MNYL-NCAER Book - How India Earns, Spends and Saves

LIFE INSURANCE
Karo Zyaada K a Iraada

©The Max New York Life Insurance Limited, 2007
©The National Council of Applied Economic Research, 2007
ISBN: 81-88830-10-0
All rights reserved, no part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording and/or
otherwise, without the prior written permission of the publisher.
Published by
Debasis Sarkar, Director – Marketing, Products & Corporate Communication

for and on behalf of
The Max New York Life Insurance Limited
For further Information please contact:

abhinav.rahul@maxnewyorklife.com
rkshukla@ncaer.org
Printed at
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India Financial Protection Survey

STUDY TEAM
Team Leader and Principal Author

Dr Rajesh Shukla
Senior Fellow, NCAER
NCAER Core Research Team

Ms Nitasha Monga Ms Asha Sharma
Mr Sandipan Ray Dr Sanjay Kumar Dwivedi
Ms Charu Jain Ms Preeti Kakar
Mr Anuj Das Mr Debraj Sinha
Mr M. K Arora Mr Subrata Bandopadhyay
NCAER Consultants
Dr N S Sastry, Former DG (NSSO and CSO) and Senior Advisor, NCAER, New Delhi
Dr Anil Rai, Senior Scientist, IASRI, New Delhi
Dr Amaresh Dubey, Senior Advisor, NCAER, New Delhi
Ms Adite Chatterjee, Research & Communication Analyst, New Delhi
Members of Advisory Committee

Mr Suman Bery, Director General, NCAER, New Delhi - Chairman
Mr S L Rao, Chairman, Institute for Social and Economic Change, Bangalore
Dr D V S Sastry, Director General, Insurance Regulatory and Development Authority, Hyderabad
Dr Subhasis Gangopadhyay, Director, Indian Development Foundation, Gurgaon
Members of Max New York Life

Mr Debashis Sarkar, Director-Marketing, Product Management & Corporate Affairs
Mr. Abhinav Rahul, Vice President, Corporate Communications

FOREWORD
The Indian economy is growing from strength to strength. The fast-paced economic growth is bringing about a
change in India’s socio-economic fabric. It is creating more jobs, fuelling aspirations and leading consumers to
spend more. It is not uncommon to see Indian households spend beyond their current earning capacities, a
phenomenon that was almost non-existent in the early 1990s.
Easy availability of loans, increasing popularity of credit cards and rising consumerism are putting an increasing
number of Indian households under the risk of being financially vulnerable in the future. The lack of a
comprehensive government-aided social security system only worsens their case.
As a result of rapid urbanisation, rising consumerism and changing lifestyles, the social fabric of the country has also
begun to change. The joint family system is fast giving way to nuclear families. Joint families, by their very nature,
worked around the financial well being and security of each of its members. As this system crumbles, there is a
greater need to work towards making Indian households more financially secure.
All these socio-economic indicators were instrumental in leading Max New York Life to undertake this study,
along with the NCAER. These indicators brought us to the critical question: ‘How financially protected are we?’
As you would be aware, this is the first survey of its kind in the country.
The findings of this report reinforce the fact that a majority of Indian households are financially at risk. The call to
action for the insurance sector is to address this issue and help create a financially secure nation. The first step
towards this larger goal is to spread awareness about financial instruments, such as life insurance.
We at Max New York Life believe that life insurance provides financial protection and long-term wealth creation.
The customised solutions, which Max New York Life provides, are based on the financial needs of Indian families.
We believe that by educating our customers we help them in making the right choices to meet their financial goals,
both in the short term and the long term. The findings of this survey will help us in this endeavour.
For Max New York Life, and other insurance companies in the country, the Max New York Life-NCAER India
Financial Protection Survey is a goldmine of data and information that can help us devise better products for
the Indian market.
I hope that this survey proves to be the first step towards building a stronger and more financially secure India.
Gary Bennett,
Managing Director and CEO,
Max New York Life Insurance Co. Ltd.

PREFACE
In 2006-07, the National Council of Applied Economic Research (NCAER) celebrated its Golden Jubilee. Over the
last few decades, NCAER has complemented the work of other official agencies in gathering statistical data on
household income, savings and consumption. And in its 50th year, I am particularly happy that NCAER has
partnered with Max New York Life to bring out this eye-opening study on financial protection in India.
Our partnership with Max New York Life has helped us gather and develop valid data on attitudes and practices
that have a bearing on the financial security of Indian households. The survey is comprehensive – with a sample
size of over 63,000 households spread across the length and breadth of the country.
In India, where social security is virtually non-existent, there is an urgent need to create awareness about
financial protection, amongst both the masses and the classes. While governments have a role to play for the
poor households (such as the public distribution system targeted at below the poverty line or BPL households),
in general financial security largely remains the responsibility of each household.
The findings of the Max New York Life-NCAER India Financial Protection Survey reveal a need to spread awareness
about financial protection in the country.
Our data broadly confirms the fact that Indian households are in the habit of saving out of household income,
and also that they are largely optimistic about their financial security in the future. Yet, for almost a quarter of
households across the income spectrum, their current income is insufficient to meet routine and non-routine
expenditure. This creates the need for a reserve of financial assets for them to fall back upon. At the same time,
their awareness of strategic financial planning is relatively primitive.
Through this survey, we have also been able to gather ample data on the much-talked about rural-urban divide.
The survey brings to fore stark disparities in the earning, saving and spending patterns of rural and urban India.
These statistics can be used by policy-makers and industry to address the vital issue of a more balanced economic
development.
As per the findings of this survey, awareness about life insurance is fairly high amongst Indian households – rich
or poor. Despite this, ownership of life insurance is low. And even amongst households that possess life insurance
policies, the cover is inadequate. Therefore, the market potential for insurance companies like Max New York Life
is tremendous.
This survey has also been able to confirm that life insurance ownership is a function of education and affluence.
And that ownership of life insurance products is largely an urban phenomenon.
As India continues to grow, the need for financial security will only increase. We trust that this survey will assist
both the government and industry to develop more focused campaigns to achieve this important goal.
Suman Bery,
Director General,
NCAER

ACKNOWLEDGEMENTS
The National Council of Applied Economic Research (NCAER) extends its appreciation to Max New York Life for
entrusting NCAER to undertake the India Financial Protection Survey.
The Advisory Committee — chaired by Mr. Suman Bery and consisting of members Mr S L Rao, Chairman,
Institute for Social and Economic Change, Bangalore; Dr D V S Sastry, Director General, Insurance Regulatory and
Development Authority, Hyderabad and Dr Subhasis Gangopadhyay — extended its guidance and support
throughout the study. We acknowledge the committee's generous contribution of time, effort and expertise
under the most stringent of schedules.
Several researchers and policymakers helped NCAER's research team in its efforts to undertake this study.
We extend our appreciation and gratitude to NCAER Advisors and Consultants Dr N S Sastry, Former DG (NSSO
and CSO) and Senior Advisor—NCAER, Dr Amaresh Dubey, Senior Advisor, NCAER, Dr Anil Rai, Senior Scientist,
IASRI and Ms Adite Chatterjee, Research & Communication Analyst, for their useful technical inputs and guidance
that enriched this study.
The NCAER research team deserves a special mention, for all its efforts to go through reams of data and
statistics in order to come out with incisive analysis. The NCAER field staff and State Networking Agencies and
NCAER support staff worked overtime to collect data from all across the country. This study would not have
been possible without their efforts.
Max New York Life team particularly Debashis and Abhinav provided the NCAER team with the right support and
inputs, which helped us come out with some stark findings in this report. We also acknowledge the efforts of
Genesis Burson- Marsteller team in helping it get the right coverage in the national and regional media.

TABLE OF CONTENTS
Page No.
List of Tables 1
List of Figures 2
Executive Summary 5
Chapter 1 Introduction 11
1.1 Background 11
1.2 About the survey 12
1.3 Importance of the survey 12
1.4 Plan of the Report 13
Chapter 2 How India Earns 17

2.1 Income Expenditure Profile 18
2.2 Income by Occupation 18
2.3 Income by Age-group 20
2.4 Rural-Urban Divide 21
2.5 Impact of Education 21
2.6 Disparity by Categories of Landholding 23
2.7 Regional Disparity 24
2.8 Disparity by the Size of Town 25
2.9 Disparity in Select Cities 27
Chapter 3 How India Spends 31

3.1 Expenditure Pattern by Occupation 32
3.2 Expenditure Profile by Education Level 33
3.3 Expenditure Pattern by Categories of Landholding 35
3.4 Impact of Income 36
3.5 Regional Expenditure Profile 37
3.6 Expenditure Pattern by the Size of Town 38
3.7 Ownership of Consumer Durables 39

TABLE OF CONTENTS
Chapter 4 How India Saves 43

4.1 Savings Pattern of Indian Households 43
4.2 Why do Indians Save? 47
4.3 Preferred Mode of Saving 48
4.4 Savings Related Household Behaviour 50
4.5 Coping with Trauma 51
4.6 Households’ Perceptions About Financial Security 51
Chapter 5 Life Insurance 57

5.1 Awareness About Life Insurance 57
5.2 Ownership Pattern of Life Insurance 59
5.3 Value of Life Insurance and Premium Paid 60
5.4 Socio-Economic Profile of Insured Vs Uninsured Households 64
5.4.1 Demographic Profile 64
5.4.2 Economic Profile 65
5.4.3 Ownership of Select Consumer Durables 67
5.5 Savings Related Behaviour of Insured Households 67
5.5.1 Why do Insured Households Save? 67
5.5.2 Where do Insured Households Prefer to Save? 68
5.5.3 Ownership of Account in Financial Institution and 69
Outstanding Loan
5.5.4 Managing Economic Hardship 69
5.6 Insured Households’ Perception of Financial Security 69
5.6.1 Confidence in Stability of Source of Income 69
5.6.2 Time to Recover 70
5.6.3 Sustainability on Current Savings 70
Chapter 6 Way Forward 72
Annexure I Survey Methodology 79

LIST OF TABLES
Table No. Title Page No.

Chapter 1 Introduction
1.1 Estimates of standard errors 15
Chapter 2 How India Earns

2.1 Estimates of households and population 17
2.2 Earnings by education level of chief earner 22
2.3 Household profile by size of landholding 23
2.4 Distribution of households by level of education of chief earner 23
and suze of land holding
2.5 Distribution of households by source of income 24
and size of land holding
2.6 Profile of households in different categories of states 24
2.7 Profile of households by size of town 25
2.8 Earnings by size of town and level of education of chief earner 26
2.9 Earnings by size of town and major source of income 26
2.10 Profile of households in select cities 28
2.11 Income distribution by per capita income quintiles 29
2.12 Estimates of income inequality 29
Chapter 3 How India Spends

3.1 Estimates of financial vulnerability 41
Chapter 4 How India Saves

4.1 Measures taken to overcome economic shock 51
Chapter 5 Life Insurance

5.1 Value of insurance by location 61
5.2 Value of insurance by major source of household income 61
5.3 Value of insurance by level of education of chief earner 62
5.4 Value of insurance by age of chief earner 62
5.5 Value of insurance by size of landholding 63
5.6 Value of insurance by level of income 63
India Financial Protection Survey 1

LIST OF FIGURES
Figure No. Title Page No.

Chapter 1 Introduction
1.1 Distribution of household by socio-religious groups 14
Chapter 2 How India Earns

2.1 Estimates of income and expenditure 18
2.2 Distribution of households by major source of household income 18
2.3 Share of population and income by occupation of chief earner – Urban 19
2.4 Share of population and income by occupation of chief earner – Rural 19
2.5 Share of population and income by occupation of chief earner – All India 19
2.6 Share of population and income by age of chief earner – Urban 20
2.7 Share of population and income by age of chief earner – Rural 20
2.8 Distribution of households and income by major source of household income 21
2.9 Earnings by level of education for salaried households – All India 22
2.10 Distribution of households by landholding 23
2.11 Distribution of households across state categories – All India 24
2.12 Distribution of households across income quintiles – All India 25
2.13 Earnings of graduate households in select cities 26
2.14 Earnings of salaried and business households in selected cities 27
2.15 Distribution of household by highest literacy 30
2.16 Distribution of household by major source of income 30
2.17 Ownership of selected consumer goods 30
Chapter 3 How India Spends

3.1 Estimates of routine and non-routine expenditure 31
3.2 Distribution of routine expenditure 32
3.3 Distribution of unusual expenditure 32
3.4 Estimates of routine and non-routine expenditure by major source of income 32
3.5 Distribution of routine expenditure by major source of income 33
3.6 Distribution of non-routine expenditure by major source of income 33
3.7 Estimates of routine and non-routine expenditure by education level of chief earner 34
3.8 Distribution of routine expenditure by education level of chief earner 34
3.9 Distribution of non-routine expenditure by education level of chief earner 34
3.10 Estimates of routine and unusual expenditure by landholding 35
2 India Financial Protection Survey

LIST OF FIGURES

3.11 Distribution of routine expenditure by landholding 35
3.12 Distribution of non-routine expenditure by landholding 35
3.13 Estimates of routine and non-routine expenditure by income quintiles 36
3.14 Distribution of routine expenditure by income quintiles 36
3.15 Distribution of non-routine expenditure by income quintiles 37
3.16 Estimates of routine and non-routine expenditure by categories of states 37
3.17 Distribution of routine expenditure by categories of states 38
3.18 Distribution of non-routine expenditure by categories of states 38
3.19 Estimates of routine and non-routine expenditure by size of town 39
3.20 Distribution of routine expenditure by size of town 39
3.21 Distribution of non-routine expenditure by size of town 39
3.22 Ownership of consumer durable 40
3.23 Estimates of income and expenditure 41
3.24 Distribution of households – Vulnerable versus non-vulnerable 42
3.25 Ownership of selected consumer goods – Vulnerable versus non-vulnerable 42
Chapter 4 How India Saves

4.1 Estimates of surplus income, investment and savings 43
4.2 Estimates of surplus income, investment and savings 44
by occupation of chief earner
4.3 Saving habits of Indian households by education level of chief earner 44
4.4 Saving habits of households by age of chief earner 45
4.5 Saving habits of households by categories of landholding 46
4.6 Saving habits of households by categories of states 46
4.7 Saving habits of households by size of town 47
4.8 Motivation to save for future 47
4.9 Preferred forms of saving 48
4.10 Preferred forms of saving – banks versus keeping at home 49
4.11 Ownership of an account in financial institutions 50
4.12 Loan outstanding 50
4.13 Confidence in stability in household income 52
4.14 Time to recover in case of loss of income source 53
4.15 Sustainability on current savings 54

LIST OF FIGURES

4.16 Distribution of households by major source of income 56
4.17 Distribution of households by level of education of chief earner 57
4.18 Estimates of income, expenditure and surplus income 58
4.19 Size of investment 59
Chapter 5 Life Insurance

5.1 Awareness about life insurance 60
5.2 Awareness about life insurance across income levels - rural versus urban 60
5.3 Ownership of life insurance 61
5.4 Ownership of life insurance across income quintiles - rural versus urban 62
5.5 Major source of household income of insured versus uninsured 63
5.6 Education level - insured versus uninsured 64
5.7 Age profile - insured versus uninsured 66
5.8 Marital status - insured versus uninsured 67
5.9 Gender - insured versus uninsured 67
5.10 Estimates of income, expenditure and surplus income - 67
insured versus uninsured households
5.11 Estimates of routine and non-routine expenditure - 68
5.12 Distribution of routine expenditure - insured versus uninsured households 68
5.13 Distribution of non-routine expenditure - insured versus uninsured households 68
5.14 Saving habits - insured versus uninsured households 68
5.15 Investment profile - insured versus uninsured 69
5.16 Ownership of select consumer durable goods - 69
5.17 Motivation to save - insured versus uninsured households 70
5.18 Preferred form of saving - insured versus uninsured households 70
5.19 Account in financial institution and loan outstanding 70
5.20 Measures taken to overcome death of chief earner 71
5.21 Measures taken to overcome major sickness of any household member 71
5.22 Confidence about the stability in major income source 71
5.23 Time to recover in case of loss of income source 72
5.24 Sustainability on current savings 72

EXECUTIVE SUMMARY
The Indian economy has been growing at a healthy To increase accuracy and ensure adequate item
rate of over 8 per cent for the last four financial years. response, the survey was conducted by holding face-
But has the economic growth rate made Indians more to-face interviews of heads, as well as members, of
financially secure? Are Indian households now earning, these sampled households with the help of a
spending and saving more? And do they undertake questionnaire. Non-response and non-sampling error
financial planning of any kind to secure their future? were reduced by conducting focused group
The Max New York Life-NCAER India Financial discussions, proper training of interviewers and
Protection Survey was initiated to seek answers to supervision.
these very vital questions.
Some of the important indicators and estimates in this
A financially secure country cannot be built on the study are fairly comparable with those of other reliable
base of a small population of financially secure data sources such as NSS 61st Round, Census 2001 and
households. If we, as individuals, are financially well- National Accounts sources. Above all, a group of
protected, our nation will emerge stronger financially. eminent economists and statisticians were associated
Max New York Life, one of India’s leading life insurance as members of the Advisory Committee and as
companies, and the country’s reputed policy research advisors throughout the study and the findings of the
organisation, the National Council of Applied Economic study have been endorsed by them.
Research (NCAER), got together to undertake an all-
India household survey to determine the financial Some of the key (chapter-wise) findings are as follows:
security and well-being of Indian households and to
generate a risk profile of Indians across socio- How India Earns
economic groups. By definition, financial risk is There were 205.9 million households in the country in
essentially an assessment of earnings, spending and 2004-05, of which 30 per cent (61.4 million) lived in
saving patterns of households and the financial urban areas and the rest (144.5 million) in rural areas.
products they invest in order to protect themselves The average household in India has an annual income
against financial risks. of Rs 65,041 and an expenditure of Rs 48,902, leaving
it with a surplus of Rs 16,139 to save and invest.
Given the absence of a robust, state-supported social
security programme in India, one of the objectives of Urban income levels are around 85 per cent higher
the study was to understand the significance and than rural ones (Rs 95,827 per annum versus Rs
potential of life insurance as a 51,922 per annum). Given the fact that expenses of
risk-mitigating tool for Indian households. urban households are also substantially higher (at Rs
A probability sample comprising of 63,016 households, 69,065 per annum) than rural ones (Rs 40,309 per
out of a preliminary listed sample of 440,000 annum), an average urban household saves nearly
households, spread over 1,976 villages (250 districts) double that of a rural household (Rs 26,762 per
and 2,255 urban wards (342 towns) covering 64 NSS annum in urban areas versus Rs 11,613 for rural
regions in 24 states/UTs was interviewed while areas).
executing the survey.

Incomes of Indian households are a function of factors in the lowest income quintile (Q1) are residing in the low-
like occupation, education and landholdings. For income states; 20.8 per cent in middle-income and just
instance, in rural areas, households headed by 12.3 per cent in high-income states.
labourers account for 34.6 per cent of the rural
households, but only 20.2 per cent of rural income; in Labourers constitute the largest segment of poor
urban areas, the corresponding figures are 22.9 per households and comprise over 62 per cent of such
cent and 9.7 per cent respectively. At the all-India households. In contrast, this group accounts for 26 per
level, the labour class has the largest difference cent of the non-poor households. Those earning
between the share of such households in the total salaries account for 21.7 per cent of non-poor
population (31.2 per cent) and the share in total households whereas just about 4.4 per cent of poor
income (15.6 per cent). households earn their living through salary/wages.
Incomes tend to increase with age. At the all-India level, How India Spends
average household incomes rise from Rs 47,192 per Apart from the large differences in urban and rural
annum in the case of households where the chief income, there is a big difference in the manner in
earner is below 25 years old to Rs 55,663 in the 26-35 which income is spent. The average Indian household
year age group, to Rs 85,841 per annum for households spends about three-fourth of its income on routine
where the chief earner is above 66 years old. and non-routine expenditure.
Not surprisingly, education makes a big difference to The rural-urban divide is also evident in the spending
earning levels. Salary levels range from Rs 37,574 per patterns of households. While rural households spend
annum for illiterate households to Rs 131,104 (that is, (on an average) Rs 18,404 on food items in a year,
3.5 times that of lowest level) for graduate urban households’ spend level on food items is
households. For each level of education, salary levels in Rs 26,858. As a proportion of income, urban
urban areas are higher as compared to rural areas. households spend around 45 per cent of their income
on food while rural ones spend around 55 per cent.
Similarly, the land possessed also determines earning
levels. For instance, households that do not own any Not surprisingly, expenses on items like food tend to
cultivable land form 37.3 per cent of the population, drop (as a share of both income and expenses) as
but their share in rural income is 30.7 per cent. In households get richer. Food expenses, which comprise
contrast, large farmers account for just 4.7 per cent of 51.1 per cent of all routine expenditure at the all-India
the rural population and they contribute about 9 per level, rise to 59 per cent in the case of households
cent to rural income. headed by illiterates. This falls to 43 per cent in the
case of households headed by graduates.
India also has large regional disparities in income. In Delhi,
which is the richest state in the country, the average per Similarly, there a large difference in the proportions
capita income per annum is Rs 29,137. In comparison, spent on housing (5.9 per cent in urban areas versus
the average per capita income per annum in the case of 3.8 per cent in rural areas) and on education (8.7 per
Bihar, India’s poorest state, is only Rs 6,277. If the various cent versus 6.4 per cent). But expenses in other areas
states are bunched into three categories of low, middle like health (4.7 per cent versus 4.6 per cent), clothing
and high income (based on the level of their per capita (7.1 versus 6.8 per cent) and buying durables (4.9
income), you will find that nearly 67 per cent households versus 5 per cent) are not too dissimilar.

