Cut the Fluff: Basics of Consumer Spending in India
The Economic Times - September 25, 2006

The front page article in the Economic Times of September 21, 2006 carried the provocative headline "Cut the fluff, Indians spends more on basics", and proceeded to inform us that "here is a reality check for all those who thought a decade of rising income and brand choice have turned urban Indians into impulsive reckless and debt loving creatures". In truth, the fact is that hardly anybody who runs a consumer business really thinks that urban Indian consumers are impulsive, reckless and debt loving. In fact the most common complaint of marketers has been that they are cautious, excessively value for money conscious and hardly ever roll over the amount due on their credit cards. It does appear, though, that the people who need the reality check are the media, present company included, who are, in the words of Thomas Huxley, extremely reluctant to let their beautiful hypotheses (and headlines) be slain by ugly facts.

Let us examine the facts that are there in the survey data on which the article is based and see if they are any different from those out there in the public domain. No one who ever saw an NSS report, or, believes in the private consumption expenditure data put out by the Government, could have experienced the "eureka" that the article writers did, when they saw the data from the new survey on share of consumer expenditure on various baskets of items. The article exclaims in surprise about expenditure being unexpectedly high on food, groceries, rent and utilities, and education. The fact is that these items have always had the highest share in the expenditure basket.

The story to exclaim about, however, lies in exactly the opposite place! The more useful thing to highlight from the survey data shown in the article, is how much more non "basic" expenditure the well-off folk have, compared to the rest of the country. For these folks (the sample universe or the people the survey deals with are the top 50% of urban Indian population by income; and the top 15% of Indian households), consumerism is indeed well and alive and rampantly on the upward trend. This group has a much lower percentage share of food and beverage, 36% as against the national number of 40.6%. It also has a much lower share of transport and communication, at just over 10% as compared to about 18% for the total country; and up as much as 4 percentage points in the last five years.

In any case, it is dangerous to come to a startled conclusion that people are not spending as much as you thought they were, based on the share of a category declining. In fact, between 2000 -01 and 2004-05, the share of food, beverages etc. dropped by 6.2 percentage points, though in absolute terms it grew. It's a bit like the syndrome of "not that I love Caesar less, but that I love Rome more"!

The article refers to clothing and accessories is an indulgence while rent and utilities and food are basics. I thought clothes fit into the "roti, kapda aur makaan" definition of basics? And if the top 15% of India is spending about the same share of expenditure on clothes and accessories as all of India, then I wonder if that supports that conclusion of the article that "clothing and accessories are among the few indulgences".