductions for EMI, medical insurance, car, home loan etc. Even couples in full-time employment are 'really struggling' hard to live. 78% of the respondent said that it is all the little pressures that are adding up to hurt households and erode their income.
60% of other Double Income No Kid couples who don't have any budget but use a substantial part of their income for loan repayment like EMIs add up to over Rs 20,000 a month for home, car/auto and spend about Rs 3,000-5,000 on luxury items.
85% of the respondent belonging to the middle class spent for basic necessities like essential commodity, fuel cost, home loan, education, insurance premia toward the future of their children as their top priorities, followed by lifestyle goods.
The majority of metropolitans are slashing spending, trying to save money and shopping in cheaper shops, according to an ASSOCHAM survey. One in four said they are going to try to increase their income to try to stay financially afloat, such as switching to a better-paid job, taking a second job or working overtime hours.
Mr. Rawat further added that the demand is also a factor of consumer sentiments, changes in real income after netting out the impact of movement in price of goods and services is a critical determinant of consumption as if the value of money that an individual takes home declines, may tighten expenses.
High inflation is putting lots of pressure on companies not just in terms of high input cost, but with demands for higher salary hikes. 72% of the respondent said that “the salary hike last year it was not in sync with the cost of living which has gone up by almost 30-40 per cent. Right from vegetables to petrol prices to house rent, everything has gone up so much and savings are also reduced to half.
The survey also reveals that another major item of essential consumption has also increased in price that of drugs and medicines which has gone up by 5 per cent which obviously impacts upon the entire population, but especially the bottom half of the population which may find it extremely difficult, if not impossible, to meet such expenditures in times of stringency.
Mr. Rawat also added that the real estate prices are also at record highs making life miserable, especially for people who have migrated to cities for job. Inflation affect saving and as prices rise, the purchasing power of money falls too. Inflation severely hits retired folk and people with fixed income.
To cope with inflation, Middle income group have cut back consumption where possible, buy cheaper products given alternatives, postpone the purchase of little indulgences and cut out discretionary spend altogether. With food sucking up more of their incomes their saving is likely to disappear altogether, reveal the ASSOCHAM survey.
About 54 percent of their income is spent on food and about 5-7 percent each on housing, education, clothing, durables, health, transport and other nonfood items. But now, their spending on food has gone up to 65-70 percent of their income. To cope up with this, they are making even greater sacrifices than they are normally used to. However, it is hardly making any difference on their savings.
It will also lead to down trading, with consumers buying cheaper products as they seek to make up for rising prices. While consumption attitudes may be severely affected in Middle India, life will continue as usual for the high income groups. High income group seems to have been least affected as there is nearly no change in their spending habits.
All this leads to a spiraling effect as it becomes more difficult for poor people to improve their conditions and lead a life where they are not devoid of basic amenities. The survey has clearly explained the plight of the working class in recent times. It is high time to address this issue of rising inflation with urgency and keep it in suitable limits.
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