Like earnings, expenditure patterns too are a function unable to meet their needs through the financial
of age, occupation, education, landholdings and resources at their disposal. Approximately three-fourth
location. Households whose main source of income is of such households is located in rural India.
salaries/wages have the highest annual income as well
as the highest annual consumption expenditure. They How India Saves
spend more on non-food items (Rs 33,560 or 55 per Due to the lack of a social security system, over 80 per
cent) than on food items (Rs 27,975 or 45 per cent). cent of Indians save. However, less than a fourth of
these savings finds its way into financial instruments .
Weddings, social ceremonies and medical expenses While two thirds of all savings are kept in the form of
largely make up for the unusual expenditure of liquid assets – in cash, in the bank and in post office
households. While unusual expenditures account for deposits – around a fifth of all investments are in the
around 13.6 per cent of income in rural areas, the form of premium on insurance policies, as compared
figure is marginally lower at 10.6 per cent in urban to just 7 per cent in the case of shares/debentures.
areas. For the country as a whole, it is 12.2 per cent.
As with earnings and spends, savings patterns too are
Not surprisingly, the urban-rural disparity is also a function of factors like age, education, location and
reflected in the ownership profile of most consumer landholdings. The survey found the salaried to be the
durables. For instance, in the lower category of biggest savers. Salaried employees comprise just 18
durables like pressure cookers and ceiling fans, urban per cent of households in the country, but they have
ownership levels are much higher than those for rural the highest levels of income (Rs 108,620 per annum)
areas. Just 38 per cent of rural households, for instance, and the highest levels of savings from it (33 per cent).
own a pressure cooker/pan as compared with 80.4 per
cent for urban areas. Among the medium category of Indian households have different reasons for keeping
consumer durables (such as black-and-white TV sets, some money as savings – ranging from emergencies
geysers, vacuum cleaners and mixer-grinders), to marriages and social events, children’s education
penetration levels are even lower -- just 35 per cent of and gifting. Saving for emergencies emerges as the
all households in India have mixer-grinders, with more top-most priority for Indian households with 83 per
urban homes (56 per cent) compared to rural homes cent households saving for this purpose. Children’s
(19 per cent) owning these gadgets. education is another key priority – almost 81 per cent
households save for this need.
Ownership of high-end consumer products is even Nearly 69 per cent households in India save for reasons
limited. However, for certain products, the share is of old age financial security whereas 63 per cent
growing. Regular colour TVs, for instance, have households save to meet future expenses towards
penetrated a third of Indian homes, with ownership marriages, births and other social ceremonies. Nearly
being significantly higher in urban households - at 47 per cent households save to buy or build a house
54 per cent. and a similar percentage is saving to improve or
enlarge their business.
The survey found one-fourth of Indian families (51
million households equivalent to about 262 million Weddings, births, social events and ceremonies have
persons) to be financially vulnerable. In other words, a special place in the lives of Indian families. Not
incomes of around 25 per cent of Indian households are surprisingly, 63 per cent of households save for social
below their total expenditure and these households are ceremonies with 64 per cent of rural households

saving specifically for this reason versus 60 per cent of of optimists when it comes to financial security. More
urban households. The percentage of households than half the Indian households (54 per cent) are
saving to buy a house is slightly higher in urban India confident about their current and future stability.
(51 per cent) compared to rural India (45 per cent).
Unfortunately, the survey highlights that this financial
A key finding of the survey was the fact that 36 per optimism is not based on facts. An overwhelming 96
cent of households in the country prefer to keep their per cent of households feel that they cannot survive
savings at home. More than half of Indian households for more than one year on their current savings in case
(51 per cent) prefer to save by keeping their savings in they lose their major source of household income and
bank deposits. Households opting for post-office yet 54 per cent households feel that they are
deposits account for just 5 per cent. Cooperative financially secure. Financially at risk urban Indians
society deposits, chit funds, bonds are some of the appear to be even more optimistic than their rural
other modes of saving. Only 2 per cent households opt counterparts. This clearly indicates that Indians do not
for purchasing insurance policies. take a long-term view of their financial security and
hence their optimism is misplaced and there is a
Households in the lower income quintiles and more so pressing need for financial literacy for better
in rural areas, have the highest tendency to save their understanding of their financial risks.
money in the form of cash. So, 58 per cent households
in the bottom-most income quintile (Q1) keep their At the all-India level, investment in financial
savings at home in the form of cash (30.5 per cent put instruments – such as small savings, stocks and
it in the bank and another 5 per cent in post office insurance – accounts for about 3 per cent of the
accounts) and this falls to 20.3 per cent in the case of estimated household income. Of these, investment in
the top-most income quintile (and rises to 68.1 per stock market and small savings account for 0.5 per
cent households putting their money in banks and cent each but for life insurance, the corresponding
around 3.0 per cent in the post office). figure is higher - at around 2 per cent. If we consider
the sub-set of households that invest in these financial
When hardships fall on Indian households (such as the instruments, the proportion of such investments to
death of the chief earner, or a major illness in the their household income is significantly higher. For
family), most households draw down on personal instance, investors in the stock market invest about 22
savings. The urban-rural split: 58 per cent urban per cent of their household income compared to 14
households and 54 per cent rural households took per cent in the case of small savings and 4 per cent for
recourse to personal savings in the event of a financial life insurance.
hardship. Almost a fourth of all Indian households
opted for a loan from a friend or a relative to tide over Life Insurance
the financial crunch. Awareness about insurance is quite high in India.
Around 78 per cent households are aware of insurance
The main reason why Indians tend to save for products. Despite this, ownership of insurance
emergencies (and not for their old age) is the fact that, products is low - only 24 per cent households in the
by and large, they are quite confident of their ability to country own a life insurance cover.
live off their savings after retirement, and to be able to
find another job within months of losing the current At the all-India level, for all households, while the
one. The study clearly brings out that India is a country average sum assured of a life insurance policy in the

country is Rs 27,951, the average premium paid is important product among all insurance products such
Rs 1,227 and this represents 4 per cent of the as health (6 per cent), crop (3 per cent) and
household disposable income. If, however, the insured automobile (5 per cent) insurance.
households alone are considered, their average
premium payments work out to Rs 5,007, with the Like awareness, ownership of life insurance products
sum assured of Rs 114,450. too is a function of factors like education, age,
landholdings and income. Households that buy life
Urban India is more aware of life insurance – 90 per cent insurance tend to be more prosperous, more educated,
of urban households are aware of life insurance, as and own more consumer durables than those that don’t
opposed to 73 per cent rural households. Life insurance buy insurance. For instance, nearly 58 per cent
awareness is also a function factors like occupation, households with chief earners who are graduates (or
age, education and size of the landholdings. The salaried more educated than that) own life insurance against
class is most aware about insurance. Nearly 95 per cent just 13 per cent and 9 per cent in the case of primary-
salaried households are aware about insurance educated and illiterate households. And 26 per cent of
compared to 89 per cent households that are engaged households that have chief earners who have studied
in non-agricultural self-employed work followed by up to the higher secondary level are insured.
agricultural households (77 per cent) and labour
households (63 per cent). The ratio of premium payments to income indicates
that the insured household is currently utilising about
Awareness about life insurance increases with age. 4.4 per cent of disposable income towards insurance
Households with chief earners in age groups of 46-55 payment as against about 1.9 per cent of income for
years, 56-65 years and 65+ years are more aware (81 the entire household sector. The average sum assured
per cent each) about insurance than the younger age of policies in urban insured households is higher - at
groups. Similarly, households that have larger Rs 132,249 - with a premium of Rs 6,634 compared to
landholdings are more aware of insurance than those Rs 98,899 with premium of Rs 3,560 for their rural
with relatively smaller landholdings or the landless: counterparts.
only 66 per cent of households among the landless and
72 per cent among marginal farmers (0.1-2 acres) are Of the insured population, an overwhelming majority –
aware of insurance. Percentages rise to 86 per cent and 86 per cent – comprises of males. Only 14 per cent of
87 per cent among farmers with medium (4-10 acres of the insured are females. A similar analysis of the
land) and large (10-plus acres) landholding respectively. uninsured population reveals that nearly 52 per cent of
the uninsured are males and 48 per cent are females.
Awareness of insurance is largely linked to income
levels. Nearly 90 per cent of the top income quintile The main reason why insured households save for
group (Q5) and 81 per cent in the 60-80 per cent emergencies and not for their old age is the fact that,
income quintile group (Q4) in rural India are aware of by and large, they feel quite secure about their ability
insurance products. to live off their savings after retirement, and to be able
to find another job within months of losing the current
To an average Indian, life insurance is the most one. At the all-India level, 23.2 per cent of insured
important form of insurance. At the all-India level, households said they were very confident about the
about 86 per cent of households aware about the stability of their household income, and another 51 per
insurance considered life insurance as the most cent said they were confident.

An indicator of the kind of financial planning most insurance even at the existing levels of income, given
households undertake is the time they believe it will its distribution and the employment structure. For
take to recover from a loss of income compared to instance, there are 11 million rural and 10 million
their level of confidence about the stability of their urban households that could be a lucrative target for
incomes. So, 35 per cent of insured households believe life insurance marketers. These segments are aware of
it will take them less than six months to be able to life insurance and are confident about their financial
replace their current incomes in case of a disruption. security, but are not insured. They earn more than the
More uninsured households are unsure of the time median income of the insured households. In
frame by which they would be able to find alternative monetary terms, taking the current premium amount
income (38 per cent) compared to insured households of Rs 5,007 per household into account, the immediate
(30 per cent). More insured households claim they market opportunity for life insurance works out to
would be able to find alternative income (26 per cent) around Rs 105 billion. This humungous opportunity can
within a year, compared to those who do not own be captured by insurance industry players through
insurance (19 per cent). their existing marketing strategies.
The study clearly indicates that there is a definite
scope for increasing the volume of savings in life

CHAPTER 1
INTRODUCTION
1.1 Background most life insurance policies are regarded as a tax-saving

Financial risk management is a new conceptual tool or even a pure investment. Only a minuscule
framework that views financial protection as a set of percentage of the population, particularly salary earners
measures that support individuals and households to and businessmen, own life insurance. There is a large
manage financial risks. It includes three strategies to segment of people – including businessmen,
deal with risk (prevention, mitigation and coping), professionals, farmers, artisans and others – who remain
three levels of formality of risk management (informal, “financially unprotected” and outside the purview of any
market-based and public) and many actors (individuals, form of financial protection. Even those who own life
households, communities, NGOs, governments at insurance policies are generally under-protected.
various levels and international organizations) against
the background of asymmetric information and In the backdrop of these harsh realities, how financially
different types of risk. This view of social protection secure are Indians? How many Indians can cope up
emphasises the double role of risk management with a financial disaster and sustain themselves for a
instruments— protecting basic livelihood as well as year through their current savings? How many Indian
promoting risk taking. families are at a financial risk if they lose their primary
breadwinner? Unfortunately, no systematic and
In most developed countries, governments provide comprehensive empirical assessment of such efforts
financial benefits to citizens who are eligible on grounds has been made in the Indian context. An important
of unemployment, sickness, old age, disability etc factor contributing to this is the paucity of reliable
through government-aided social security programmes. data (that is accessible and timely).
The situation in developing countries like India is very
different. Here, unemployment insurance is unheard of To determine the answers to these and many more
and state pension barely covers a small fraction of the questions on the financial health of Indian households, in
Indian public. Healthcare is often thinly or sporadically June 2005, Max New York Life Insurance Co. Ltd. and
provided, education is typically limited to primary school, National Council of Applied Economic Research (NCAER)
and assistance to the infirm and disabled is usually undertook a comprehensive household survey called
negligible. The sheer size of population and the acute “India Financial Protection Survey”. This survey was
resource constraints make it difficult for governments to concluded concurently with the “National Survey of
provide robust social security programmes. Household Income and Expenditure” which covered
Indian families across the length and breadth of the
Since India is the largest democracy in the world with country. The major purpose of the study was to provide
enormous socio-economic and cultural diversity, the an objective measure of the economic wellbeing of
limited capacity of some households to protect Indian families by evaluating their level of financial
themselves against contingencies (that threaten to lower security and vulnerability as compared to their financial
their living standards) tends to be the primary factor that risks, based on their earnings, expenditures and savings.
determines their levels of investments, their ability to Also, this study was aimed at understanding the
take advantage of economic and social opportunities for significance of life insurance as a risk-mitigating tool for
their financial advancement. There is not much Indian households and to arrive at a risk profile of Indians
awareness about the need for financial protection, and across various socio-economic and demographic groups.

1.2 About the survey To increase accuracy and ensure adequate item
Since its inception, the NCAER has initiated long-term response, the survey was conducted by adopting face-
research programmes in the field of income, to face interviews of heads of households as well as
investment and savings. The most recent study – their members using a questionnaire-based approach.
known as the National Survey of Household Income Non-response and non-sampling errors were reduced
and Expenditure (NSHIE) – was undertaken to generate by conducting focus group discussion, proper training
a more robust and reliable estimate of household of interviewers and supervision.
income. The Max New York Life – NCAER India Financial
Protection Survey (IFPS) rode on this study. Survey Detailed information was collected on the
procedures such as approach, concepts and demographic profiles of households, their
definitions, sample design and sample size, content of composition, components of household income,
the questionnaire and estimation procedure were consumption expenditure and on relevant qualitative
executed after reviewing best international practices1. indicators related to economic activities of households.
Details about concepts, definitions and survey An exclusive module containing aspects such as the
methodology used in survey are given in Annexure I. motivation to save, reasons for saving, preferred mode
of saving, investment, borrowing, household
This survey was aimed at generating reliable estimates economic shocks, insurance, perception about
at the states-level covering both rural and urban India. well-being, etc were canvassed to all sample
Both quantitative (sample survey) and qualitative households to measure the level of financial
(PRA/RRA techniques) approaches were employed to vulnerability.
generate the primary data. A multi-stage stratified
sampling scheme was adopted to generate 1.3 Importance of the study
representative samples. Sample districts, villages and For a nation that is among the world’s fastest growing
households form the first, second and third stages, economies, it is imperative to measure the economic
respectively, for selection of the rural sample while well-being of its citizens on an ongoing basis. By
cities/towns, urban blocks and households are the tracking the various parameters that contribute
three stages of selection for the urban sample. towards the social and economic well-being of the
people and their ability to protect themselves and
Sample size and its distribution were determined on their families against unforeseen crisis, the findings of
the basis of the accuracy required and the resources this study would help arrive at a true measure of
available. In rural areas, a sample of 31,446 economic well-being of India’s populace.
households out of preliminary listed sample of
210,439 households was covered which were spread One of the critical findings of this study is the sheer
over 1,976 villages in 250 districts and 64 NSS regions lack of awareness about financial protection in rural,
covering all major states. Similarly, in urban areas, a as well as urban India. Remarkably, although
sample of 31,570 households, out of a preliminary economists and social planners are aware of gaps in
listed sample of 240,353 households, was spread over social security, citizens on their part too are quite
2,255 urban wards in 342 towns and 64 NSS regions callous and unaware of the need to protect
covering 24 states. themselves financially. The findings of this study are
1The major sources reviewed includes Situation Assessment Survey of Farmers (NSSO); Integrated Household Survey (NSSO); Employment and
Unemployment Survey (NSS); All India Rural Household: Survey on Saving, Income and Investment (NCAER 1962); Survey on Urban Income and Saving
(NCAER 1962); Market Information Survey of Households (1985-2001, NCAER); Micro-Impact of Macro and Adjustment Policies (MIMAP, NCAER); Rural
Economic and Demographic Survey (NCAER); Expert Group on Household Income Statistics, Canberra Manual; Household Income and Expenditure
Statistics (ILO); Chinese Household Income Project (1995) and Household Income and Expenditure Survey (Sri Lanka) etc.

unique as no comparable data exists for the country Chapter 3 presents a similar analysis of the households’
prior to this study. Therefore, this study is an routine and non-routine expenditure. It is followed by a
eye-opener, not just for marketers of insurance box – Estimates of Financial Vulnerability. This box
products but also for policy and decision-makers in analyses financial vulnerability across parameters like
the government. household income, education levels and occupations.
This survey is also important in view of the fact that In Chapter 4, savings, its distribution and different forms
National Sample Survey (NSS) 61st round (2004-05) the in which savings is held are discussed. In addition, this
data on household consumer expenditure is available chapter also discusses the household saving behaviour
and this provides an opportunity to attempt a elaborating some relevant aspects such as motivation to
meaningful comparative analysis through these two save, preferred forms of savings, perception about the
data sets. It is hoped that the resultant data sets will stability of the main source of household earnings and
be useful to different sets of users such as core managing economic shocks. This is followed by a
researchers, policymakers and service providers. box – Profile of Investors. This box analyses the profile of
households that invest in financial instruments – such as
This study has demonstrated that it is not impossible small savings, stocks and insurance – across parameters
to collect reasonable data on income, expenditure and such as income levels, occupation and education.
savings. Thus, the resulted approach, survey
methodology and related experiences will add new Chapter 5 exclusively focuses on life insurance and has
dynamism in this area and will be helpful in such detailed findings on awareness about life insurance,
studies in the future. ownership of life insurance among Indian households
and the size of insurance premium payments.
1.4 Plan of the report Socio-economic and demographic characteristics of
This report has six chapters, five boxes and one insured versus uninsured households are examined
annexure. The major findings of the study are with a view to learn more about the enabling factors
presented in the Executive Summary, in the beginning in order to increase the volume of household savings
of the Report. The present chapter introduces the in this form. The last box – Potential Market for Life
study. It is followedly a box – Reliability of Estimates. Insurance – takes a closer look at the profile of
We have compared the findings of this survey with households that have the purchasing power and are
those of NSS 61st Round and Census 2001 in order to aware of insurance, but are not insured. This segment
check the reliability of the estimates. comprises an immediate market potential that existing
players in the industry can exploit.
Chapter 2 gives a detailed analysis of the household
earnings relating to socio-economic and demographic This box is followed by Chapter 6 – The Way Forward.
characteristics of households. It is followed by a box – It takes a closer look at the lacunas in the system,
Income Inequality. It takes a deeper look at income insofar as life insurance is concerned and recommends
inequalities based on parameters such as socio- steps that need to be taken (by the service providers,
economic groups, education, income levels and policy-makers, NGOs and the corporate sector) in order
ownership of consumer durables. to ensure better financial security at the country level.

RELIABILITY OF ESTIMATES
Surveys often tend to bring to fore certain stark
trends and statistics. And invariably, doubts are raised
over the reliability of such data. Do we really need to
view income and expenditure data generated
through a survey with caution? While there is no
foolproof method by which one can establish the
reliability of all survey results, there are procedures
which when adopted, can raise the degree of
confidence one can place in the findings of a survey.
The most widely used and fruitful procedure is to
compare the survey estimates with the estimates
generated by other reliable sources. The Max New
York Life-NCAER India Financial Protection Survey has
attempted to compare some of the important
indicators and estimates in this study with that of
other reliable data sources, such as Census 2001, (interest, pension, remittances, rent, etc). While
National Accounts and even the National Sample estimating expenditure, both routine (food, housing,
Survey (NSS) 61st round. health, education, transport, consumer durable, etc)
and non-routine (social ceremonies, large education,
This survey’s estimate of average household size medical, leisure travel, etc) expenditures are taken
(4.99 members) appears consistent with the into account.
estimates obtained from NSS 61st round (4.89
members) and Census 2001 (5.37 members). A While the NSS 61st round (2004-05) gives an annual
similar pattern is also observed in the case of the monthly per capita expenditure (MPCE) of Rs 725,
sex ratio – this study estimates the sex ratio at 927, estimates from the current survey peg this figure at
against 950 by NSS and 933 by Census 2001. All the Rs 678. Figures for different groups like the SC/STs
three data sources are also fairly comparable on and OBCs are also remarkably similar.
some other parameters, such as the distribution of
households by socio-religious groups. These results Gross income, as estimated by this current study, is
are presented in the figure below. found to be around 56 per cent of the personal
disposable income provided by the National Accounts
A common problem faced by such surveys is the Statistics (NAS). An estimate of surplus income (as an
under-statement of economic data (income, indicator of savings) is arrived at by subtracting the
expenditure and savings) by the respondents. This total household expenditure from the total household
leads to a higher margin of error in the estimates of income. Through this method, this survey found
income and expenditure. The total income of estimates of savings as a proportion of disposable
households is arrived at after considering incomes income to be 22.2 per cent, as against the official
from salaries and wages, self-employment in non- estimate of 27.1 per cent for the year 2004-05. These
agricultural activities, labour (casual and agricultural differences in estimates can be attributed to the
labour), self-employment in agriculture, others following factors. One, this survey did not cover some

of the smaller states and union territories which One of the major objectives of this study was to
account for about 4 per cent of the population. Two, generate a reliable estimate of household income.
according to the Central Statistical Organisation (CSO), The standard error and coefficient of variation of the
the household sector by definition comprises of estimated average household income for various
individuals, non-government non-corporate income quintiles is consistent and within permissible
enterprises of farm business and non-farm business limits. This generates a fair degree of confidence in
like sole proprietorships and partnerships, and non- the estimates presented in this report.
profit institutions. This survey, on the other hand,
covers only households. Three, certain components Another important source of error, which can vitiate
of income are not perceived as income by the the estimates, is the non-response rate. In the case
respondents and hence they get excluded from of this survey, it was around 3 per cent and largely
incomes reported in income surveys. Items like due to unanticipated reasons such as the
reimbursements for travel, medical and other such psychology of the respondent. Non-sampling errors
expenses are not reported correctly in this survey. arise mainly from three sources. One, respondents
refuse to cooperate and deny information; they
To check the data reliability, a variety of methods supply partial information that may not be usable;
are used. The most common amongst them are or they deliberately provide false information. Two,
evaluation of sampling and non-sampling errors. the interviewers are also prone to have some
Sampling errors are measurable within the preconceived notions whereby some biases creep
framework of the sample design and are also into the schedules. Three, respondents may not
controllable by varying the size of the sample. For remember all the relevant numbers sought by the
instance, the average income per household is interviewers. And this tends to considerably
Rs 65,041 and its standard error is Rs 4; the average increase the margin of error in the data collected.
amount of life insurance payments made per
household is Rs 1,227 and its sampling error is There is no satisfactory procedure for a precise
negligible -- at Re 1. Nearly 6.2 per cent of all urban measurement of non-sampling errors. A team of
households reported payments towards life trained interviewers (250), supervisors (50) and
insurance and their (average) insurance payment NCAER professionals (14) from different language
amounts to Rs 2,528. This estimate is subject to a groups were engaged for about four months to
standard error of Rs 2. undertake the task of primary data collection. The

field team was thoroughly trained through all the procedure to correct data at the household
phases of the surveys. Every care was taken to level. Therefore, all the estimates - income,
implement maximum possible quality control in expenditure, savings etc - presented in
recording of the answers of the respondents. subsequent chapters are based on two factors –
the population covered by this survey and what
Before we turn to the next chapter, here’s a was reported by the respondents. It is
word of caution. While there are possibilities of important to keep these limitations in mind
making adjustments to survey estimates at the while drawing any conclusion from the results
aggregate level, there is no satisfactory presented in this report.

