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--> Capital in the 21st century: India edition. Indian households’ assets as a proportion
of India’s GDP increased to 4X from 2.5X over the period 2002 to 2012. These assets
are valued at `355 tn (~US$6 tn) as of June 2012, up 6X over the last decade. Land and
buildings form 92% or `330 tn of assets: their value has gone up by `280 tn over the
last decade. Wealth concentration remains a significant concern: the top 10% of
households hold ~60% of the assets; the bottom 80% own only ~20%.

3X real growth in the value of Indian households’ assets

Putting together data from National Sample Survey Organization’s (NSSO) Key Indicators of

Debt and Investment in India report, we calculate that Indian household assets were valued at

`355 tn as of June 2012; this value is estimated to have been `60 tn a decade ago. We note

that this 6X growth in value handsomely beat inflation: consumer price inflation index has only

doubled over this time-frame. In effect, this implies that the ‘real wealth’ of Indian households

has grown 3X over the last decade. As a ratio of the GDP, the stock of households’ assets have

gone up to 4X in 2012 from 2.5X in 2002 (see Exhibit 1). This ratio of 4X is close to the

proportions seen in the developed world as recorded in Thomas Piketty’s well-known book:

Capital in the 21st Century.

The 6X nominal growth in households’ assets has a significant urban component

Urban households’ assets have gone up 8X over the last decade compared to a 4.6X growth in

rural households’ assets (see Exhibit 2). The sharp growth in the value of urban assets has

meant that the urban households now have slightly more than half the overall assets in the

country, up from around two-fifths in 2002. Significant as these growth numbers are, one must

not lose sight of the fact that on a per-capita basis, India still remains a poor country: an

average rural household even now has physical and financial assets worth only `1 mn and the

corresponding number for an urban household is now `2.2 mn.

Land and buildings are the largest asset class and has seen phenomenal growth

Land and buildings in India are valued at `330 tn in 2012, up from `50 tn in 2002, clearly

highlighting the increase in the value of these assets: the value of land rose by around `180 tn

and that of buildings by around `100 tn (see Exhibit 3). The rural India wealth-effect story that

was oft debated in 2011-12 now has some data to back it up. Both in absolute and relative

terms, rural and urban households have spent disproportionately on transport equipment.

Take data with a pinch of salt

There are three big changes in the data between 2002 and 2012: (1) land and buildings were

valued this time as per normative/guideline values (i.e. in discussions with the local patwaris/

registrars) as against taking the estimate of value from the owners, (2) household durables were

not considered a part of assets this time, and (3) unlike in 2002, bullion and ornaments are not

a part of the computation this time. We have, in earlier notes, pointed out that circle or

government rates are also typically understated and hence the actual wealth could be higher.

We also note that the total of the financial assets seems to be understated.

Wealth concentration remains a key risk in India

Exhibit 4 points out a key risk that India runs: the top 10% of the households own 64% of the

assets in urban India and 52% in rural India; the bottom 80% of the households own 21% and

26% respectively. The poverty of rural India is better distributed than the significant value gains

that urban India has seen. As we had noted in our RUPEES estimator, the top decile of Indian

households are closer to the average households in the OECD/developed countries; the bottom

80% are closer to the poorest of the poor nations. This divergence in asset ownership can lead

to significant social strain: the ability to connect the bottom 80% to productive jobs will be the

key to ensuring that the trickle-down effect of economic growth actually works

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily26122014ao.pdf