Consumer budgets: Discretionary spending rising Bottom line 􀂄 BofA Merrill Lynch,

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Consumer budgets:
Discretionary spending rising
Bottom line
􀂄 Just-released data on household budgets suggest that India’s consumer story
is maturing. Engel’s Law is at work.1 The 66th round of the National Sample
Survey finds that rising incomes are gradually pushing up the share of
discretionary non-food spending in income by pulling down the proportion
spent on food. We expect this trend to strengthen ahead. By 2020, non-food
spending will likely climb to 75% of consumer expenditure from 59.3% now for
urban households and 60% from 46.4% now for rural households. To see the
NSSO report, hit:
http://mospi.nic.in/Mospi_New/upload/Press%20Release%20KI-HCE-
66th_8july11.pdf\.
Why it matters
􀂄 We expect India's consumer boom to power mass markets in consumer
durables such as autos and ‘white goods’. In fact, we expect India's
consumption basket to double to China's current US$2trn levels, in real terms,
by 2020. For details, do read our India's silent revolutions report here.
Key points
􀂄 Non-food spending up: Non-food spending has climbed to 59.3% of per
capita monthly expenditure for urban households in 2009-10 from 57.5% in
2004-05 and 45.3% in mid-1990s (Chart 1). We expect it to go up further to
75% by 2020. Non-food spending has also risen to 46.4% of per capita
monthly expenditure for rural households from 45.0% in 2004-05 and 36.8% in
mid-1990s. We expect this to further increase to 60% by 2020.
􀂄 Rising rural demand for 2 wheelers. Rural households reporting spending on
2-wheelers has almost doubled to 12.6% of total from 6.9% in 2004-05 (Chart
2). Urban households spending on 2-wheelers have also increased to 28.8% of
total from 23.7% in 2004-05. 5.6% of urban households reported expenditure
on cars up from 4.1% 5 years ago (Chart 3).
􀂄 Penetration of consumer non-durables widespread: The NSSO survey
confirms widespread penetration of consumer non-durables, including
telephony. 90% of the households - rural and urban – reported spending on
toilet soap and wash soap (Chart 4). 90% of the urban households also used
toothpaste, tooth brush, combs etc. Rural households using them are catching
up at 79.7% now up from 67.5% 5 years ago (Chart 5).
Next up in India: 8.6% May 2011 industrial growth
India: Index of industrial production (May), Tuesday, 12 July 2011.