CHAPTER 2
HOW INDIA EARNS
The large differences in income, expenditure and savings patterns between

rural and urban India are a pointer to how things will unfold as urbanisation
levels in the country increase. Urban households earn around 85 per cent
more than rural ones, spend three-fourths more and, as a result, save nearly
double that of rural households. Much of this can be explained by differences
in profession and education. Even for the same profession and levels of
education, urban earnings are higher. The lowest income quintile accounts for
22.4 per cent of the population and just 6 per cent of income. But India is
changing rapidly – the middle classes, which accounted for 2.7 per cent of
the population in 1995, accounts for 8.3 per cent today2. However, the
regional disparities are a matter of concern. Two-thirds of the poor reside in
the 10 low-income states.
According to the Max New York Life-NCAER India Since only 17 per cent of women work, the average
Financial Protection Survey , there are 205.9 million
3
number of workers per household is 1.4 (1.34 in urban
households in the country, of which 30 per cent (61.4 areas and 1.43 in rural ones). And around 28 per cent
million) live in urban areas and the rest (144.5 million) of the country’s population is engaged in financially
in rural areas. Given that urban families are marginally remunerative job of some sort. Indeed, 68.8 per cent
smaller than rural ones, the share of India’s urban of households have just a single earning member while
population is slightly lower — at around 28.6 per cent. 23.7 per cent have two earning members and 7.5 per
While the average family size in the country is 5 cent have more than two earning members.
members, less than one per cent of Indian households
are single-member ones and around 10 per cent have At the all-India level, when we analyse households on
more than seven members. the parameter of highest literacy amongst their
members, we find that 19 per cent have members
who have passed middle school (8th class), nearly a
fourth (23 per cent) of households have at least one
member who has completed high school (10th class),
and 18 per cent higher secondary (12th class). At the
all-India level, 17 per cent of all households have at
least one graduate member – the figure is 30 per cent
for urban areas and 11 per cent for rural areas.
1The Great Indian Middle Class, NCAER (2005), defines the middle class as those households with an annual income of between Rs 2-10 lakh at
2001-02 prices.
2The Survey was undertaken concurrent to the NCAER’s National Survey of Household Income and Expenditure (2004-05), attempted to generate reliable
data on household income in the country.

2.1 INCOME-EXPENDITURE PROFILE areas versus Rs 40,309 per annum in rural ones), the
The average household in India had an annual income 3
difference in the surplus income (of urban and rural
of Rs 65,041 in 2004-05, and an expenditure of areas) that can be saved or invested is not all that huge
Rs 48,902, leaving it with a surplus of Rs 16,139 to save in absolute terms. The average urban household saves
and invest. Urban income levels are around 85 per cent nearly double that of a rural household (Rs 26,762 per
more than rural ones (Rs 95,827 per annum versus annum in urban areas versus Rs 11,613 for rural areas).
Rs 51,922 per annum). Since expenses in urban areas
are substantially higher (Rs 69,065 per annum in urban 2.2 INCOME BY OCCUPATION
Labourers constitute the largest segment of the
population, heading a little over 31 per cent of the
country’s households; self-employed agriculturists are
the next largest segment (30.3 per cent), salaried
members account for a little over 18 per cent and the
non-agricultural self-employed account 17.5 per cent
of the country’s households. The figures differ for rural
and urban areas – while the salaried account for just
10.5 per cent of rural households, in urban areas they
account for 36.9 per cent.
Income levels vary significantly across rural and urban

areas, as well as across occupation groups. The self-
employed in agriculture comprise the largest group in
rural areas, accounting for 41.3 per cent of the
population and 42.8 per cent of income – in other
words, they are the average rural household. In urban
3Household income is often misunderstood by survey respondents, especially the self-employed who tend to state income as net of even consumption
expenses instead of just netting out production expenses. So some degree of under-reporting is possible.

Figure 2.4:
Share of population and income by
occupation of chief earner - Rural
% share in population and income
0 10 20 30 40 50
Regular 10.5
19
salary/wages 19.5
Self 11.5
employment in 13
non-agriculture 14.7
34.6
Labour 6 20.2
Self 11 41.3
employment 42.8
in agriculture
2.1 14
Others
2.8
0 5 10 15 20 25 30 35
PCI (Rs.000 per annum)
% share of population % share of income
PCI (Rs. 000 per annum)
areas, by contrast, this group accounts for just 3.1 Figure 2.5:
per cent of the population and just 2.6 per cent of Share of population and income by
total urban income – this is despite the fact that occupation of chief earner - All India
urban agricultural households earn nearly two-thirds % share in population and income
more than their rural counterparts (Rs 91,133 per 0 10 20 30 40
annum versus Rs 55,491 per annum).
Regular 18.1 22
salary/wages 30.8
There is not too much difference in the income levels of
the non-agricultural self-employed and those earning
Self 17.5 19
employment in
regular salaries in urban areas, though the difference is non-agriculture 25.0
as high as 45 per cent in rural areas. Those earning 31.2

salaries account for around 37 per cent of urban
Labour 6 15.6
households and a little over 45 per cent of the total
income earned by all urban households. In the case of
Self 30.3
employment
the self-employed in non-agricultural areas, the second
11 25.1
in agriculture
largest group at 32.5 per cent of urban households, the 2.8
share of total income is around 38.1 per cent.
Others 16
3.5
0 5 10 15 20 25 30 35
Those households whose chief earners are labourers, PCI (Rs.000 per annum)
not surprisingly, account for a higher proportion of % share of population % share of income
total households as compared to their share in overall
PCI (Rs. 000 per annum)

income levels, and this is even more true for urban 2.3 INCOME BY AGE-GROUP
areas. Households headed by labourers accounted for Though India’s demographic profile is changing and
34.6 per cent of rural households and 20.2 per cent of India is getting younger, it is the higher age-groups
rural incomes; in urban areas, the figures were 22.9 that earn more. Those in the 55-65 year age bracket,
per cent and 9.7 per cent respectively. While urban for instance, comprise 2.6 per cent of the population
labour households earned 37 per cent more than their at the all-India level but 3.1 per cent of the total
rural counterparts, the lower relative share in income income. Households whose chief earners are in the 46-
levels in urban areas is a function of much higher 55 year age group account for 21.9 per cent of the
incomes for other social groups. At the all-India level, all-India population and 25.2 per cent of the all-India
the labour class has the largest difference between the income.
share of such households in the total population (31.2
per cent) and the share in total income (15.6 per cent). Average household income, at the all-India level, rise
The self-employed in agriculture are the only other from Rs 47,192 per annum in the case of households
group, where the population share (30.3 per cent) is where the chief earner is below 25 years old, to
higher than the income share (25.1 per cent). But the Rs 55,663 in the 26-35 year age group, to Rs 85,841
difference here is much lower.
Figure 2.6: Figure 2.7:

Share of population and income by age of Share of population and income by age of
chief earner - Urban chief earner - Rural
% share in population and income % share in population and income
0 10 20 30 40 0 10 20 30 40
4.6 Less 5.2 9

Less 16 than 25 4.5
than 25 3.6
9 25.1
18 24.9 26-35
26-35 22.4
Age of chief earner (Years)
Age of chief earner (Years)
22.3
10 36.4
19 36.9 36-45
36-45 34.4
34.9
22.7 24 11 21.6
46-55 46-55
26.8 23.9
8.8 8.9
55-65 22 55-65 13
9.7 11.3
2.1 2.7
66+ 25 66+ 13
2.6 3.6
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35
PCI (Rs.000 per annum) PCI (Rs.000 per annum)
% share of population % share of income % share of population % share of income

PCI (Rs. 000 per annum) PCI (Rs. 000 per annum)

per annum for households where the chief earner is rural area earns almost double (Rs 99,243 per annum)
above 66 years old. Since this is as true of rural India as the average for all rural households (Rs 51,922 per
it is of urban India, presumably the earnings are not annum). As a result, while such households account for
from professional income alone but from savings and 10.5 per cent of all rural households, they account for
investments and ownership of land. 19.5 per cent of all rural incomes.
In both rural and urban areas, households with chief Similarly, rural households headed by labourers earn a
earners in the 36-45 year bracket account for the lot less than their counterparts in urban areas – yet,
biggest share of both the total population as well as the the share of such households in total income is a lot
total income. At the all-India level, 36.5 per cent of all less adverse than it is in urban areas. Such households
households are headed by a person in the 36-45 year comprise 34.6 per cent of rural households and 20.2
age group – these households account for 34.6 per cent per cent of total rural income; in urban areas, the
of the total income at the all-India level. The average figures are 22.9 per cent and 9.7 per cent respectively.
household income for this age group is Rs 61,787 at the
all-India level. In rural areas, such households account
for 36.4 per cent of the total population and 34.4 per
cent of income. For urban areas, the figures are 36.9
per cent and 34.9 per cent respectively.
2.4 RURAL-URBAN DIVIDE

Given that agriculturists are the largest group in rural
India, it is not surprising that rural income levels are
just slightly more than half of those in urban areas.
More importantly, at every level of education and
occupation, urban income is higher than those in rural
areas. In the case of the salaried class (such households
comprise 36.9 per cent of all urban households and
10.5 per cent in rural areas), urban salary levels are
around 15 per cent higher (the household income is
Rs 114,545 per annum in urban areas versus Rs 99,243
in rural areas). For labourers (34.6 per cent of rural
households and 22.9 per cent of urban households),
urban earnings are 37 per cent higher than rural ones; 2.5 IMPACT OF EDUCATION
it is 74 per cent in the case of the non-agricultural self- Most chief earners who are educated up to high school
employed and 64 per cent higher in the case of (10th) tend to be self-employed in agriculture (between
households headed by agricultural labourers. 46 and 52 per cent of such households). However, once
the chief earner in rural areas has passed higher
Another way to look at the rural-urban disparity is to secondary (12th), things change. Just 31.2 per cent of
compare the population shares with income shares rural households cited self-employment in agriculture as
across rural and urban areas. Households headed by their primary source of income when the chief earner
salary earners in rural areas earn less than what they had passed higher secondary – 35.9 per cent of
do in urban areas. The average salaried household in households in this group earn their income from regular

salaries. For those who are either diploma holders,
graduates or post-graduates, between 57.6 and 62.3 per
cent of households earned their income from salaries –
the proportion of those engaged in agriculture fell to
between 10 and 20 per cent.
A similar situation prevails in urban areas. But in this

case, it is not agriculture that is the dominant
profession for the illiterate and the poorly educated.
It is manual labour. Nearly 40 per cent of urban
households where the chief earner is illiterate earn
their living through manual labour. Once the chief
earner has attained the education upto high school
(10th), he tends to be engaged in some small
business/trading. Once the chief earner gets more
educated, say at graduation and above, we notice that
salaries are the main source of income. 73 per cent of
all urban post-graduates, for instance, earned their
household incomes from salaries.
Education, not surprisingly, makes a big difference to

Figure 2.9:
earning levels in all cases, though the impact of
Earnings by level of education for salaried
households - All India
education is truly seen only when combined with
opportunity. Which is why salary levels for various
% share in household and income
0 10 20 30 40 50 60
education groups differ widely across rural and urban
areas, and across different types of cities – where the
Illiterate 3.8 64,982
opportunities are higher, the rewards for education are

2.3
Up to 6.2 73,760 also higher.

primary 4.2
8.2 71,282 Around a fifth of households across the country (26

per cent in rural areas and 7.9 per cent in urban areas)
Middle
5.4
are headed by illiterates while a similar number are
headed by those who have just passed primary school
High 19.8 94,979
School 17.3
(5th class) (22.5 per cent in rural areas and 11.5 per
cent in urban areas). Just around one-seventh of
Higher 18.9 98,961
households across the country are headed by those

Secondary 17.2
43.1 135,015 who have completed graduation.

Graduate+
53.6
0 40,000 80,000 120,000 160,000

Salary levels range from Rs 37,574 per annum for
Household income (Rs. per annum) illiterate households to Rs 131,104 (that is, 3.5 times that
of lowest level) for graduate households. For each level
of education, salary levels in urban areas are higher as
Household (%) Income (%)
Household income (Rs. per annum)

compared to rural areas. In the case of illiterate Within the group of just the salaried classes, however,
households, the average earnings in rural areas is the difference between the earnings of the illiterate
Rs 36,028 per annum versus Rs 49,464 in urban areas; and the graduates narrows down considerably, to a
for graduates and above, average rural earnings are little over two times. Households headed by graduates
Rs 109,527 as compared to Rs 143,302 in urban areas – earn Rs 135,015 at the all-India level as compared to
on an average, urban earnings at each level of education Rs 64,982 for those headed by illiterates. The reason for
are around a third higher as compared to rural areas. this lower reward to education (across all professions,
the difference between the illiterate and graduate
households is around 3.5) is that salary levels for even
the illiterate are higher in this group than the salary
level in all other groups– thus, a salaried household
headed by an illiterate earns Rs 64,982 per annum as
opposed to just Rs 37,574 when the household is
headed by an illiterate who could be an agriculturist, a
labourer, or engaged in any other profession.
2.6 DISPARITY BY CATEGORIES OF LANDHOLDING

The quantum of land owned by a rural household is
perhaps an important indicator of the economic status
of the household which is certainly more relevant in
the context of rural India. Nearly 40 per cent of rural
households in India do not possess any land while 30
per cent own between 0.1-2 acres of land.
4 Land class: Landless –0 acre, Marginal - 0 –2 acre, Small – 2-4 acre, Medium – 4-10 acre, Large – over 10 acre

Levels of land possessed5 have as much of an impact on
earning levels as occupation does. Households that do
not own any cultivable land form the largest group with
average household size of 4.68. While they comprise of
37.3 per cent of the population, their share in rural
income is 30.7 per cent. In contrast, large farmers
account for just 4.7 per cent of the rural population and
they contribute about 9 per cent to rural income.
Within these categories of land, a larger proportion of

landless households have chief earners who are either
illiterates or have low levels of education. Over a third
of households in landless categories are illiterate and
just 6 per cent of them are graduates. Nearly 10 per
cent of households with more than 10 acres of land
are headed by those who are graduates.
Since landholding by the households are interrelated

to occupation, the bulk of landless households are
labourers (68 per cent). Households with large land
holdings have a higher share of households with
agriculture as a major source of income (78 per cent)
in comparison with just 2.5 per cent agriculture
households in landless categories.
2.7 REGIONAL DISPARITY

As per CSO estimates, the per capita net domestic
products at current prices for 2004-05 vary
significantly across the country, ranging from
Rs. 29,137 for Delhi to Rs. 6,277 in Bihar, a difference
of around five times between the richest and the
poorest states. If the various states are bunched into
5 Land possessed=Land owned + Land rented-in – Land rented out

three categories6 of low, middle and high income
(based on the level of their per capita income), you will
find that 48 per cent of Indians live in the low- income
states, 30.6 per cent in the middle income ones and
the balance in the high-income states.
While accounting for 48 per cent of the population,

these low-income states account for just 36 per cent
of the country’s GDP. The high income states account
for 21.4 per cent of the population and 29.9 per cent
of the total GDP.
Not surprisingly, the bulk of the population in the low-

income states is poor – 30 per cent of households in
these states fall in the lowest quintile, and just 12.5
per cent of households fall in the top-most income and just 12.3 per cent are from high income states.
quintile. In the high- income states, the situation is the In the highest income quintile, around 26.7 per cent
reverse – while just 11.4 per cent of households fall in of households are from the poorest states, 38.2 per
the lowest income quintile, 32.6 per cent of cent from the middle income states and 35.1 per cent
households fall in the top most income quintile. from the high income states.
Looked at another way, nearly 67 per cent households in 2.8 DISPARITY BY THE SIZE OF TOWN
the lowest income quintile (Q1) are those residing in the Levels of urbanization have as much an impact on
low income states; 20.8 per cent of households in the earning levels as education does. As a result, urban per
lowest income quintile are from middle income states capita income ranges of from Rs 15,164 (Rs 77,185
6 Low income states: Assam, Bihar, Madhya Pradesh, Meghalaya, Orissa, Rajasthan, Uttar Pradesh, Chattisgarh, Uttaranchal and Jharkhand; Middle
income states: Andhra Pradesh, Himachal Pradesh, Karnataka, Kerala, Tamil Nadu and West Bengal; and High income states: Goa, Gujarat, Haryana,
Maharashtra, Punjab, Pondicherry, Chandigarh and Delhi

household income per annum) in towns that have
population of less than 50,000 to Rs 24,210 (Rs 114,029
household income per annum) in towns that have
population of more than 10 lakh. Towns with more than
10 lakh population have an income share that is 1.9
times their population share, while in the case of towns
with less than 50,000 population, this ratio is around 1.2.
Within these town classes, smaller towns have a

higher share of households headed by either illiterates
or those with lower levels of education – over a third
of households in towns with more than 10 lakh
population are headed by those who are graduates
while in towns with less than 5 lakh population, this
goes down to around a fourth.
Figure 2.13:
Earnings of graduate households in
selected cities
0 50 100 150 200 250 300
Delhi 258
47.8
Chandigarh 228
43.0
Ahmedabad 137
40.7
Lucknow 161
40.2
Kolkata 181
39.4
Jaipur 133
37.6
Hyderabad 165
37.4
Chennai 181
35.0
Bangalore 168
31.0
Greater 211
Mumbai 26.2
Share of graduate+household (%)

Household income (Rs. 000 per annum)

Within each category, earning levels are higher in 2.9 DISPARITIES IN SELECT CITIES
larger towns. So, households headed by graduates How much of a difference does the size of a town
earn Rs 208,249 per annum in towns with a make to income levels is best seen from the difference
population of more than 10 lakh persons as compared in income levels across various cities. Greater Mumbai,
to Rs 147,970 per annum in the case of towns which India’s most populous urban agglomeration, accounts
have a population of less than 5 lakh persons. for 6.5 per cent of the country’s urban population and
13.2 per cent of its income – that is, its income share
Since education levels are also related to choice of is more than double its population share. Delhi, the
occupation, larger towns have a higher share of salary next most populous area, accounts for 4.9 per cent of
earning households (46.9 per cent) in comparison with population and 10.6 per cent of income, which is 2.2
smaller towns (30.3 per cent). Indeed, in smaller towns times the population share. By the time you come to
with less than 5 lakh population, the share of smaller cities like Jaipur and Lucknow, the income and
households that are headed by labourers is roughly population shares are roughly the same. There are, of
equal to the number headed by businessmen and course, exceptions such as Chandigarh – it accounts for
those headed by salary-earning professionals. 0.3 per cent of the country’s total urban population
and 0.7 per cent of urban income.

Table 2.10:
Profile of households in selected cities
Estimated Estimated Average Per Share to Share to
household population household capita urban urban
(million) (million) (size) income (Rs) population (%) income (%)
Delhi 3.02 14.44 4.78 43,155 4.89 10.58
Kolkata 2.98 13.10 4.39 27,868 4.44 6.20
Greater Mumbai 4.04 19.13 4.73 40,768 6.48 13.25
Hyderabad 1.35 5.39 4.00 28,768 1.82 2.63
Bangalore 1.48 6.14 4.13 29,394 2.08 3.06
Chennai 1.59 6.58 4.14 32,403 2.23 3.62
Ahmedabad 0.86 3.76 4.37 26,683 1.27 1.71
Jaipur 0.51 3.10 6.10 18,808 1.05 0.99
Lucknow 0.49 2.46 5.02 22,069 0.83 0.92
Chandigarh 0.21 1.01 4.79 41,018 0.34 0.70
Within these cities, the larger ones tend to have more While the bulk of households in most large cities tend
households headed by those with higher degree of to be salaried, in case of smaller cities like Jaipur, there
education. Thus, 47.8 per cent of households in Delhi are more businessmen. Earning levels across all
are headed by those who have graduate degrees, as occupation groups, not surprisingly, are higher in cities
compared to a lower 37.6 per cent in the case of Jaipur. like Delhi and Mumbai. So, a salaried household in Delhi
Salary levels also differ accordingly. Since larger cities earns Rs 183,000 per annum as against Rs 104,000 per
tend to have higher job availibility, graduate annum in Ahmedabad; a business household in Delhi
households in Delhi earn Rs 258,000 per annum on an earns Rs 299,000 per annum as compared to
average. This falls to a much lower Rs 148,000 per annum in Ahmedabad.
Rs 133,000 per annum in Jaipur. Even households
headed by illiterates earn more in bigger cities –
Rs 101,000 per annum in Delhi as compared to
Rs 42,000 per annum in Lucknow.

INCOME INEQUALITY
Disparities of income can be better understood by quintile. While these are all India numbers, a similar
splitting households into per capita income quintiles. trend is observed even when we analyse income
For instance, the findings of this survey reveal that quintiles of rural and urban India.
people belonging to the lowest income quintile (Q1)
have a mean annual per capita income of Rs 3,534. This survey has used state-wise expenditure poverty
While they comprise 17.9 per cent of the lines (EPL) for 2004-05, as defined by the Planning
households, their share in total income is only 5.4 Commission, to calculate the poverty ratio based on
per cent. In contrast, the highest income quintile the income data it had collected. It is estimated that
(Q5) accounts for 22.3 per cent of the households, 214 million persons out of an estimated population
but 51 per cent of the total income. At Rs 33,170 per of 1,027 million fall under the category of poor. This
annum, the mean annual per capita income of the gives us an all India incidence of poverty estimate of
top-most quintile is about 9 times that of the lowest 20.8 per cent. The incidence of income poverty in
The poverty estimates should be seen as provisional. It is culculated using income data from “National Survey of Household Income and Expenditure”.
7

per cent of the non-poor households. Those earning
salaries account for 21.7 per cent of non-poor
households whereas just about 4.4 per cent of poor
households earn their living through salary/wages.
Ownership of (select) consumer durable goods among

the non-poor households is significantly higher than
those of poor households. At an all-India level, 33 per
cent of non-poor households own colour television
sets, 25 per cent have telephone, 22 per cent have
refrigerators, 19 per cent own cellular phones, nearly
7 per cent have cars and 2 per cent own credit cards.
In contrast, 8 per cent of poor households own colour
television sets, 4 per cent have telephones, 3 per cent
have refrigerators, 3 per cent own cellular phones,
and hardly 1 per cent have cars and credit cards each.
rural and urban areas is estimated to be 21.7 per

cent and 18.7 per cent respectively.
Results have shown that the degree of deprivation is

a function of education (highest education level in a
household) and the major source of income. While
nearly 26.7 per cent of non-poor households have at
least one graduate, just 8.5 per cent of poor
households qualify this attribute. A higher
percentage of poor are primary educated (25.5 per
cent) and illiterates (7.2 per cent) compared to just
10.4 per cent and 3.8 per cent respectively in the
case of non-poor households.
Major source of household income varies

significantly across poor and non-poor households.
Labourers constitute the largest segment of poor
households and comprise over 62 per cent of such
households. In contrast, this group accounts for 26

CHAPTER 3
HOW INDIA SPENDS
Apart from the large differences in urban and rural incomes, there is a big
difference in the manner in which this is spent and saved. This difference persists,
not just in terms of the share of income that is used for consumption of items
like food, but also in terms of the purchase of various durables, expenditures on
health and education and even in terms of borrowing from an organised financial
institution or depositing money with them. In some ways, however, there is little
difference between rural and urban households – both groups report a fairly
large non-routine expenditure. Not surprisingly, expenses on items like food tend
to drop as a share of both income and expenses, as households get richer. This
phenomenon is also noticed as you move from smaller to bigger towns, and even
as the occupation of the chief earner changes. It must be recognised that
migration, education and occupation are all closely linked to income.
According to the Max New York Life-NCAER India saved. The average Indian household spent about
Financial Protection Survey, apart from the large three-fourth of their income on routine1 and non-
differences between urban and rural areas in terms of routine2 expenditure in 2004-05. The rural-urban
levels of both income and expenditure, there is a big divide is evident in the spending patterns of
difference in the way this money is both spent and households. While rural households spend (on an
average) Rs 18,404 on food items in a year, urban
households’ spend level on food items is Rs 26,858.
Rural households’ expenditure on non-food items is
lower - at Rs 14,835 per year - compared to urban
households’ expenditure of Rs 32,273 per year. While
non-routine expenditures account for around 13.6 per
cent of income in rural areas, the figure is marginally
lower at 10.6 per cent in urban areas – for the country
as a whole, it is 12.2 per cent.
Urban households spend around 45 per cent of their

income on food while the figure is around 55 per cent
in the case of rural households. There is a large
difference in the proportions spent on housing (5.9
per cent in urban areas versus 3.8 per cent in rural
areas) and on education (8.7 per cent versus 6.4 per
1Routine expenditure includes consumption expenditure on food, housing, health, education, transport, clothing, durables and other such expenses
household generally incurs.

2Non-routine expenditure includes large expenditure on ceremonies (such as weddings, births, etc), medical, higher education, leisure travel, etc. Medical
expenditure is usually unplanned.

Distribution of routine expenditure Distribution of non-routine expenditure
100 Non-routine expenditure (%)
7.7 9.8 0 10 20 30 40 50 60 70 80 90 100
12.5
90 4.9 5.0
7.1 5.0 55.4 28.8 4.7 8.2
80 6.9 Rural
6.8
6.4
Routine expenditure (%)
7.4 2.8
70 8.7
10.0
10.5 44.9 25.1 13.0 11.2
60 4.7 11.1 Urban
3.8 4.7
4.6 4.7 5.9
50
5.9
All India 51.5 27.4 7.8 9.3
40
3.9
Ceremonies Medical Education
30 55.4 45.4 51.1 Travel Others
20
10 cent). But expenses in other areas like health (4.7

0 per cent versus 4.6 per cent), clothing (7.1 versus 6.8
Rural Urban All India per cent) and buying durables (4.9 versus 5 per cent)
Food Housing Health Transport are not too dissimilar.
Education Clothing Durables Others
Among non-routine expenses, expenditure on social

ceremonies has a major share and accounts for 52 per
cent. Medical emergencies is the next major item with
households spending about 27 per cent, followed by
large expenses on education (8 per cent) and leisure
travel (4 per cent).
3.1 EXPENDITURE PATTERN BY OCCUPATION

As income levels vary across various occupation groups
(i.e., major source of household income), both
expenditure levels and patterns also change
dramatically. Households whose main source of income
is salaries/wages have the highest annual income as
well as the highest annual consumption expenditure.
They spend more on non-food items (Rs 33,560 or
55%) than on food items (Rs 27,975 or 45%). The next
group of high earners and spenders are households
whose chief source of income is self-employment in
non-agricultural activities. Earning about Rs 95,316 per
year, these households spend Rs 55,773, of which
Rs 29,173 (52%) is spent on non-food items and
Rs 26,601 (48%) on food items.

In terms of share, food expenses (which comprise 51.1 Figure 3.5:
per cent of all routine expenditure at the all-India level) Distribution of routine expenditure by
rise to 59.2 per cent in the case of households headed major source of income
by labourers. This falls to 54.4 per cent in the case of 100
households headed by agriculturists and to 45.5 per 11.5 8.0 7.4
11.5
90 5.1 4.8
cent in the case of households where the chief earner 4.9 5.0 7.2 7.1
is a salary earner.
80 6.8 6.7 5.1
6.3

70 9.4 8.2 7.2
10.5 4.8
Expenditure on housing, which is 4.7 per cent at the 11.9 11.5
60 4.8 4.4
all-India level, is a much lower 3.8 per cent in the case 4.4 3.8
4.5
of households headed by agriculturists. This rises to 5.6
50 5.6 4.9
per cent in the case of households headed by the 40
salaried class. There is little difference in the case of 30

expenditure on health (between 4.4 and 4.8 per cent),
45.5 47.7 54.4 59.2
20
clothing (6.7 to 7.2 per cent) or that on durables (4.8
to 5.1 per cent). The share of expenses on transport
10
and education, however, vary significantly. 0

Regular Self Self Labour
salary/ employment in employment
While households headed by labourers spend just 7.2
wages non-agriculture in agriculture
per cent of their routine expenses on transport, this

Food Housing Health Transport
rises to 11.9 per cent in the case of the salaried classes.
Education forms 5.1 per cent of the routine expenses
for a household headed by a labourer and this rises to
Figure 3.6:
9.4 per cent in the case of a salaried household.

Distribution of non-routine expenditure by
major source of income
3.4
There is little difference in what constitutes non-routine
100
9.3 7.8 1.4
expenditure across various occupation groups when it
90 15.3 3.1 4.8
5.6 4.8
comes to weddings and other such social expenditures. 80 12.7
5.5
The differences widen when it comes to medical and
Non-routine expenditure (%)
8.8
70 39.8
29.8
education expenses. For instance, medical expenses
22.3
account for 40 per cent of non-routine expenditure for
60 24.4
households that derive their major source of income 50
from labour, which is the highest among all groups. 40
3.2 EXPENDITURE PROFILE BY EDUCATION LEVEL

30
50.1 54.4
46.1 50.7
Since level of education and source of income are inter- 20
related (for instance, households headed by graduates 10

are likely to have salary/wages as their major source of 0
income) impact of education shows similar pattern Regular Self
salary/ employment in
Self
employment
Labour
when it comes to spends. Food expenses, which wages non-agriculture in agriculture
comprise 51.1 per cent of all routine expenditure at the Ceremonies Medical Education
all-India level, rise to 59 per cent in the case of
Travel Others

Figure 3.9:
Distribution of non-routine expenditure
by education level of chief earner
100
9.6 6.3 9.3 11.2
90 1.9 3.5 3.8
2.8 4.1 5.6
8.2

80
12.1
70 32.7
40.6 25.2
60 20.2
50
40
30 53.4
53.1
45.5 50.9
20
10
0
Illiterate Up to Up to Graduate+
Primary Higher
Secondary
Figure 3.8: Ceremonies Medical Education
Distribution of routine expenditure by Travel Others
education level of chief earner
31,509). Illiterates spend less than half of what
100
6.7 7.6 9.8 12.9
90 5.4 4.9 graduates spend on food but still end up spending more
4.8
on food than non-food items.
7.6 6.9 5.1
80 6.9
5.0 5.6 6.7
7.5
Expenditure on housing, which is 4.7 per cent at the all-

70 7.9 8.8 9.6
4.9 4.7 10.6
60 3.5 3.9 4.6 12.6 India level, is a much lower 3.5 per cent in the case of
50
4.9 4.5 households headed by illiterates and this rises to 5.5 per
5.5 cent in the case of households headed by graduates.
40
59.0
30 57.5
51.0 There is little difference in the case of expenditure on
health (between 4.5 and 4.9 per cent), clothing (6.7 to
43.0
20
7.6 per cent) or that on durables (4.8 to 5.4 per cent)
between the households with different levels of
10
education of chief earner. The share of expenses on

0
Illiterate Up to Up to Graduate+
transport and education, however, vary significantly.
Primary Higher
Secondary
Food Housing Health Transport While households headed by illiterates spend just 7.9 per
cent of their routine expenses on transport, this rises to
households headed by illiterates. This falls to 43 per cent 12.6 per cent in the case of graduate households.
in the case of households headed by graduates. In Education forms 5 per cent of the routine expenses in a
absolute terms, graduate households spend more on household headed by an illiterate and this rises to 9.6
non-food items (Rs 41,692) than on food items (Rs per cent in the case of a graduate household.

Figure 3.11:
Distribution of routine expenditure by
landholdings
100
7.8 6.9 7.5 8.5 9.5
90 4.8 4.8 4.7 5.0 5.8
7.0 6.6 6.9
80
7.5 8.0
5.9 6.2 6.5
7.0

70 8.8 8.8 8.0
10.3
4.7 4.6 12.7
60 3.6 4.4 13.4
3.9 3.5 5.0
4.4 4.7
50 3.9
40
30 58.5
57.0 56.2 49.9 46.8
20
10
0
Landless Marginal Small Medium Large
Food Housing Health Transport
3.3 EXPENDITURE PATTERN BY
CATEGORIES OF LANDHOLDING Figure 3.12:

Households owning large landholdings have the Distribution of non-routine expenditure
highest annual income as well as the highest annual by landholdings
consumption expenditure. They spend more on non- 100
food items (Rs 34,304) than on food items (Rs 30,127).
7.3 8.1 7.6 9.0 10.4
The next group of high earners and spenders are
90 2.3 1.6 3.0
4.5 4.8 3.4
3.6 5.2
households with medium landholdings. Earning about
6.1 5.3
80
Rs 79,698 per year, these households spend Rs 46,197
28.7 36.6 26.9 18.0

of which Rs 23,162 is spent on non-food items and
70
24.1
Rs 23,035 on food items. Landless households are the 60
lowest in the earning-spending hierarchy. The former 50
group earns about Rs 39,333 annually, spending
Rs 27,109. Significantly, the major expenditure 40
(Rs 15,446) is on food items while non-food spending 30 57.2 57.3

62.9
56.0
amounts to Rs 11,663. 50.0
20
An annual food expense comprises 57.0 per cent in the 10

case of landless households and this falls to 46.8 per
cent in the case of households with large land
0
holdings. Expenditure on housing and health, which is Ceremonies Medical Education
4.7 per cent each at the all-India level, is more or less

Travel Others

similar across the categories of landholdings ranging
from 4.4 to 5.0 per cent. There is no major difference
in the proportion of non-routine expenditure across
various categories of land.
Expenses on weddings and other social ceremonies

account for around 57.2 per cent of all non-routine
expenses in landless households and this rises to 62.9
per cent in the case of households owning large
landholdings. The differences widen when it comes to
medical expenses. For instance, medical expenses
account for 29 per cent of non-routine expenditure for
landless households and this reduces to 18 per cent for
households with large landholdings. Expenses on
education, similarly, change as a fraction of non-
routine expenses according to each landholding
category.
3.4 IMPACT OF INCOME

As in the case of level of earnings, the spending
pattern varies significantly across income quintiles. The
expenditure patterns of Indian households in the
lower-income groups is skewed towards high
expenditure on food items. Food expenses, which
comprise 51.1 per cent of all routine expenditure at
the all-India level, rise to 61.5 per cent in the case of
households in the lowest income quintile, and this falls
to 43.2 per cent in the upper-most income quintile.
The results also reveal that it is only households in the

top quintile (Q5) that spend more on non-food items.
Households in the remaining quintile groups spend
more on food items. Consider this: While the bottom
quintile (Q1) spends Rs 13,377 on food items, its
expenditure on non-food items is just Rs 8,377. In
contrast, the top 20 per cent group (Q5) spends
Rs 32,149 on food items and a bigger amount on non-
food items (Rs 42,248).
Spending patterns on other items such as housing,

transport, education, clothing and durables increase
substantially for the top 20 per cent households

compared to other groups. Expenditure on housing, 3.5 REGIONAL EXPENDITURE PROFILE
which is 4.7 per cent at the all-India level, is a much Just as households in the high-income states have a
lower 3.5 per cent in the case of households in the higher earning capacity – the average annual
lowest income quintile and this rises marginally to 4.8 household income is Rs 90,285 compared to Rs 65,612
per cent in the top-most quintile. While households in in the middle-income states and Rs 54,423 in the low-
the lowest income quintile spent around 7 per cent of income states – their spending patterns show a similar
their expenses on transport, this rises to 12.9 per cent trend. However, the degree of variability is
in the top-most income quintile. Education forms 5.7 significantly lower. For instance, households in the
per cent of the routine expenses of a household in the high-income states annually spend Rs 49,484
lowest income quintile as compared to 9 per cent in compared to Rs 42,917 by middle-income states and
the case of the top-most income quintile. There is little Rs 35,396 in the low-income states. Expenditure on
difference in the case of expenditure on health food items by households in all three state groups are
(between 4.5 and 4.8 per cent), clothing (6.8 to 7.1 per more or less similar – ranging from Rs 19,962 in the
cent) and durables (4.5 to 5 per cent). low-income states to about Rs 22,418 in the high-
income states. The real difference is in the spend
Expenses on weddings and other social ceremonies levels on non-food items. High-income state
account for around 58.1 per cent of all non-routine households spend Rs 27,068 on non-food items
expenses in households in the lowest income quintile compared to Rs 21,657 by households in middle-
and this falls to 51.4 per cent in the topmost quintile. income states and Rs 15,433 by households in the
Medical expenses, similarly, change as a fraction of non- low-income states.
routine expenses according to each income quintile.
The share of food expenses to all routine expenditure
Figure 3.15: comprise 51.1 per cent at the all-India level, rising to 56.4
Distribution of non-routine expenditure by per cent in the case of households in low-income states,
income quintiles and falling to 45.3 per cent in the high income states.
100 5.7 6.9 5.7

16.1 8.8
1.2 2.6 2.2
90 3.1 3.5 4.1 6.3
3.2
80 12.6
6.7
32.0 34.4
70 39.5
60 23.6 20.8
50
40
30
58.1 52.6 48.5 50.4 51.4
20
10
0
Ceremonies Medical Education
Travel Others

Figure 3.17: Looking at the amounts spent by these three groups
Distribution of routine expenditure by on individual items such as housing, health, transport,
categories of states education, clothing, durables and 'others', it is evident
that transportation comprises a large chunk of
expenditure for households in the high-income states
100
7.4 11.7 10.7
(13%) compared to the middle income (10%) and low-
90 5.3
5.0 4.4
income (9.5%) states.
6.3
80 7.1 6.9 8.0
7.6 7.5
70 9.5
4.0 9.9 In high-income states, housing is another key
12.8
expenditure for households. Expenditure on housing,
60 4.1 5.0
5.1
which is 4.7 per cent at the all-India level, is a lower
50 4.4
6.1
40 4.1 per cent (Rs 1,446) in the case of households in the
low-income states and this rises to 6.1 per cent
(Rs 3,032) in the high-income states.
30
56.4 49.5 45.3
20
10 There is less of a difference in the case of expenditure

0 on health (4 per cent in the low income states, rising
to 6.1 per cent in the high income states) and
Low income Middle income High income
states states states
Food Housing Health Transport education (7.1 per cent rising to 7.5 per cent).
Weddings, births and other ceremonies account for

Figure 3.18: the bulk of non-routine expenditure in low-income
Distribution of non-routine expenditure by states. It is also observed that medical expenses
categories of states account for a quarter to a third of non-routine
100 expenditure across all three state groups. More
specifically, expenses on weddings and other social
12.2 6.1 7.3
5.5
ceremonies account for around 56.8 per cent of all
90 1.2 8.5
3.4
unusual expenses in households in the low-income
80 14.2 8.6
70 26.4 states and this falls to 49.1 per cent in the high-income
60 29.5 26.5 states. Travel expenses comprise around 1.2 per cent
of non-routine expenses in low-income states and this
rises to 8.5 per cent in the high-income states.
50
40
30 3.6 EXPENDITURE PATTERN BY THE SIZE OF TOWN

As in the case of state categories, a similar expenditure
56.8 44.7 49.1
pattern is also observed amongst the three categories

20
10 of towns. An annual food expense comprises 46.4 per

0 cent (Rs 23,105) in the case of households in smaller
towns (population less than 5 lakh) and this falls to 44.9
Low income Middle income High income
states states states
Ceremonies Medical Education per cent (but higher in absolute terms at Rs 30,715) in
towns with a population of more than 10 lakh.
Travel Others

Figure 3.20:
Distribution of routine expenditure by size
of town
100
13.0 12.2 11.9
90
4.9 5.0 5.2
80 6.9 6.6 6.7
8.4

70 8.4 10.8
11.3 10.9
60 10.6
4.2 5.2
4.4
50 6.4 5.4
5.5
40
30
44.9 44.8 46.4
20
10
Expenditure on housing, which is 4.7 per cent at the 0
all-India level, is a higher 5.4 per cent in the case of

More than 5-10 lakh Less than
10 lakh 5 lakh
households in towns with more than 5 lakh population Food Housing Health Transport
and this rises to 6.4 per cent in towns with more than
10 lakh population. Health expenditure falls from 5.2

per cent to 4.2 per cent. There is no major difference Figure 3.21:
in the proportion of non-routine expenditure across Distribution of non-routine expenditure
various town groups. by size of town
100
7.8
3.7 OWNERSHIP OF CONSUMER DURABLES
16.0 12.9
90 7.8
Not surprisingly, the difference that is seen between 5.0
4.4
rural and urban households is also reflected in the
80
11.7
14.7
ownership profile of most consumer durables. For
70 12.3
instance, in the lower category of durables like pressure 60 24.8 20.8 26.4
cookers and ceiling fans, urban ownership levels are 50
much higher than those for rural areas. Just 38 per cent
of rural households, for instance, own a pressure
40
cooker/pan as compared with 80.4 per cent for urban 30
areas. It is 48 per cent versus 89 per cent in the case of

44.9 45.9 44.6
20
fans, perhaps also a reflection of the availability of
electricity in rural India. For items like wrist watches and
10
bicycles, where electricity is not needed, the difference

0
More than 5-10 lakh Less than
in rural and urban consumption is not as stark – 76 per
10 lakh 5 lakh
cent versus 87.9 per cent in the case of wrist watches Ceremonies
Travel
Medical
Others
Education
and 69.1 versus 52.9 per cent in the case of bicycles.

Figure 3.22: sewing machines, vacuum cleaners and mixer-grinders
Ownership of consumer durable – penetration levels are still quite low and the potential
% of households own consumer goods for growth is enormous. Just 35 per cent of all
0 20 40 60 80 100 households in India have mixer-grinders, with more
12 urban homes (56 per cent) compared to rural homes
(19 per cent) owning these gadgets.
Car 3
Motorcycle 34
Ownership of high-end consumer products — such as
19
Colour
colour TVs (regular and small), VCRs and VCPs, scooters,
Television 54
17
mopeds, motorcycles, refrigerators, washing machines,
(Regular)
56
music systems and cars/jeeps — is still limited. But for
Mixer/Grinder
19
Ceiling Fan 89 certain products, the share is growing. Regular colour

TVs, for instance, have penetrated a third of Indian
48
Wrist watch 88 homes, with ownership being significantly higher in

urban households — at 54 per cent. In rural areas, the
76
penetration of colour TVs is just about 17 per cent.

53
Bicycle 69
Pressure 80
cooker 38 Motorcycle ownership, too, is growing steadily with
Urban Rural nearly 26 per cent Indian homes boasting of one.
Nearly a third of all urban homes (34 per cent) and 19
Among the medium category of consumer durables - per cent rural homes own a motorcycle. For cars, the
that includes small black-and-white television sets, figures are 3.2 per cent for rural area versus 11.9 per
regular black-and-white television sets, geysers, cent for urban areas.

ESTIMATES OF FINANCIAL VULNERABILITY
Financial vulnerability may be defined as a state of
financial well-being of households that results from
the pursuit of “unsustainable livelihoods”. In other
words, financially vulnerable households are no
longer able to meet their financial needs. This can
happen on account of two reasons – households lack
access to key productive assets; and/or due to
unwise financial management. In the present
context, a household is characterised as financial
vulnerable if its total reported income is less than its
total (routine and non-routine) expenditure.
If we follow the above criteria, we find that one-

fourth of Indian families (51 million households
equivalent to about 262 million persons) are save and invest as opposed to the non-vulnerable
financially vulnerable. In other words, the income of households. Expenses on weddings and other social
around 25 per cent of Indian households are below ceremonies account for around 57 per cent of all
their total expenditure and these household are non-routine expenses in the case of vulnerable
unable to meet their needs through the financial households and this falls to 31 per cent for non-
resources at their disposal. Approximately three- vulnerable households.
fourth of such households is located in rural India.
The level of income is an important determinant of
financial vulnerability. As per this survey, a majority of
vulnerable households – two-third in rural and urban
India each – belong to the bottom two income
quintiles (Q1 and Q2). Hardly one-third of non-
vulnerable households belong to these income quintile
groups. While 40 per cent of vulnerable households
reported an outstanding loan, this share in the case
of non-vulnerable households was only 18 per cent.
The level of income of financially vulnerable
households is a little more than half of the non- Occupation levels vary significantly across financially
vulnerable households. While the average household vulnerable households and non-vulnerable
income of vulnerable households is Rs 40,450, it rises households. Labourers constitute the largest
to Rs 73,082 in the case of non-vulnerable segment of the vulnerable population, comprising
households. Despite low income, vulnerable over 43 per cent of the vulnerable households. The
households spend a lot more than non-vulnerable salaried account for 21.5 per cent of the non-
households. As a result, an average vulnerable vulnerable households. Just around 10 per cent of the
household is left with a negative surplus income to vulnerable households earn their living through

salary/wages. Interestingly, other socio-economic and and, therefore, they may remain financially
demographic characteristics such as education level vulnerable. Further analysis of data indicates that
and age of chief earners, size of landholdings and majority of vulnerable households are not able to
even ownership of high-end products etc, have not manage their unplanned expenditure through
shown much impact on vulnerability. For instance, current savings. This also suggests that such
while 28 per cent of landless households are households do not plan their future, nor do they
financially vulnerable, this share for medium and large save long-term.
farmers is 23 per cent each. Similarly, ownership of
selected consumer goods does not vary significantly While governments have a role to play for the
across vulnerable and non-vulnerable households, as poorest households, in general, financial security is
illustrated in the graphs above. the prerogative of each household. They need to be
wiser and financially prude in order to meet their
This clearly indicates that the state of vulnerability needs. The findings of the survey also suggest that
is not limited to poor households. Even prosperous the government as well as industry need to work
households can be financially vulnerable. Though it is pragmatically in order to develop more focused
possible for such households to earn more as the campaigns and improved, need-based financial
economy gathers momentum, their earnings might instruments that are tailor-made for Indian
still not be sufficient to cover their increased needs households in order to remove vulnerability.

CHAPTER 4
HOW INDIA SAVES
While lack of social security systemin India is viewed as negative, it has a

positive impact on saving habits of Indian households. Over 80 per cent of
Indians save. A majority saves for emergencies or for their children’s
education. These two reasons top even the need to save for old age. Less than
a fourth of these savings find their way into financial instruments1, with the
rest being kept at home in cash or in a bank deposits. As with most
parameters concerning incomes and expenditures, savings habits too change
with age and education – the older and the more educated appreciate the
need for old age protection more, as do those with higher income levels. A
fourth of Indian households own life insurance policies and, as in the case of
savings, these increase with age of the chief earning member as well as with
his/her income and education levels. While two thirds of all savings are kept
in the form of liquid assets – in cash, in the bank and in post office deposits
– around a fifth of all investments are in the form of premium on insurance
policies, as compared to just 7 per cent in the case of shares/debentures.
4.1 SAVING PATTERN OF INDIAN HOUSEHOLDS

A. Urban India saves more
Household saving rates in India have always been high.
If overall savings rates have picked up in recent years,
it is more to do with the fact that government-level
dissavings have reduced over time. Survey results
reveal that around 81.4 per cent of households at the
all-India level save some part of their earnings – the
figure is 88 per cent for urban India and 78.5 per cent
for rural India.
The Survey shows that rural households had an average

income of Rs 51,922 in 2004-05 and urban ones Rs
95,827. Of this, routine and non-routine expenses added
up to Rs 40,309 for rural households and Rs 69,065 for
urban households. This means share of surplus income2
is around 22 per cent in rural areas and 28 per cent for
urban areas. Of the surplus income, around 10-15 per
1Financial instruments include investment made in stock market, small savings and life insurance only for the year 2004-05.
2Surplus income = Total household income – expenditure (routine + non-routine). In this report, ‘savings’ is frequently used as a synonym to ‘surplus income’
for better readability.

cent was invested in financial instruments (except bank 8.3 per cent of salaried households tend to invest in
deposits) in both rural and urban India. insurance, the highest in any category.
Insurance has a wide reach. Among all financial The self-employed in non-agricultural activities
instruments, savings in the form of insurance are the (professionals and business class) form the next largest
highest, beating those in shares/debentures and even pool of savings. They account for 17 per cent of the
those in the post office. While investment in insurance country’s households, but have the second-highest
is higher in urban areas (in both absolute terms and average income (Rs 95,316 per annum) and a
relative to overall investments), the trend is the same reasonably high savings rate (31 per cent).
even in rural areas.
Households headed by the salaried allocate more than
B. Salaried class saves the most, labour class saves a fourth of their total investments for paying insurance
the least premium as compared to a much lower 6.4 per cent
Salaried employees comprise just 18 per cent of for purehousing shares and debentures.
households in the country, but account for the
greatest proportion of savings as they have the C. The educated save more
highest level of income (Rs 108,620 per annum) and Households headed by graduates tend to have amongst
the highest levels of savings from it (33 per cent). the highest levels of savings in both absolute terms (Rs
Around 2.7 per cent of salaried households tend to 43,294 per annum) as well as relative to income (33 per
invest in shares and debentures – this is a lower 2.3 cent). Such families account for just 13 per cent of the
per cent in the case of business households. Around total, but account for nearly 35 per cent of total

household savings. Households headed by those who’ve E. Landless households also save
studied till higher secondary (12th class) account for 47 The landless form the bulk (40 per cent) of the
per cent of the total number of households and 43 per total households in the country and this group saves
cent of total savings – average savings in this group are the least, at Rs 7,608 per annum. This group also
Rs 16,518 per household, or 25 per cent of income. invests the most (23 per cent), in relative terms, of its
savings in financial instruments (other than bank
Not surprisingly, graduate households tend to spend a deposits).
lot more of their investments in buying insurance (28.2
per cent as compared to the all-India average of 21.6 per Though the group that owns more than 10 acres of
cent). On an average, 3.5 per cent of all graduate land earns and saves the most (30 per cent of income
households tend to invest in shares/debentures (for the is saved), they account for the least savings due to
illiterate households the corresponding figure is just 0.3 their relative small number. The farmer with medium
per cent; while the all-India average is 1.1 per cent) and landholding is the most promising from the point of
around 10.2 per cent of these households tend to invest view of savings-24 per cent of income is saved and
in insurance policies (for illiterate households, the around a fifth of this finds its way into financial
corresponding figure is 1.3 per cent, while that for all instruments (other than in bank deposits).
India is 3.9 per cent).
D. Savings are higher in late middle age

As the chief earner (across households) gets older,
two aspects are noticed. Firstly, the motivation to
save tends to change. Increasingly, the household
feels the need to save for the old-age. In addition, the
levels of savings rise with age.
Households whose chief earner is in the 36-45 age

group form the bulk of the total number of
households in the country (36 per cent) while those
in the 26-35 age group are the next most important
(26 per cent) category by size. The highest savings (in
terms of per household) are in the 56-65 age group
where savings are Rs 21,196 per household, or 25 per
cent of the annual income.
While 57 per cent of this is kept in the form of liquid

savings, this group tends to invest the most in
shares/debentures. However, given the age profile,
investments in insurance are lower in this group. Of
the total investments made, just 13 per cent are in
form of insurance premium. Households in the 26-35
age group, by contrast, spend around 23.6 per cent of
their total investments in paying insurance premium.

F. Poor households save despite being in debt
Of the quintiles, not surprisingly, the top-most one
contributes the most to the country’s savings pool –
with an average income of Rs 163,465 per annum, this
group saves around 45 per cent of its income.
Surprisingly, it chooses to keep nearly 80 per cent of it
in liquid savings - like banks (53 per cent), at home (16
per cent), in post office deposits (nearly 2 per cent) -
and invests just around 9 per cent of its savings in
financial instruments such as stocks, small savings and
life insurance.
G. Middle income states invest more in life insurance

Though around 45 per cent of India’s population lives
in low income states and another one-third in middle
income states, it is the high income states that
account for the largest savings in the country. The
average income of households in these states is
Rs 90,285, of which around 38 per cent is saved.
While the high income states invest the most in

shares/debentures, it is the middle income states that
invest the most in insurance premium (in relative
terms). Of the total amount invested, the average
household in middle income states spends around 27
per cent on insurance premium each year.
H. The larger the town, higher the savings

In keeping with the overall pattern of change that is
associated with urbanisation, big towns tend to have
the highest average household income as well as
savings, in both relative and absolute terms. Savings
rate in cities (with a population of more than a million)
is around 32 per cent as compared to around 26 per
cent for smaller cities, or cities that have a population
of less than five lakh.
Larger cities also tend to invest more in financial

instruments and around 3.8 per cent of households in
such cities tend of invest in shares/debentures in
comparison with 1.2 per cent in the smaller cities (with
less than 5 lakh population).

4.2 WHY DO INDIANS SAVE?
A. Over 80 per cent of Indian households save for
emergencies
Indian households have different reasons for keeping durables and 18 per cent to meet expenses towards
away some money as savings – ranging from gifting, donations and pilgrimages
emergencies to marriages and social events, children’s
education and gifting. Though India does not have B. Priorities for savings are invariant
even a rudimentary social security scheme, saving for of occupation type
old age is not the most important reason why Indian There is little difference when it comes to priorities for
households save. Saving for emergencies is the top- savings – emergencies, children’s education and old
most priority for Indian households with 83 per cent age, in that order – between the salary earners, the
households saving for this purpose. Children’s agriculturists, labourers or even the self-employed.
education is another key priority and almost 81 per When it comes to savings there is little difference in
cent households save to meet this need. the way the households prioritise their savings (be it
salary earners, agriculturists, labourers or the self-
Nearly 69 per cent households in India save for old age employed). While saving to buy a house takes
financial security whereas 63 per cent households save precedence over enlarging the business in the case of
to meet future expenses towards marriages, births most households, priorities of the self-employed in
and other social ceremonies. Nearly 47 per cent non-agriculture differ from the rest. In this category
households saves to buy or build a house and a similar 74% households would prefer to save to enlarge their
percentage save to improve or enlarge their business. business as compared to 49.6% households who would
Almost 22 per cent households save to buy consumer like to save to buy a house.

C. Savings for old age is more a phenomenon with Major source of household income also determine the
educated Indians propensity to save for building or buying a house. More
Even households headed by graduates tend to save more salaried households and households engaged in non-
for emergencies and for their children’s education than agricultural self-employment (52 per cent and 50 per
they do for their old age. Thus, 87.8 per cent of graduate cent respectively) are saving to build/buy houses as
households say they save for emergencies, 88.9 per cent compared to the labour class (43 per cent) and
for their children’s education and a much lower 76 per agricultural households (46 per cent).
cent for their old age. While the order of magnitude is
different from those for households headed by an 4.3 PREFERRED MODE OF SAVING
illiterate, there is little relative change. Thus, illiterate A. 36% of Indian households keep their
households list their top priority as emergencies (79.2 savings at home
per cent), followed by education of their children (72.1 Bank deposits and keeping money at home emerge as
per cent) and saving for old age (66 per cent). Saving to the preferred modes of saving surplus income. More
buy a house figures lower down the list, with just 52.1 than half of Indian households (51 per cent) prefer to
per cent of graduate households citing this as a reason to save by keeping their savings in bank deposits. Almost
save and around 40.1 per cent of illiterate households 36 per cent prefer to keep it at home. Households
feeling the same way. opting for post-office deposits account for just 5 per
cent. Cooperative society deposits, chit funds,
D. Savings for social ceremonies is more common purchasing bonds are some of the other modes of
in rural India saving. Only 2 per cent households opt for purchasing
Weddings, births, social events and ceremonies have a insurance policies.
special place in the lives of Indian families. Not
surprisingly, 63 per cent of households save for social
ceremonies with 64 per cent of rural households saving
specifically for this reason versus 60 per cent of urban
households. Across all chief-earner age and education
groups, the percentage of households saving for social
occasions is more or less similar - in the 60 to 64 per cent
range. Also, more households with larger landholdings
(over 4 acres) tend to save for such occasions than those
in the other landholding categories.
E. Saving to buy a house is higher in urban India

The percentage of households saving to buy a house is
slightly higher in urban India (51 per cent) compared to
rural India (45 per cent). Across all chief-earner age
groups, the percentage of households saving to buy or
build a house is more or less similar. The impulse for
saving under this head appears to be partly determined
by education - 52 per cent of households with graduate
chief-earners save to buy a house compared with 40 per
cent of households with illiterate chief earners.

B. Bank deposits are the most preferred form of
saving for the salaried and rich
Households whose chief earners are labourers have
the highest tendency to keep their cash at home (58.3
per cent) while those who are salaried have the lowest
tendency to do this (19.8 per cent). The behaviour
with respect to bank deposits follows the reverse
pattern.
Households whose chief earners are below 25 years

have the highest tendency to save their money in the
form of cash at home. They have the lowest tendency
to save it in a bank account. As the chief earner grows
older, however, things change considerably. Just 39
per cent of households whose chief earner is in the
next age group (26-35 years), for instance, keep their
savings in the form of cash at home, and this falls to
28.8 per cent in the case of those in the 56-65 age
group, but rises in the next age group. When it comes
to bank deposits, while 41 per cent of the below-25
year households hold their savings in a bank account,
this rises to 47.6 in the 26-35 age group and to 59.7
per cent in the 56-65 age group.
Landless households have the highest tendency to

save their money in the form of cash at home, and the
lowest tendency to save it in a bank account. While
51.6 per cent of them kept their meager savings in the
form of cash at home, this figure fell to just 28.4 per
cent for large farmers. Nearly 60 per cent in this group
keep their savings in the bank.
Households in the lower income quintiles and more so

in rural areas, have the highest tendency to save their
money in the form of cash. So, 58 per cent households
in the bottom-most income quintile (Q1) keep their
savings at home in the form of cash (30.5 per cent put
it in the bank and another 5 per cent in post office
accounts) and this falls to 20.3 per cent in the top-
most income quintile (and rises to 68.1 per cent
households putting their money in banks and around
3.0 per cent in the post office).

4.4 SAVINGS-RELATED HOUSEHOLD BEHAVIOURS Households whose chief earner is below the age of 25
A. Owning an account in a financial institution 3
tend to be the most casual in terms of their attitude
Owning an account in a financial institution is towards long-term savings. While just 51.3 per cent of
determined as much by the source of income as by the such households have an account in a financial
age and education of the chief earner. Predictably, institution, this rises to 60.2 per cent in the case of
fewer rural Indians hold accounts in any financial households whose chief earner is between 26 and 35
institution as opposed to urban Indians. At an all-India, years of age, and finally to 77.1 per cent where the
66% of households own accounts in a financial chief earner is above the age of 65.
institution, with percentages pegged at 59% for rural
India and 82% for urban India. Similarly, 44.1 per cent Households whose chief earners are relatively
of the landless have an account in a financial uneducated also tend to have a smaller number of
institution, the figure rises to as high as 87.7 per cent accounts in financial institutions. Just 40.5 per cent of
in the case of large farmers. illiterate households have an account in a financial
institution as compared to 53.8 per cent in the case of
Not surprisingly, households whose chief earners are households whose chief earner had studied up to
labourers tend to keep their money in cash and just primary school. This then goes up to 95.1 per cent in
38.4 per cent of them have an account in a financial the case of graduate households.
institution. Households headed by chief earners who
have a regular income have the highest tendency to B. Outstanding loans
hold an account, and just under 91 per cent of them A fourth of all Indians have outstanding loans, and the
have an account in a financial institution. figure is a fifth for urban areas and a fourth for rural
areas. There are variations to this theme, especially in
terms of education and occupation levels of the chief
3 Financial institution include commercial banks, post office, regional rural banks, registered societies, etc.

earner, land ownership etc. with the crisis (8 per cent each).
Households where the chief earner is self-employed in Nearly 69 per cent of large farmers used their own
agriculture tend to be the most indebted. Over 27 per savings during this period compared to just 46 per
cent of such households have an outstanding loan, as cent of landless households. About 7 per cent
compared to a much lower 17.6 per cent for households sold some asset – such as land, house,
households where the chief earner gets a regular jewellery, etc – to overcome the financial crunch. More
salary. A little over a fourth of households headed by rural households (9 per cent) as against urban
labourers tend to have outstanding loans. Over 26 per households (4 per cent) went in for this measure.
cent of households whose chief earner is illiterate tend
to have outstanding loans as compared to 18.8 per Loan from the employer is another means that
cent in the case of households whose chief earners are households resort to in such a situation with 1 per cent
graduates or more. of households resorting to this measure. A slightly
higher percentage of urban households (2 per cent)
Though it sounds counter-intuitive, it is the landless that opted for this measure as against rural households
have the least outstanding loans and the landed that
have the most. One reason behind this finding could be
the fact that the landless have less reasons to borrow as
compared to the landed; and two, the collateral they
offer is so low that few are willing to lend to them
money. Around 23 per cent of the landless in the
country have outstanding loans, and the figure goes up
to 25.1 per cent in the case of those who have between
0.1 and 2 acres of land, and to 35.5 per cent in the case
of those who have more than 10 acres of land.
4.4 COPING WITH ECONOMIC HARDSHIP

Indeed, in the case of various economic hardships
including the death of the chief earner and major
illnesses in the family, the normal way to cope with
such eventualities has been to draw down on personal
savings. The urban-rural split: 58 per cent urban
households and 54 per cent rural households took
recourse to personal savings. Almost a fourth of all (1 per cent).
Indian households opted for a loan from a friend or a
relative to tide over the financial crunch. 4.5 HOUSEHOLDS’ PERCEPTIONS
ABOUT FINANCIAL SECURITY
Regular salary earner households too were in the A. Confidence in stability of the source of income
majority when it came to using their own savings (65 The main reason why Indians tend to save for
per cent) followed by non-agriculture households (64 emergencies and not for their old age is that, by and
per cent) and agricultural households (59 per cent) and large, they are quite confident of their ability to live
labour households (43 per cent). More agricultural and off their savings after retirement and to be able to find
labour households also sold off their assets to deal another job within months of losing the current one.

At the all-India level, 12.8 per cent of households said cent, 5 per cent and 9 per cent such households say
they were very confident about the stability of their they are "less confident", "least confident" or "totally
household income, and another 41 per cent said they uncertain", respectively. More labour and agricultural
were confident. Another 30 per cent were less households than those in the non-agricultural sector
confident and not confident at all, and another 15.1 are "less/least confidence" or are totally unsure about
per cent did not indicate anything. A large reason their financial security. For instance, the percentages
behind this may also be the feeling that family and among the labour group are: 26 per cent are "less
children will be there to look after any exigency. While confident", 20 per cent "least confident" and 21 per
half of those in rural India are either very confident or cent "totally unsure". Similarly, among those
confident of the stability of their income, the figure is households whose chief earner is self-employed in the
63 per cent for urban India. agricultural sector, 26 per cent are less confident,
20 per cent are least confident and 22 per cent totally
While there are large differences across various socio- unsure about their financial sources.
economic groups, the broad trend is the same – a lot
more people are confident than those who are not. At Expectedly, households with large landholdings are
the aggregate level, around 44.5 per cent of "confident" or "most confident" about their financial
households headed by those under the age of 25 tend security. Nearly half of households owning more than
to be confident about the stability of their income and 10 acres of land (45 per cent) say they are "confident"
this rises to 61.1 per cent in the case of households and a quarter (25 per cent) say they are "most
headed by those in the 56-65 age group. Around confident". Among households that have medium and
39.3 per cent of illiterates are confident and the marginal landholdings, the confidence level is quite high
number rises to 78.6 per cent in the case of graduates. - 49 per cent were "confident" and 18 per cent were
"most confident". Surprisingly, even among landless
While three-fourths of salaried households are households, high percentages were relatively upbeat
confident about their financial stability, only 11 per about their financial security - 33 per cent were

"confident" and 8 per cent "most confident" about their respectively) versus 30 per cent non-agricultural
future financial status. However, the landless group had households and 33 per cent regular salary earning
more households than the other groups who said they households.
were less "confident", "least confident" or "totally
uncertain" about their financial stability - 23 per cent, Nearly 38 per cent of households with chief earners who
18 per cent and 19 per cent respectively. are graduates (or more educated than that) express
confidence that they will be able to find alternative
B. Time to recover in case of loss of income source income within six months. This is only slightly higher
The time households perceive it will take them to than for the other groups. More illiterate households
recover from a loss of income, as opposed to their are unsure of the time-frame in which they would be
level of confidence about the stability of their income able to find alternative income (41 per cent) compared
is a clear indicator of the kind of financial planning to graduate (or more educated than that) households
most Indian households undertake. Interestingly, (30 per cent). More households with earners who are
34 per cent of Indian households believe it will take graduates and above claim they would be able to find
them less than six months to be able to replace their alternative income (25 per cent) within a year, compared
current incomes in the case of a disruption and to illiterate households (16 per cent).
another 21 per cent feel it will take a year. Therefore,
around 55 per cent of Indian households feel it will Landless households are the most upbeat about
take less than a year to recover from a loss of income, finding alternative income within six months (36 per
a figure that is relatively equal to the number that feel cent) compared to 33 per cent for large farmers. Also,
very confident/confident about their future.
Figure 4.14:
Since the interest income on financial instruments are Time to recover in case of loss of income
not enough to sustain a year’s living without income, source % of households
it means a large number of those who are very 0 20 40 60 80 100
confident/confident about the stability of their income Urban 35.9 22.3 6.9 33.8 1.1
plan to draw down on their savings, leaving less for
Rural
33.2 20.3 8.5 37.3 0.7
their post-retirement life. While the figures vary across Large 1.0
33.2 20.0 10.4 35.4
different socio-economic groupings, the broad trend is Medium 31.0 22.8 11.8 34.0 0.5
the same – the majority believes they can restore their Small 30.9 21.6 11.6 35.3 0.6
current levels of income within a year of any change
Marginal 31.9 22.0 8.7 37.0 0.5
Landless 35.7 17.9 6.1 39.4 0.9
for the worse.
Graduate+ 37.4 24.5 7.1 30.3 0.7
Almost 39 per cent agricultural households claim they
Upto Higher Secondary 33.2 21.9 8.5 35.5 1.0
Upto Primary 32.7 21.2 8.4 36.9 0.8
will be able to find alternative income within six Illiterate 34.8 16.0 7.1 41.3 0.8
months compared to 34 per cent regular salary
earning households, 37 per cent households each
Labour 36.6 16.3 5.7 40.2 1.1
Self employment
engaged in self employment in non-agricultural and in agriculture 38.7 14.7 4.2 41.2 1.1
labour activities. On the other hand, more agricultural

Self employment 37.1 24.3 8.3 29.5 0.7
in non-agriculture
households and labour households are unable to Regular salary/wages 34.3 23.8 8 33 0.9
suggest a time-frame within which they will be able to Less than 6 months One year
find alternative income (41 and 40 per cent Two year Cant say Others

Figure 4.15: can sustain themselves for more than a year on their
Sustainability on current savings savings as compared to 7 per cent for self-employed in
% of households non-agricultural activities and 9 per cent for regular
0 20 40 60 80 100 salary earning households.
Urban
Rural 44.4 25.8 5.9 23.8
42.6 14.5 2.8 40.2 Stretching the savings to last beyond 12 months
Large 46.8 24.2 9.3 19.7 becomes more of a problem for households that are
Medium 53.5 17.3 5.2 23.9 lower down on the education scale. For instance, as in
case of labour, one per cent households whose chief
Small 54.6 11.8 4.2 29.3
50.1 7.1 2.1 40.6
earners are illiterate can sustain themselves for this
Marginal
Landless 42.5 5.4 1.7 50.4
period, compared to 2 per cent primary-educated
chief earner households, 4 per cent higher-secondary
Others 40.9 29.3 7.1 22.7
Graduate+ 36.5 38.5 10.6 14.5
Upto Higher Secondary 45.0 20.6 4 30.4 educated chief earner households and 11 per cent
households who are graduates (or more educated
Upto Primary 43.7 12 1.9 42.4
than that) as chief earners.

Illiterate 38 7.2 1.2 53.6
Others 43.6 28.1 5.4 22.9
Most landless households (86 per cent) can sustain
Self employment
in agriculture 39.5 6.1 0.6 53.7
themselves for up to six months while only 2 per cent

Labour 37.3 5.7 0.7 56.3
can sustain themselves beyond 12 months. The

Self employment
in non-agriculture 44.4 26.9 6.8 21.9
39.9 35.3 8.6 16.2 proportion of large farmers being able to stretch their
Regular salary/wages
Less than 6 months 6-12 savings to last them beyond 12 months is just 9 per cent.
More than 12 months Cant say
more landless households are uncertain about when D. Misplaced financial optimism
they will be able to find alternative income (39 per The study clearly brings out that India is a country of
cent). However the variance among the other groups optimists when it comes to financial security. More
is not very much. than half the Indian households (54 per cent) were
confident about their current and future stability.
C. Sustainability on current savings in case of loss of Unfortunately, the survey highlights that this financial
income source optimism is not based on facts. An overwhelming 96
The possibility that households will draw down on per cent of households feel that they cannot survive
current savings to meet routine expenditure in case of for more than one year on their current savings in case
a sudden drop in income levels is borne out of the fact of loss of a major source of household income and yet
that about 4 per cent of households said that if they lost 54 per cent households feel that they are financially
their major source of household income, they could secure. Financially at risk urban Indians appear to be
sustain themselves beyond a year – while the proportion even more optimistic than their rural counterparts.
differs across various socio-economic groups. This clearly indicates that Indians do not take a long-
term view of their financial security and hence their
Hardly one per cent of households that depend on optimism is misplaced and there is a pressing need for
labour and agriculture as the main sources of income financial literacy for better understanding of their

PROFILE OF INVESTORS
Information on where households are investing their
surplus income is important for service providers as
well as policy-makers. If the financial instruments (or
modes of investment) are easily substitutable, efforts
to increase investments in any one form will not
result in net addition to investment. Therefore, new
instruments that can attract additional investment
must be found in order to increase the total volume
of investment in the short-run. This survey attempts
to develop an indicative profile of households that
made an investment in the stock market, small
savings in post office and purchased life insurance
policies during 2004-05.
Although investments in these three financial

instruments are confined to a relatively small
proportion of households, it is expected to increase in employed account for 35 per cent of investors in the
the near future, particularly in life insurance. At the stock market, they account for 26 per cent of the life
all-India level, investment in these financial insurance investors and 19 per cent of those who go
instruments accounts for about 3 per cent of the in for small savings. The self-employed in agriculture,
estimated household income. Of these, investment in contrast, account for 21 per cent of households that
in stock market and small savings account for 0.5 per invest in life insurance and small savings and 11 per
cent each but for life insurance, the corresponding cent of households that invest in the stock market.
figure is higher - at around 2 per cent. If we consider
the sub-set of households that invest in these The investment pattern is observed to be a function
financial instruments, the proportion of such of the level education of a household’s chief earner. At
investments to their household income is the all India level, while 14 per cent of the households
significantly higher. For instance, investors in the are headed by graduates, 59 per cent of investors in
stock market invest about 22 per cent of their the stock market are graduate households. Amongst
household income compared to 14 per cent in the the insured population, 32 per cent are graduate
case of small savings and 4 per cent for life insurance. households. About half of households that invest in
life insurance have studied up to higher secondary.
Occupation levels vary significantly across investing This figure reduces to 44 per cent for small savings
households. As per this survey, the salaried class and 38 per cent for the stock market.
(comprising 18.4 per cent of the total households in
the country) accounts for the highest proportion Income is one of the important determinants of
(over 40 per cent) of investing households, investment. Thus it is worthwhile to study the
irrespective of the modes of investment considered earning, spending and saving patterns of households
here. Similarly, while the non-agricultural self- that invest. The average Indian household had an

annual income of Rs 65,041 in 2004-05, and an
expenditure of Rs 48,902, leaving it with Rs 16,139 to
save and invest. However, the findings of the survey
reveal that investing households are fairly better-off
than average Indians. For instance, investors in stock
market have the highest income level — at Rs 159,901
versus Rs 132,030 and Rs 113,190 in the case of
investors in small savings and life insurance
respectively. This indicates that earnings of investing
households is approximately double that of the
national average. the stock market allocate about 22 per cent of their
income to the stock market – or Rs 34,789 per annum.
Similarly, expenses of households that invest in the Similarly, insurance policy holders make a payment of
stock market are also significantly higher - at Rs 87,317 Rs 5,007 per annum towards life insurance, which is
per annum versus Rs 63,830 per annum for life significantly lower than the proportion of investment
insurance investors. While non-routine expenditure (to income) made by investors in the stock market.
accounts for around 15 per cent of income in the case Also, it is interesting to note that households investing
of investors in the stock market, the figure is in the stock market as well as in small savings also
marginally lower at 13 per cent for households opting invest a fair amount of their income in life insurance.
for other modes of investment. For the country as a This indicates that investment in insurance is a more
whole, it is 12.2 per cent. Therefore, the average stock widespread and popular phenomenon in India, as
market investor saves comparatively more than others. opposed to the other two avenues of the investment
The survey also reveals that households that invest in considered here.

CHAPTER 5
LIFE INSURANCE
The awareness about insurance is quite high in India. Around 78 per cent
households are aware of insurance products. However, ownership of
insurance products is low - only 24 per cent households in the country own a
life insurance cover. Those households owning life insurance tend to be more
prosperous, more educated, and own more consumer durables than those
that do not own life insurance. It is the salaried class that tends to buy the
most life insurance, followed by the businessmen. Predictably, it is the
married who tend to buy life insurance more. At the all-India level, for all
households, while the average sum assured of a life insurance policy in the
country is Rs 27,951, the average premium paid is Rs 1,227 and this
represents 4 per cent of the household disposable income. If, however, the
insured households alone are considered, their average premium payments
work out to Rs 5,007, with the sum assured of Rs 114,450.
This chapter examines premium payments, as well as For the purpose of micro analysis or analysis at the
the various characteristics of an insured and an household level, the actual contribution towards
uninsured household. The idea is to learn more about insurance made by a household is of great interest.
the two groups, while examining the possibility of Sample surveys (such as the one attempted here) are
increasing the volume of savings in the form of practically the only source of data for an analysis of the
insurance for the household sector as a whole. distribution and ownership of life insurance and
premium payments.
Both the absolute value of premium payments made
and the premium-income ratio (premium payments as 5.1 AWARENESS ABOUT LIFE INSURANCE
a percentage of disposable income) are studied in A. Urban India is far more aware of life insurance
relation to a number of socio-economic factors like than rural India
household income, education, occupation, age of the The awareness of life insurance stands at a high 78 per
chief earner etc. cent on an all-India level with more urban households
(90 per cent) aware about it than rural households (73
An attempt has also been made to examine the per cent). The trends are broadly the same -- the level of
important characteristics of households, based on awareness increases with education, age and income
their socio-economic profile, and to understand the levels. For instance, a very high percentage of
impact of factors such as the attitude of (insured and households (96 per cent) that has chief earners who are
uninsured) households towards spending, saving and graduates and above are aware about life insurance. In
investments. contrast, 60 per cent illiterate chief earner households

D. The larger the landholding, the higher the
awareness
Households that have larger landholdings are more
aware of life insurance than those with relatively
smaller landholdings or those who are landless: only
66 per cent of households among the landless and 72
per cent among marginal farmers (0.1-2 acres) are
are aware about life insurance. Nearly 71 per cent
aware of life insurance. This percentage rises to 86 per
among primary educated chief earner households and
cent and 87 per cent among medium (4-10 acres of
84 per cent among higher secondary educated
land) and large (10-plus acres) farmers respectively.
households know about life insurance.
E. Life insurance awareness increases as we move

B. Life insurance awareness highest amongst the
up the income levels
salaried class
Awareness of life insurance is largely linked to income
Nearly 96 per cent households that have a regular
levels. The survey found better-off households to be
salary as a source of income are aware about life
more aware of life insurance. Nearly 90 per cent of the
insurance compared to 89 per cent households that
top income quintile group (Q5) and 81 per cent in the
are engaged in non-agricultural self-employed work
60-80 per cent income quintile group (Q4) in rural India
followed by agricultural households (77 per cent) and
are aware of life insurance products. The awareness
labour households (63 per cent).
decreases as we go down the income quintile
hierarchy with just 55 per cent of households in the
C. Life insurance awareness is function of age
lowest income quintile group (Q1) aware of life
The awareness level among households across all age-
insurance.
groups are more or less similar with slightly more
households that have a chief earner in the age groups
The percentage of households across all income quintile
of 46-55 years, 56-65 years and 65+ years more aware
groups that are aware of life insurance products is
(81 per cent each) about life insurance than the
higher in urban India. Nearly 76 per cent of households
younger age groups.

in the lowest income quintile group (Q1) and 98 per cent
of households in the top income quintile group (Q5) in
urban India are aware of life insurance.
5.2 OWNERSHIP PATTERN OF LIFE INSURANCE

At an all-India level, about 86 per cent of households
aware about the insurance considered life insurance
as the most important product among all other
insurance products such as health (6 per cent), crop (3
per cent) and automobile (5 per cent) insurance. This
is broadly the trend across other socio-economic
parameters as well.
A quarter of all households (24 per cent) own life

insurance at the aggregate level. In low-income states
fewer households (18 per cent) compared to mid-
income and high-income states (30 per cent each) own
life insurance. Conversely, more households in low-
income states (82 per cent) than those in mid and
high-income states (70 per cent each) do not own life
insurance.
More urban households (38 per cent) than rural (19

per cent) own life insurance products. While doing an B. Life insurance ownership and education
all-India analysis of households owning life insurance, Life insurance is also a function of education --
it was found that all urban centers, including the households where the chief earner is educated are
metros, were below the 50 per cent mark in terms of more likely to own a life insurance policy. For instance,
the proportion of households that own a life Insurance nearly 58 per cent households with chief earners who
policy. As in the case of awareness about life insurance, are graduates or more educated than that own life
major source of household income, the level of insurance against just 13 per cent and 9 per cent in the
education, age of chief earner, level of household case of primary-educated and illiterate households.
income etc, determine the ownership pattern. Nearly a quarter of all households that have chief
earners who have studied up to the higher secondary
A. Life insurance ownership and occupation level (26 per cent) are owners of life insurance.
The ownership of life insurance is largely influenced by
the major source of household earnings. Nearly 53 per C. Life insurance ownership and age of chief earner
cent of regular salary-earning households own life Only 14 per cent households with chief earners less
insurance, which reduces to 37 per cent in the case of than 25 years of age own life insurance compared to 22
households where the chief earner is self-employed in per cent in the 26-35 age group and this goes up to 30
non-agricultural work. In contrast, just 18 per cent of per cent in the age group of 46-55 years. Nearly 25 per
agriculturist and 7 per cent of labour households own cent households in the 65+ years age group and 36-45
life insurance. years age group each own life insurance products.

D. Life insurance ownership and 5.3 VALUE OF LIFE INSURANCE AND PREMIUM PAID
size of landholdings Life insurance in India is limited to a relatively small
Nearly 43 per cent of large farmers own life insurance group of households. Only 24 per cent of households
products. This only reinforces the fact that life contribute to life insurance or are insured. Thus,
insurance ownership is directly proportionate to nearly three-fourth of Indian households is uninsured
affluence. Nearly 28 per cent of all households with and hence pays no premium at all. The average
medium landholdings are life insurance owners. premium payment for all households taken together
Ownership of life insurance among households that is Rs 1,227, with a sum assured of Rs 27,951. If,
own small landholdings of 2-4 acres is 25 per cent. however, the insured households alone are considered,
Nearly 86 per cent of landless households and 85 per then their average premium payments work out to
cent of households with marginal landholdings, Rs 5,007, with a sum assured of Rs 114,450.
respectively, do not possess insurance products.
The ratio of premium payments to income indicates
E. Life insurance ownership and levels of income that the insured household is currently utilising about
Among the bottom 20 per cent income quintile group 4.4 per cent of disposable income towards insurance
in rural India(Q1), only 5 per cent own life insurance premium payment as against about 1.9 per cent of
compared to 13 per cent in this group in urban India. income for the entire household sector. There seems
Non-ownership of life insurance dominates among all to be a high positive correlation between the size of
income quintile groups in rural India. Amongst the the life insurance premium paid and the ratio of
rural top income quintile group (Q5), a little less than premium payments to income, indicating that those
half of the households (46 per cent) own insurance. In who pay higher premiums also pay, on an average, a
contrast, in urban India more than half of the higher fraction of their income towards life insurance.
households in Q4 (54 per cent) income quintile and 63
per cent among top income quintile (Q5) own life Given the income demographics and the overall
insurance. awareness of life insurance, it is not surprising that
urban premiums are more than rural premiums and
account for a higher percentage of household
income. The average sum assured of policies in urban
insured households is higher — at Rs 132,249 — with
a premium of Rs 6,634 compared to Rs 98,899 with
premium of Rs 3,560 for their rural counterparts.
Insured households in low-income states, on an

average, own policies with a sum assured of
Rs 117,744 and pay a premium of Rs 4,301.
Correspondingly, the average sum assured of a life
insurance policy for middle income states is
Rs 106,167 and the corresponding premium paid is
about Rs 5,166. High-income states, on the other
hand, own policies with the highest sum assured of
Rs 123,565 and they pay the highest premium of
about Rs 5,580.

Table 5.1:
Value of insurance by location All households Insured households
Share of Annual Premium- Sum Annual Premium- Sum

insured premium income assured of premium income assured of
households %) paid (Rs) ratio (%) policy (Rs) paid (Rs) ratio (%) policy (Rs)
Rural 18.6 675 1.30 18,384 3,560 3.74 98,899
Urban 38.1 2,528 2.64 50,401 6,634 4.96 132,249
Low income states 17.5 754 1.44 20,589 4,301 4.29 117,744
Middle income states 30.1 1,573 2.40 31,943 5,166 4.93 106,167
High income states 29.9 1,662 1.84 36,928 5,580 3.92 123,565
All India 24.4 1,227 1.89 27,951 5,007 4.42 114,450
Let us now examine to what extent the variability in are insured pay the lowest premium of Rs 2,649 with
the size of premium payments to income can be the highest premium-income ratio of 6.1 per cent.
attributed to differences in the socio-economic, Similar patterns are observed in the case of the policy’s
demographic and other characteristics of households. sum assured. Salaried and business households own
policies of higher sum assured (Rs 127,098 and
A.Value of life insurance and major occupation Rs 125,370 respectively) compared to labour
Although anyone can buy a life insurance policy in households (Rs 72,874).
principle, it is seen that salary earning households and
households with self-employment in non-agricultural B.Value of life insurance and level of education
activities tend to purchase life insurance products The level of education of the head of the household
more. The average premium paid is also higher for clearly seems to influence life insurance ownership.
these two top occupational groups regardless of The proportion of insured households tends to rise
whether this average is computed for all households in with education. So do the average premium and the
each of the occupational groups or only for insured corresponding sum assured of policy for all
households. In the case of insured households, salaried households as well as for those paying premiums. The
and self-employed pay the highest premium – premium–income ratio also shows a clear tendency to
Rs 6,050 and Rs 5,938 respectively -- but as a share of rise with education when all the households in
premium paid to income, their shares are lower at 5.0 different educational groups are considered. The
and 4.5 per cent, respectively. Labour households that variability in the premium-income ratio is, however,
Table 5.2:
Value of insurance by major source of household income
All households Insured households
Share of
insured Annual Premium- Sum Annual Premium- Sum
households premium income assured of premium income assured of
(%) paid (Rs) ratio (%) policy (Rs) paid (Rs) ratio (%) policy (Rs)
Regular salary/ wages 52.9 3,235 2.98 67,204 6,050 4.72 127,098
Self employment in non-agriculture 36.9 2,223 2.33 46,241 5,938 4.54 125,370
Self employment in agriculture 18.2 572 1.01 17,137 3,040 3.14 94,319
Labour 6.8 175 0.56 4,990 2,649 6.11 72,874

Table 5.3:
Value of insurance by level of education of chief earner
households (%) paid (Rs) ratio (%) policy (Rs) paid (Rs) ratio (%) policy (Rs)
Illiterate 8.8 217 0.58 6,720 2,451 3.59 76,776
Primary 12.6 468 1.04 10,696 3,738 4.30 84,644
Up to higher secondary 26.4 1,024 1.55 27,466 3,811 3.70 103,991
Graduate + 57.9 4,558 3.48 85,917 7,788 5.28 148,468
much less pronounced when only insured households assured is valued at Rs 1,34,145. Households whose
are considered. Premium payment for all households chief earners are in the age group 56-65 years and 46-
headed by persons having no educational attainment 55 years have only marginal differences in the amount
is about Rs 217 with minimal premium-income ratio they pay as premium (Rs 5,111 and Rs 4,973
of 0.6 per cent as compared to Rs 2,451 (premium- respectively) and in the sum assured of their policies
income ratio of about 3.6 per cent) in the case of (Rs 1,26,082 and Rs 1,17,342 respectively). Similarly,
insured households. On the other hand, at the all India for households with chief earners in the age groups
level, graduate-and-above chief earner households 36-45 years and 26-35 years, there is a difference in
pay an average premium of Rs 4,558 and their policy the premium paid (Rs 5,220 and Rs 4,949 respectively)
sum assured is about Rs 85,917. However, when only but the difference in the sum assured of their policies
insured households are taken into account, the are negligible (Rs 112,884 and Rs 110,329
average premium paid rises to Rs 7,788 with a sum respectively).
assured of Rs 1,48,468. Their premium share in total
income is about 3.5 per cent at the all India level and D.Value of life insurance and size of landholding
5.3 per cent for insured households. The two big landholding groups – medium and large
farmers – pay the highest premiums in absolute terms
C. Value of life insurance and age of chief earner (at Rs 3,384 and Rs 4,893 respectively) and the sum
Households whose chief earners are aged 65 years and assured of life insurance policies owned by them is also
above pay a premium of Rs 3,994 and their sum the highest at Rs 101,969 and Rs 139,483 respectively.
Table 5.4:
Value of insurance by age of chief earner
Less than 25 14.2 495 1.04 13,259 3,717 4.48 93,641
26-35 21.8 1,070 1.92 24,047 4,949 4.97 110,329
36-45 24.6 1,287 2.08 27,750 5,220 4.87 112,884
46-55 29.8 1,500 1.94 34,945 4,973 4.02 117,342
56-65 25.1 1,328 1.59 31,703 5,111 3.56 126,082
More than 65 24.7 955 1.11 33,168 3,994 2.55 134,145

Table 5.5:
Value of insurance by size of the land holding
Landless 13.6 491 1.25 13,263 3,589 4.67 97,443
Marginal farmer 15.5 473 1.04 14,071 3,106 3.80 90,999
Small farmer 24.8 941 1.61 22,372 3,654 4.20 90,077
Medium farmer 28.3 1,009 1.27 28,844 3,384 2.86 101,969
Large farmer 43.1 2,208 1.75 60,088 4,893 2.95 139,483
As a percentage of average premiums paid in income very strong tendency for the average premium
terms, however, their shares are lower than the payment to rise with income is noticed. The ratio of
landless households. premium payments to income also shows a clear
tendency to increase with income if all households are
E. Value of life insurance and level of income considered. This substantiates to some extent, the
Expectedly, household income is observed to be the generally held belief that the marginal propensity to
most important factor influencing insurance save in insurance increases with income.
payments. The proportion of insured households
steadily rises with income -- from 6 per cent for the It is, however, interesting to note that if households
bottom quintile (Q1) to as high as 56 per cent for the contributing to insurance alone are considered, much
highest income group (Q5). The average premium paid variation is observed in the premium-income ratio at
per household continuously increases from almost a different levels of income. In other words, households
negligible amount for the lowest income group to as contributing to insurance on an average make
much as Rs 4,433 for the top-most income quintile. payments of the same size relative to income (3-4 per
cent) across all income levels.
Even after an allowance is made for the differences in
the proportion of insured households at different The sum assured of policy also increases with an
income levels (by considering the average premium increase in the income levels. On an average, the top
payment made by the insured households alone), a most income quintile group (Q5) owns a policy of

Rs 147,479 in contrast to Rs 75,526 for the bottom The self-employed in agriculture comprises the next
most income quintile group (Q1). largest group among uninsured households,
accounting for 33 per cent of the households. In the
5.4 SOCIO-ECONOMIC PROFILE OF INSURED VS case of insured, by contrast, this group accounts for
UNINSURED HOUSEHOLDS just 7 per cent of the households.
5.4.1 DEMOGRAPHIC PROFILE
A. Insurance and occupation B. Insurance and education
Occupation levels vary significantly across (life) insured Life insurance ownership is a function of education.
households and uninsured households. Those earning While nearly 31 per cent of life insurance owners have
salaries account for 40 per cent of insured households done their graduation or higher studies, just 6 per cent
whereas just about 12 per cent of uninsured of non-owners are graduates. About half of life
households earn their living through salary/wages. insurance owners in India have studied up to higher
Similarly, while the non-agricultural self-employed secondary, this figure reduces to 38 per cent in the
account for just 14 per cent of uninsured households, case of non-owners of life insurance. A higher
they account for 26 per cent of insured ones. proportion of non-owners are primary educated (25
Labourers constitute the largest segment of the per cent) and illiterates (29 per cent), compared to just
uninsured, heading over 39 per cent of the uninsured 11 per cent and 8 per cent respectively, in the case of
household. life insurance owners.
C. Insurance and age

Figure 5.5: At the all-India level, most life-insurance owners are
Major source of household income of in the age group of 30-45 years (48 per cent) while 26
insured versus uninsured per cent owners are in the age group of 45-60 years.
% of households
In contrast, 22 per cent non-owners are 30-45 years
of age and just 11 per cent are of 45-60 years age.
0 20 40 60 80 100
More non-life insurance owners are likely to be in the

Insured
household 39.9 25.8 23.7 6.9 3.7
less than 15 years age group (34 per cent) than other
Uninsured age-groups. Only 4 per cent of life insurance owners
household 11.5 14.2 38.8 32.6 2.9
are less than 15 years. Similarly, only 4 per cent of life
Regular salary/wages Self employment in non- insurance owners are in the 60+ age group
agriculture Labour
Self employment in agriculture Others

D. Insurance and marital status
A majority of life insurance owners in India are married
(87 per cent). Just 11 per cent owners are unmarried
and a minimal 2.6 per cent fall under other categories
(such as divorced, widowed, etc). On the contrary, at
an all-India level, nearly 49 per cent non-owners are
unmarried, followed by 48 per cent married people.
E. Insurance and gender

Of the insured population, an overwhelming majority –
86 per cent – comprises of males. Only 14 per cent of
the insured are females. When we do a similar analysis
of the uninsured population, we notice that nearly 52
per cent of the uninsured are males and 48 per cent
are females. non-routine expenditure in 2004-05. The difference
between the insured and uninsured households is
5.4.2 ECONOMIC PROFILE evident in the spending patterns of households. While
The income and expenditure levels of insured insured households spend (on an average) Rs 28,871
households are more than double of uninsured. While on food items in a year, uninsured households’ spend
the average insured household in India had an annual level on food items is Rs 18,364. Similarly, uninsured
income of Rs 113,190 in 2004-05, and an expenditure of households’ expenditure on non-food items is lower
Rs 78,475, the average household income of households at Rs 15,226 per year compared to insured households’
that are uninsured was found to much lower – at expenditure of Rs 34,959 per year.
Rs 49,482 per annum – with an average annual
expenditure of Rs 39,435. An insured, therefore, (on an While non-routine expenditure accounts for around
average) is left with nearly thrice the amount to save 12.9 per cent of incomes in insured households, the
and invest (at Rs 34,714 per annum) as compared to an figure is marginally lower – at 11.6 per cent – in the
average uninsured household (Rs 10,137). case of uninsured households. At the all India level, it
is s 12.2 per cent.
There is a big difference in the way this money is being
spent and saved. The average Indian household spent Insured households spend around 45 per cent of their
about three-fourth of their income on routine and incomes on food while the figure is around 55 per

cent in the case of uninsured households. There is a
large difference in the proportions spent on transport
(12.5 per cent among insured versus 9.2 per cent for
uninsured) and on education (8.7 per cent versus 6.6
per cent) but expenses in other areas like housing
(5.1 per cent versus 4.5 per cent), health (4.6 per cent
versus 4.7 per cent), clothing (7.1 versus 6.9 per cent)
and buying durables (5 versus 4.9 per cent) are not
too dissimilar.
There is a huge difference in the case of unusual

expenditure incurred by the insured and uninsured
households. Weddings, births and other ceremonies
account for the bulk of non-routine expenditure in
Figure 5.14: uninsured households. It is also observed that
Saving habits - insured versus medical expenses account for a third of non-routine
uninsured households
Rs/annum
expenditure among uninsured households. More
0 10,000 20,000 30,000 40,000 specifically, expenditure on social ceremonies
34,714 accounts for 54 per cent of an uninsured household’s

Surplus
income 10,137 total non-routine expenditure. For medical
emergencies the corresponding figure is about 33
per cent. This falls to 49 per cent and 21 per cent
Financial 6,733
investment
respectively in the case of insured households. On
476
Physical 9,304 the other hand, insured households spend three

times more on education-related expenses as
investment 1,906
Savings 18,677 compared to the uninsured households (4.4 per

in cash 7,754 cent). Similar patterns are observed in the case of
Insured households Uninsured households travel expenses.

Figure 5.15:
Investment profile - insured versus uninsured
Rs/annum
0 500 1,000 1,500 2,000 2,500
Stock 1,013
market 191
Small 713
Savings 222
Jewellery 2,116
420
Insured households Uninsured households
Household saving rates in India have always been high.

Survey results reveal that around 81.4 per cent of
households at the all-India level save some part of their
earnings – the figure is 96.4 per cent for insured
households and 76.5 per cent in the case of uninsured.
The survey shows that insured households had an

average income of Rs 113,190 in 2004-05 and
uninsured ones had Rs 49,482. Of this, routine and
non-routine expenses added up to 69 per cent of the
total income for insured households and 80 per cent
for uninsured households. Therefore, surplus income
is around 31 per cent in the case of insured household television sets, 66 per cent own two-wheelers, 42 per
and 20 per cent for uninsured ones. cent have refrigerators, 38 per cent own cellular
phones, 18 per cent own washing machines, 15 per
Of the surplus income, around 19 per cent were cent have cars/jeeps, 18 per cent own pump-sets,
invested in financial instruments (except bank 5 per cent own credit cards, 3 per cent own air-
deposits) in the case of insured households. And this conditioners and 4 per cent own tractors. In contrast,
falls to 5 per cent in the case of uninsured households. only 54 per cent non-life insurance owners own TV
Among all financial savings, insurance figures as sets, 26 per cent own two-wheelers, 11 per cent own
number one, beating categories such as refrigerators, 9 per cent own cellular phones, 4 per
shares/debentures and even post office deposits. cent own washing machines, 3 per cent own
Insured households not only invest in insurance, but cars/jeeps and 10 per cent own pump-sets. The
their investments in other modes, such as shares, ownership of credit cards, air-conditioners and tractor
debentures, jewellery and small savings also tend to is insignificant.
be higher than that of the uninsured households.
5.5 SAVING RELATED BEHAVIOUR OF INSURED
5.4.3 OWNERSHIP OF SELECT CONSUMER DURABLES HOUSEHOLDS
Ownership of consumer durables among households 5.5.1 WHY DO INSURED HOUSEHOLDS SAVE?
that possess life insurance is high. At an all-India level, Nearly 88 per cent of insured households save for
90 per cent of life insurance owning households own emergencies compared to an overwhelming 81 per

Figure 5.17: cent of uninsured households. Seventy four per cent
Motivation to save - insured versus of insured households save for the old age compared
uninsured households to 67 per cent of uninsured households. When it
comes to saving for gifts, donations and pilgrimage,
% of households
0 10 20 30 40 50 60 70 80 90 100
Gifts, donations 17.9 the percentage of insured households is higher than
and pilgrimages 20.0 those of uninsured households – 20 per cent versus 18
Buy large 20.2 per cent. Saving for social ceremonies is important for
66 per cent of insured households, compared to 62 per
consumer goods 29.1
cent uninsured households. Nearly 29 per cent of

Buy or buid 45.7
Reasons for savings
house 50.0
44.9 insured households save to buy consumer durables
compared to 20 per cent of uninsured households.
Improve or
enlarge business 52.4
Social 61.8 While 50 per cent insured households are saving to
ceremonies 65.6 buy/build a house, the same proportion is 46 per cent
Old age
67.3 for uninsured households. Nearly 52 per cent insured
households save to enlarge their business versus 45
73.8
per cent non-owners. Saving for the education of

Education 78.6
of children 88.1
81.1 children is a priority among 88 per cent of insured
households as compared to 79 per cent uninsured.
Emergencies
88.2
5.5.2 WHERE DO INSURED HOUSEHOLDS
Figure 5.18: PREFER TO SAVE?
Preferred form of saving - insured versus Nearly 65 per cent of insured households prefer to
uninsured households save in bank deposits while it is just 45 per cent in the
case of uninsured households. The behaviour with
% of households
0 10 20 30 40 50 60 70 80 90 100
respect to keeping cash at home follows in the
Insured reverse pattern. Households that are uninsured have
19.3 64.9 2.1
a higher tendency to keep their cash at home (42 per
household
cent) while those that are insured have a lower

tendency to do the same (19.3 per cent).
Uninsured 42.5 45.2 3.3
household
Nearly 4 per cent of insured households opt for post
office deposits and another 3 per cent have accounts
Keep at home Deposit in bank
Deposit in post office Deposit in Co-operative
society Purchase insurance policies Others
in cooperative societies. The percentage among
uninsured is 6 per cent and 3 per cent respectively for
Figure 5.19: post office and cooperative society deposits. Only 7
Accounts in financial institution and loan per cent of insured households opt for purchasing
outstanding % of households insurance policies. Some of the uninsured households
also indicated the preference to save in life insurance
0 20 40 60 80 100
but this figure is miniscule. Purchasing bonds, chit

Owned an account in 93.7
financial institution 56.8
24.4 funds and lending money are not common form of
Loan outstanding
23.8 savings for both insured and uninsured households.

Measures taken to overcome death of Measures taken to overcome major sickness
chief earner of any household member
% of households % of households
0 20 40 60 80 0 20 40 60 80
Using own 67.3 Using own 77.0
saving 50.5 saving 50.4
Laon from 20.2 Laon from 11.7
friends/relatives 24.9 friends/relatives 27.0
Selling/mortaged 2.9 Selling/mortaged 1.1
of land, house, of land, house,
8.6
jewellery, etc jewellery, etc 2.0
1.3 2.6
None 4.5 None 6.8
Loans from 1.1 Loan from 0.3
employer 1.9 employer 0.4
7.2 7.3
Others Others
9.7 13.4
Insured households Uninsured households Insured households Uninsured households
5.5.3 OWNERSHIP OF ACCOUNTS IN FINANCIAL

INSTITUTIONS AND OUTSTANDING LOANS
Owning an account in a financial institution is also a
function of life insurance ownership. Predictably, fewer
uninsured households hold accounts in any financial
institution as opposed to the insured. At the aggregate
level, 94 per cent of insured households own accounts
in a financial institution, with percentages pegged at
57 per cent for uninsured households.
5.5.4 MANAGING ECONOMIC HARDSHIP

In the case of various economic hardships including
the death of the chief earner and major illnesses in the
family, the normal way to cope with such calamities 5.6 INSURED HOUSEHOLDS’ PERCEPTION OF
has been to draw down on personal savings. The FINANCIAL SECURITY
insured-uninsured split: 67 per cent insurance-owning 5.6.1 CONFIDENCE IN STABILITY OF
households and 51 per cent non-owning households SOURCE OF INCOME
took recourse to personal savings in the case of death The main reason why insured households tend to save
of chief earner of the household. Almost a fifth of for emergencies and not for their old age is the fact
insured households opted for a loan from friends or that, by and large, they feel quite secure about their
relatives to tide over the financial crunch. The ability to live off their savings after retirement, and to
measures taken by the household in the case of other be able to find another job within months of losing the
economic shocks follow a similar trend. current one.

Time to recover in case of loss of income source Sustainability on current savings
% of households % of households
0 20 40 60 80 100 0 20 40 60 80 100
Insured Insured
household 35.3 25.9 7.6 30.4 0.9 household 39.7 35.0 9.4 15.9
2.2
Uninsured Uninsured
33.6 19.3 8.1 38.2 0.8 household 43.1 13.1 41.6
household
Less than 6 month One year Less than 6 month 6-12 months
Two years Cant say Others More than 12 months Cant say
At the all-India level, 23.2 per cent of insured of confidence about the stability of their incomes. Thirty
households said they were very confident about the five per cent of insured households believe it will take
stability of their household income, and another 51 per them less than six months to be able to replace their
cent said they were confident. Another 16 per cent current incomes in case of a disruption. More uninsured
were less confident and not confident at all, and households are unsure of the time frame by which they
another 9.5 per cent did not indicate anything. A large would be able to find alternative income (38 per cent)
reason for this, though, may also be a factor that most compared to insured households (30 per cent). A higher
Indian households feel that their family and children share of households who own life insurance claim they
will be there to look after any exigencies. would be able to find alternative income (26 per cent)
within a year, compared to those who do not own
Surprisingly, even among uninsured households, high insurance (19 per cent).
percentages were relatively upbeat about their
financial security - 38 per cent were "confident" and 5.6.3 SUSTAINABILITY ON CURRENT SAVINGS
9.5 per cent "most confident" about their future The possibility that households will draw down on
financial status. However, the uninsured group had current savings to meet routine expenditure in case of
more households than the insured ones who said they a sudden drop in income levels is borne out of the fact
were less "confident", "least confident" or "totally that about 4 per cent of households said that if they
uncertain" about their financial stability - 22 per cent, lost their major source of household income, they
14 per cent and 17 per cent respectively. could sustain themselves beyond a year. This
proportion differs across insurance owning
5.6.2 TIME TO RECOVER households. Hardly 2 per cent of households that do
An indicator of the kind of financial planning most not own life insurance can sustain themselves for
households undertake is the time they believe it will take more than a year on their savings as compared to 9
to recover from a loss of income compared to their level per cent for insured households.

POTENTIAL MARKET FOR LIFE INSURANCE
The study clearly indicates that there is a definite They earn more than the median income of insured
scope to increase the volume of savings in life households. In monetary terms, at the (average)
insurance, given the current distribution of income current premium, this household segment could yield
amongst households and their employment structure. additional Rs 105 billion - Rs 36 billion each in rural as
A substantial proportion of households in all income, well as urban areas - as an immediate market that
occupation and education groups are uninsured. A needs to be captured by life insurance companies.
significant fraction of the uninsured households might
not be aware of the benefits of life insurance or might Based on the above calculations the market (including
not know insurance agents who presumably tend to both rural and urban) could generate an additional
concentrate their efforts in spreading insurance premium between Rs 105 billion to Rs 258 billion.
among the upper income groups.
Educating the masses about the benefits of life
For instance, 39 million rural households and 18 insurance and a more intensive sales campaign are the
million urban households are aware of life insurance only definite means of stepping up household savings
but do not own any policy and are confident about in this form in the short as well as the long-term.
their households’ financial stability. This customer Although greater employment security and growth in
segment represents a key potential target segment income would help promote savings in this form,
for life insurance marketers. These households have there is scope for increasing savings even at the
the potential to increase the market for life current levels of income by educating the masses
insurance by Rs 258 billion – the market potential in about the importance of life insurance. This should
rural areas is Rs 139 billion, while the corresponding not be difficult for the service providers, considering
figure for urban areas is Rs 119 billion. the fact that of late, they have been making efforts to
increase life insurance ownership in rural India – a
Alternatively, there are 11 million rural households more difficult task than extending the coverage in
and 10 million urban ones that could be a lucrative urban areas. However, making households more
target for life insurance marketers. These segments insurance-minded will be, comparatively, a more
are aware of life insurance and are confident about difficult task that may require determined sales
their financial security, but do not own any policy. efforts spread over a longer period of time.

CHAPTER 6
THE WAY FORWARD
The Max New York Life-NCAER India Financial Protection Survey has clearly
brought to fore the fact that even though a majority of Indian households are
good savers, they don’t undertake financial planning and are financially at
risk. Yet, most households are optimistic about their future. The government,
private sector, NGOs and other stakeholders must work towards making India
a financially secure nation. The need of the hour is to step up financial literacy
levels, offer comprehensive solutions to meet customer needs and help agent
advisors graduate to becoming financial planners. The industry needs to
evolve innovative distribution channels and products that would suit the
largely underinsured rural markets of the country. The industry also needs to
develop products that suit the specific needs of women.
The Indian economy is growing at impressive rate. instruments. More than half of Indian households prefer
But is this growth inclusive? While the government to save by keeping their surplus income in commercial
has a role to play for the poorest households, it is banks. What’s worse, more than a third of Indians simply
ultimately the prerogative of the households to take prefer to keep their surplus money at home.
care of their financial risks. The Max New York Life-
NCAER India Financial Protection Survey was Indians don’t financially plan their future. Despite
undertaken to evaluate the level of financial security the lack of a social security system, saving for the old
and vulnerability of Indian households compared to age is not the top priority for Indian households. Most
their financial risks, based on their earnings, households in India save for an emergency or for their
expenditures and savings. children’s education. Expenditure on social events, like
marriages, births etc, is generally planned.
The Survey shows that the average household in Nonetheless, this remains a major reason why Indian
India had an annual income of Rs 65,041 in 2004- households – both urban and rural – borrow. Although
05, and an expenditure of Rs 50,589, leaving it financial institutions (banks or cooperative societies)
with Rs 14,452 as surplus income to save and constitute the main source of borrowing, a significant
invest. Of the surplus income, around 10-15 per proportion of Indian households rely on informal
cent was invested in financial instruments sources, such as the money-lender, who charge heavy
(except bank deposits ). rates of interest.
Indians have a high propensity to save but they Awareness about insurance is high, but penetration is
choose to put their money in low-yielding abysmally low. Only 24% of Indian households own a
instruments. About 81 per cent of Indian households life insurance policy. And in most cases, the risk cover
save. However, the savings are not invested in long-term is rather inadequate.

Indians are inherently optimistic about their future was to happen. With the spread of financial literacy,
financial security. An astounding 96 per cent of Indians this misplaced financial optimism will be eradicated.
across rural and urban India felt they would not survive
for more than a year in case of a loss of their major In urban India and amongst the salaried, insurance is
source of income. However, when asked how largely used as a tax-saving tool, rather than for
confident they were about their financial stability, an protection. There is need to reorient the consumer
overwhelming 54 per cent answered in the about the benefits of life insurance for both financial
affirmative. This ‘misplaced financial optimism’ stems protection, as well as for long-term wealth creation.
from the notion that the joint family system would
protect them in times of crises. However, in a fast- Greater emphasis on need-based selling of products:
changing social system, this may not hold true. The insurance industry needs to introduce high ethical
standards in the business of selling life insurance
‘Misplaced financial optimism’ is direct fallout of products. Selling of financial instruments, like life
the lack of financial literacy amongst Indian insurance, should be need-based. The agent advisors
households – both urban and rural – and the converse must educate the client on the benefits of different life
also holds true. Hospitalisation of one earning member insurance plans so that the customer is in a position to
of the household unshackles the myth and often take an informed decision. The first intention of the
pushes a middle-class household below the poverty agent advisor should be to provide adequate protection
line. An independent study has revealed that 24 per to the chief earner of the household. And after that,
cent of people hospitalised in India in a year fall below comes the intention of creating long-term wealth to
the below poverty line due to hospitalisation. meet the financial needs at different stages of life.
The findings of the Max New York Life-NCAER India Life insurance is a long-term contract. Therefore,
Financial Protection Survey clearly point to the fact ethical selling of products is vital for the growth of this
that Indians, by far, are a financially vulnerable lot. industry. A mistake made in the form of purchasing
Therefore, there is an urgent need to chalk out ‘the awrong policy is often difficult to rectify. The agent
way forward’, towards building a more financially may or may not be there, but the life insurer surely
secure nation. Here are some steps insurance will. Hence, it becomes more important for the life
companies, government, banks, mutual funds and insurer to build trust with its customers through need-
NGOs need to take in order to make Indian households based selling and high standards of customer service.
financially more secure:
Encourage financial planning: Today, India faces an acute
Make Indians financially literate: There is an urgent shortage of financial planners. A financial planner is a
need to work towards making households financially person who understands the risk profile of an individual
more literate. Households need to understand the and then draws up a financial plan for himor her. A
financial risks of both ‘living too long’, as well as ‘dying financial India Financial Protection Survey 79 planner is
early’. Living too long is not even considered a financial also aware of various financial instruments available in
risk by most Indians. the market. In India, financial planning is virtually non-
existent. As a result, individuals don’t invest wisely and
Most Indians suffer from a misplaced optimism and invariably end up buying wrong life insurance policies
tend to believe that ‘nothing will happen to them’ and and other financial instruments. Hence, they are unable
that ‘savings will take care of things’ in case something to suitablymeet their financial needs.

Internationally, most financial planners charge a fee for Educate women about the benefits of life insurance: In
their service and give unbiased, need-based advice to India, only 14% of all life insurance owners are women.
their clients. Financial planning is a professional career As more and more women become equal earning
option with significant returns. In India, courses like an partners, the need to insure themis increasing. In
MBA and chartered accountancy do not prepare villages, women have always been earners – working in
students for financial planning. Of late, some courses farms, rearing cattle or undertaking some craft to add
in financial planning are gaining popularity. Yet, the to the family income. Yet,most of these women are
concept is fairly new to India. uninsured. The insurance industry needs to better
understand the risk profile ofwomen in different parts
Banks, insurance companies and mutual funds need of the country and design life insurance products
to engage financial planners to spread awareness based on their needs. The findings of this study are
about their products. Internationally, most individuals unique as no comparable data exists for the country
stick to one financial planner for their entire lifespan. prior to this study. Therefore, this study is an eye-
An individual’s risk profile keeps changing, so does the opener, not just for marketers of insurance products
basket of financial instruments available in themarket. but for policy and decision-makers in the government.
Financial planners keep track of both these changes
in order to offer the best bouquet of financial It is hoped that the resultant data sets will be useful to
solutions. different sets of users such as core researchers, policy
makers and service providers. This study has
Set up a different distribution network for rural areas: demonstrated that it is not impossible to collect
The traditional agency distributionmodelmay not be reasonable data on income, expenditure and savings.
financially viable to increase penetration of insurance
in backward areas and villages, which are sparsely Thus, the resulted approach, survey methodology and
populated. In such areas, NGOs, banks, insurance related experiences will add new dynamism in this area
companies and private healthcare companies must and will be helpful in such studies in the future In
work together to distribute different financial conclusion, the need of the hour is to spread financial
instruments required by the consumer. India also literacy. Indian households need to understand their
needs insurance products that are especially designed financial risk profile as well as their short-term and
for the rural markets. While the government has longtermfinancial needs to undertake financial
undertaken initiatives to launch new life insurance planning which prepares themfor their needs at every
schemes and spread awareness about life insurance in stage of life.While the market potential before life
these areas, a more concerted effort in the form of a insurance companies in India is huge, the players must
‘public-private partnership’ is required. expand the market by providing relevant solutions to
different customer segments. In rural areas, there is
There is a pressing need to educate villagers about the need to enhance the reach of life insurance products.
financial implications of a physical disability, disease or And in urban India, insurance companies must work
death of their chief earner. NGOs can play a very vital towards improving adequacy of life insurance
role in partnering with banks, healthcare companies coverage by focusing on short and long-termneeds.
and insurance companies in spreading awareness Amore holistic approach to financial planning in
andmaking households in rural India a financially general and life insurance in particular, holds the key to
secure lot. building amore financially secure India.

ANNEXURE I
CONCEPTS, DEFINITIONS AND SURVEY METHODOLOGY
1. Concepts and Definitions Rural and urban areas: The rural and urban areas of the
A household is the basic unit of analysis in this Report. country are taken from Census 2001, for which the
Most of the quantitative classificatory factors such as required information is available with the Survey
income, expenditure, investment, surplus income, Design and Research Division of the National Sample
amount of life insurance payments, etc, refer to the Survey Organisation (NSSO). The lists of Census villages
household as a whole. Certain other characteristics as published in the Primary Census Abstracts (PCA)
used for the analysis such as occupation, age, constitute the rural areas. The lists of cities, towns,
education and source of income refer, however, cantonments, non-municipal urban areas and notified
pertain only to the chief earner of the household. The areas constitute urban areas. The definition of urban
main concepts and measures used in this study have areas adopted for this study is the same as that used
been defined below. in the 2001 Census. Accordingly, urban areas include:
All places with a municipality/corporation,
Household: A group of persons normally living cantonment board or a notified town area
together and taking food from a common kitchen committee;
constitutes a house¬hold. The members of a All other places satisfying the following criteria:
household may or may not be related by blood or Minimum population of 5,000
marriage. Servants, permanent labourers and At least 75% of the male workforce is engaged
unrelated members are treated as mem¬bers of the in non-agricultural pursuits
household in case they take their meals regularly A population density of over 400 per sq km
from the same kitchen. If a person was out for more (1,000 per sq mile).
than six months during the reference period (2004-
05), he/she was not treated as a member of the Household income: In broad terms, income refers to
household. Those entering the household on account regular receipts, such as wages and salaries, income
of marriage or other alliances and new-born babies from self-employment; interest and dividends from
are counted as members of the household, even if invested funds, pensions or other benefits from social
they lived with the household for less than six insurance and other current transfers receivable.
months. Income represents a partial view of economic well
being and comprises the regular or recurring receipts
Household size: The number of resident members of of household economic accounts. It provides a
a household is its size. It includes temporary stay-away measure of resources available to the household for
members, but excludes temporary visitors and guests. consumption and savings.
Regular salaries and wages: The regular salaries
Head of the household: The head is the main and wages are the earnings that a person working in
decision-maker in the family and the person best other’s farm or non-farm enterprises (both
informed about the family’s finances. Usually, he/she is household and non-household) gets in return on a
the chief earner or the oldest me mber in the regular basis (and not on the basis of daily or periodic
household. The household members were expected to renewal of work contract).
inform the interviewer who they regard as their Self-employed in non-agriculture: Persons/
‘head/chief earner’. households who are engaged in their own non-farm

enterprises are defined as self-employed in non- Food: While recording consumption, care should
agriculture (craft/business /professionals, etc). be taken to include consumption on ceremonies,
Agricultural labour: An individual following one or parties, etc. If the household makes any transfer
more of the following agricultural operations in the payment in terms of commodities (like cereals,
capacity of labourer or hire or in exchange, whether beverages, fruits, vegetables pulses, etc), the
paid wholly in cash or kind or partly in cash and quantity of such commodities should not be shown
partly in kind. under domestic consumption of the payer
Casual wage labour: A person casually engaged in household. For this survey, the portion out of that
non-farm enterprises (both household and non- receipt consumed by the recipient household during
household) and getting in return wages according to the reference period was shown against the
the terms of daily or periodic work contract is consumption of the recipient household.
treated as casual wage labour. Housing: For the reference period, information was
Self-employed in agriculture: Persons/households collected on expenditures such as
who are engaged in their own farm are defined as rent/taxes/maintenance/other household
self-employed in agriculture. services/water bills etc. The actual expenditure
Income from other sources such as rent from land; incurred towards purchase of these items, used for
rent from providing accommodation and capital for non-productive purposes, was considered as the
production; net interest received (income from consumption expenditure of the household.
bonds, deposits and savings); dividend (income Expenditure in both cash and in kind was taken into
received from stock holdings and mutual fund account. Consumption was recorded in terms of an
shares); employer-based private pension (payments average per month.
received from companies/government after Health expenses (fee on medical facilities/medical
retirement); government social insurance and social labs/medicines): These items include expenditure on
assistance benefits, etc medicines and medical goods, payments made to
doctors, nurses etc on account of professional fees
Major source of household income (major occupation): and those made to hospital, nursing home, etc for
In the event that members of a household engage in medical treatment.
only one type of income source, the nature of the Transport (road/air/fuel/repair/insurance/license):
income source in order to earn livelihood is the Expenditure incurred on account of journeys
primary occupation for the household. In the event undertaken and/or transportation of goods made by
that the household is pursuing two or more economic airways, railways, bus, tram, steamer, motor car (or
activities, the principal occupation is considered to be taxi), motor-cycle, auto-rickshaw, bicycle, rickshaw
the economic activity that contributes maximum to (hand-drawn and cycle) horse-cab, bullock cart,
household income. hand-cart, porter or any other means of conveyance.
In case of owned conveyance, the cost of fuel
Routine consumption expenditure: Household (petrol, mobile oil, diesel, etc) for power-driven
consumption that includes the value of all goods and transport and animal feed for animal-drawn carriage
services provided in kind by the employer or as a result were also taken into account.
of home production (including the value of imputed Education: This was meant for recording expenses
rent for owner-occupied dwellings), which were incurred in connection with education like purchase
already included in total income. Consumption of books/stationeries/school fee/boarding/school
expenditure is classified into eight groups: transportation. etc. It also included fees paid to

educational institutions (e.g. schools, colleges, Unusual household expenditure: It includes occasional
universities, etc) on account of tuition (inclusive of but large annual expenditures on social ceremonies
minor items like game fees, library fees, fan fees, (marriage, birth and other social events), health/
etc) and payment to private tutors. medical, higher education, leisure and holiday travel,
Clothing and footwear: Information on the value of jewellery etc.
consumption of all items of clothing and footwear
were collected in (whole number of) rupees. Surplus income: Surplus income refers to the current
Consumer durable goods: Expenditure incurred on income less current routine consumption expenditure
purchase of consumer durables and cost of raw and unusual expenditure.
materials and services for construction and repairs of
durable goods for domestic use were collected Investment: The annual investment made by all the
against this item. Expenditure included both cash members of household in stock markets (shares/
and kind. Expenditure incurred on purchase of debentures/bonds), small savings, insurance, others.
durable goods for giving gifts was also included.
Appendix Table 1:
Profile of the Rural Sample STAGE I STAGE II STAGE III
Number Total Sample Total Sample Listed Sample
of NSS districts districts villages villages households households
Regions
Himachal Pradesh 1 12 6 17,495 32 2,736 512
Punjab 2 17 8 12,278 48 4,983 768
Chandigarh 1 1 1 23 5 500 78
Uttaranchal 1 13 6 15,761 30 3,044 480
Haryana 2 19 9 6,764 47 4,862 752
Delhi 1 9 1 158 6 668 88
Rajasthan 4 32 16 39,753 118 12,036 1,888
Uttar Pradesh 4 70 29 97,942 274 30,356 4,384
Bihar 2 37 18 39,018 196 21,721 3,136
Meghalaya 1 7 5 - 10 991 160
Assam 3 23 11 25,124 67 6,419 1,072
West Bengal 4 17 9 37,955 123 12,438 1,968
Jharkhand 1 18 9 29,354 59 5,930 944
Orissa 3 30 14 47,529 86 9,958 1,376
Chhattisgarh 1 15 7 19,744 49 4,924 784
Madhya Pradesh 6 45 22 52,117 132 14,092 2,112
Gujarat 5 25 12 18,066 90 10,659 1,440
Maharashtra 6 33 16 41,095 157 18,057 2,512
Andhra Pradesh 4 22 12 26,614 160 16,619 2,560
Karnataka 4 27 14 27,481 103 11,969 1,648
Goa 1 2 2 347 10 1,166 160
Kerala 2 14 7 1,364 63 6,368 848
Tamil Nadu 4 30 14 15,400 101 10,443 1,616
Pondicherry 1 4 2 92 10 1,040 160
ALL INDIA 64 522 250 571,474 1,976 211,979 31,446

Reference period: The information was collected
Appendix Table 2:
primarily for the year April 2004-March 2005. For the
questions where the reference period was mentioned as
Sampling fraction for city/town group
“last month” was defined as 30 days preceding the date of
Town Town population Total Sample Sampling
enquiry.
Class ('000) towns towns fraction
I > 10000 3 3 1.00
Period of survey: Primary data was collected during
II 5000-10000 3 3 1.00
October 1, 2005 to February 28, 2006.
III 1000-5000 29 29 1.00
IV 500-1000 37 37 1.00
2. Coverage V 200-500 98 98 1.00
Primary survey of households was undertaken in 24 major VI 100-200 219 56 0.26
states/Union Territories of India covering both rural and VII 50-100 396 44 0.11
urban areas of Andhra Pradesh, Assam, Bihar, Chandigarh, VIII 20-50 1,135 28 0.02
Chhattisgarh, Delhi, Goa, Gujarat, Haryana, Himachal IX < 20 2,270 44 0.02
Pradesh, Jharkand, Karnataka, Kerala, Madhya Pradesh, TOTAL 4,190 342 0.08
Maharashtra, Meghalaya, Orissa, Pondicherry, Punjab,
Rajasthan, Tamil Nadu, Uttaranchal, Uttar Pradesh, and
West Bengal. Territories excluding Jammu & Kashmir,
Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Selection of the rural sample
Tripura, Andaman & Nicobar Islands, Daman & Diu, Dadra & In the rural sample design, a sample size of 250 districts
Nagar Haveli and Lakshadweep. Remaining states were was allocated to the 64 NSS regions within the 24 covered
left out due to operational difficulty. These states account States/Union Territories (UTs) in proportion to the total
for only 3 to 4 per cent of the country's total population. number of districts in an NSS region. From each of the
NSS regions, the allocated number of districts was
3. Sample design selected, as the first-stage sample units, with probability
A three-stage stratified sample design has been adopted proportional to size and replacement, where rural
for the survey to generate representative samples. population of each district as per Census 2001 was used as
Sample districts, villages and households formed the first, size measure.
second and third stage sample units respectively for
selection of the rural sample, while cities/towns, urban Villages formed the second stage of selection
wards and households were the three stages of selection pro¬cedure. District-wise lists of villages are available
for the urban sample. Sampling was done independently from census records (Census 2001) along with
within each state/UT and estimates were generated at the popula¬tion. A total sample of 1,976 villages (second-
state/UT level. Estimate for all-India was arrived at stage sampling units) was allocated to the selected 250
through an aggregation of estimates for all states/UTs. districts, approximately in proportion to rural population
The sample sizes at first, second and third stages in rural of each selected district. The allocated number of sample
and urban areas were determined on the basis of available villages in a selected district was chosen with equal
resources and the derived level of precision for key probability sampling approach.
estimates from the survey, taking into account the
experience of NCAER in conducting the earlier surveys . In each of the selected villages, approximately 100
Within a state there are variations with respect to social households were selected following equal probability
and economic characteristics, the bigger a state, the sampling approach for listing purpose and preliminary
larger the variation. In the National Sample Survey (NSS), survey. During this preliminary survey, information on
within a state, regions are formed considering the land possessed and principal source of income of the
homogeneity of crop pattern, vegetation, climate, listed household was collected for use in stratifying the
physical features, rainfall pattern, etc. An NSS region is a listed households into eight strata as follows:
group of districts within a state similar to each other in Stratum 1: Principal source of income was
respect of agro-climatic features. In the present survey self-employment in agriculture and land possessed
within a state, NSS regions formed the strata for both was 0-2 acres;
rural and urban sampling. Stratum 2: Principal source of income was

self-employment in agriculture and land salary/wages and other sources and land
possessed was 2-10 acres; possessed was above 2 acres.
Stratum 3: Principal source of income was
self-employment in agriculture and land possessed From each of the above eight strata, two households
was above 10 acres; were selected by following equal probability sampling
Stratum 4: Principal source of income was labour approach. In case, any of the strata was found to be
(agricultural/other casual); missing (no household), then households from previous
Stratum 5: Principal source of income was stratum, where additional households were available,
self-employment in non-agriculture and land were selected so as to get 16 sample households in a
possessed was 0-2 acres; selected village.
self-employment in non-agriculture and land Following the above sampling design in rural areas, the
possessed was above 2 acres; realised sample of 31,446 households out of preliminary
Stratum 7: Principal source of income was regular listed sample of 2,11,979 households was spread over
salary/wages and other sources and land 1,976 villages in 250 districts and 64 NSS regions covering
possessed was 0-2 acres; and the 24 States/UTs. .
Stratum 8: Principal source of income was regular
Appendix Table 3:
Profile of the Urban Sample STAGE I STAGE II STAGE III
Number Total Sample Total Sample Listed Sample
of NSS towns towns blocks blocks households households
Regions
Himachal Pradesh 1 56 2 22 5 502 70
Punjab 2 157 12 472 74 7,596 1,036
Chandigarh 1 1 1 21 10 1,000 140
Uttaranchal 1 76 3 129 18 1,881 252
Haryana 2 97 13 596 74 7,543 1,036
Delhi 1 4 1 289 60 7,197 840
Rajasthan 4 216 19 851 114 11,568 1,596
Uttar Pradesh 4 670 51 2,036 316 31,975 4,424
Bihar 2 120 14 444 75 7,973 1,050
Meghalaya 1 10 1 6 6 600 84
Assam 3 110 5 100 20 1,940 280
West Bengal 4 239 18 - 142 14,620 1,988
Jharkhand 1 95 10 860 68 6,896 952
Orissa 3 132 8 322 45 4,501 630
Chhattisgarh 1 84 8 473 44 4,412 616
Madhya Pradesh 6 368 19 799 114 11,516 1,596
Gujarat 5 190 19 572 146 14,615 2,044
Maharashtra 6 347 35 2,220 273 31,553 3,822
Andhra Pradesh 4 173 27 1,172 195 20,426 2,730
Karnataka 4 237 22 905 153 18,819 2,142
Goa 1 38 2 12 4 440 56
Kerala 2 98 13 1,019 79 8,030 1,106
Tamil Nadu 4 68 37 2,272 207 21,937 2,898
Pondicherry 1 4 2 23 13 1,273 182
ALL INDIA 64 4,190 342 15,615 2,255 238,813 31,570

Selection of the Urban Sample Appendix Table 4:
According to Census 2001, there are about 4,850 Number of Persons Surveyed by Location
cities/towns in the states/UTs (excluding Jammu &
Kashmir). The population of cities/towns in India varies Rural Urban All India
from less than 5,000 to over a crore. In the urban sample
design, within the 24 covered states/UTs, the 64 NSS
Himachal Pradesh 2,744 322 3,066
regions were again treated as strata. In each NSS region,

Punjab 4,044 5,285 9,329
towns were categorised into five groups based on their

Chandigarh 434 661 1,095
population, namely big towns and small towns. There are

Uttaranchal 2,506 1,257 3,763
170 cities with a population exceeding 200,000. All the

Haryana 4,612 5,453 10,065
cities were selected with a probability of one. The

Delhi 475 3,960 4,435
remaining cities/towns were grouped into four strata on
Rajasthan 10,744 8,635 19,379
the basis of their population size and from each stratum
Uttar Pradesh 28,819 23,462 52,281
a sample of towns was selected independently.
Bihar 15,607 5,272 20,879
Meghalaya 866 308 1,174
A progressively increasing sampling fraction with Assam 4,803 1,107 5,910
increasing town population class was used for West Bengal 10,185 8,885 19,070
de¬termining the number of towns to be selected from Jharkhand 4,999 4,823 9,822
each stratum. From each NSS region, the allocated Orissa 7,046 3,040 10,086
number of small towns was selected by following an equal Chattisgarh 3,998 2,948 6,946
probability sampling procedure. The sampling fraction Madhya Pradesh 11,609 8,090 19,699
was used at the state level (Table 2). Gujarat 6,760 9,700 16,460
Maharashtra 13,091 18,158 31,249
A total sample size of 2,255 urban wards was allocated Andhra Pradesh 11,314 11,245 22,559
among the selected small/big towns in proportion to the Karnataka 8,134 9,608 17,742
number of wards in the respective towns. The allocated Goa 772 281 1,053
number of wards was selected from each sample town Kerala 3,635 4,539 8,174
following equal probability sampling approach. Thus, Tamil Nadu 7,033 12,163 19,196
towns and wards formed the first and second-stage Pondicherry 740 777 1,517
sample units in the urban sample design. Total 164,970 149,979 314,949
Like in the rural sample design, within a selected ward, a

self-employment and MPCE between Rs. 801
sample of about 100 households was selected for listing
and Rs 2500;
and preliminary survey, following equal probability
sampling approach. In the preliminary survey, at the time

self-employment and MPCE above Rs 2500;
of listing of the sample households, information on
household size, household consumption expenditure for

casual labour (agricultural or non-agricultural).
last month ((MPCE), and principal source of household
income were collected for use in stratifying the listed From each of the above strata, two households were
households into seven strata as follows: selected at random with equal probability of selection. If
Stratum 1: Principal source of income was regular there was no household in any of the strata, the shortfall
salary/wage earnings and sources like remittances, was compensated from the previous stratum, where
pension, etc and MPCE of Rs 800 or less; additional households were available, so as to get 14
Stratum 2: Principal source of income same as in sample households from each selected ward in urban
stratum 1, but MPCE between Rs 801 and Rs 2500; sector for detailed survey.
Stratum 3: Principal source of income same as Following the above sampling design in urban areas, the
stratum 1, but MPCE above Rs 2500; realised sample of 31,570 households, out of preliminary
Stratum 4: Principal source of income was listed sample of 2,38,813 households, was spread over
self-employment and MPCE less than Rs 800; 2,255 urban wards in 342 towns and 64 NSS regions
Stratum 5: Principal source of income was covering the 24 States/UTs.

LIFE INSURANCE
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LIFE INSURANCE

Karo Zyaada K a Iraada

Debasis Sarkar, Director – Marketing, Products & Corporate Communication

For further Information please contact:

188, IInd Floor Patparganj Industrial Area, Delhi-92, preet.creative@gmail.com

India Financial Protection Survey

Team Leader and Principal Author

NCAER Core Research Team

Members of Advisory Committee

Members of Max New York Life

India Financial Protection Survey

India Financial Protection Survey

India Financial Protection Survey

India Financial Protection Survey

Chapter 2 How India Earns 17

Chapter 3 How India Spends 31

India Financial Protection Survey

Chapter 4 How India Saves 43

Chapter 5 Life Insurance 57

Chapter 6 Way Forward 72

Annexure I Survey Methodology 79

India Financial Protection Survey

Table No. Title Page No.

Chapter 2 How India Earns

Chapter 3 How India Spends

Chapter 4 How India Saves

Chapter 5 Life Insurance

India Financial Protection Survey 1

Figure No. Title Page No.

Chapter 2 How India Earns

Chapter 3 How India Spends

2 India Financial Protection Survey

Figure No. Title Page No.

Chapter 4 How India Saves

India Financial Protection Survey 3

Figure No. Title Page No.

Chapter 5 Life Insurance

4 India Financial Protection Survey

India Financial Protection Survey 5

6 India Financial Protection Survey

India Financial Protection Survey 7

8 India Financial Protection Survey

India Financial Protection Survey 9

10 India Financial Protection Survey

1.1 Background most life insurance policies are regarded as a tax-saving

India Financial Protection Survey 11

12 India Financial Protection Survey

India Financial Protection Survey 13

14 India Financial Protection Survey

India Financial Protection Survey 15

16 India Financial Protection Survey

The large differences in income, expenditure and savings patterns between

data on household income in the country.

India Financial Protection Survey 17

Income levels vary significantly across rural and urban

18 India Financial Protection Survey

as high as 45 per cent in rural areas. Those earning 31.2

India Financial Protection Survey 19

Figure 2.6: Figure 2.7:

4.6 Less 5.2 9

% share of population % share of income % share of population % share of income

20 India Financial Protection Survey

2.4 RURAL-URBAN DIVIDE