Middle income group cuts spending by 65%: ASSOCHAM

High food inflation has forced Indian households in the middle and lower income groups to slash their spending on entertainment, shopping, vacations, electronics, automobiles, real estate and eating out by 65% in attempt to manage their monthly household budgets, said a recent survey by apex industry body The Associated Chamber of Commerce and Industry of India (ASSOCHAM).

High interest rates and fuel costs also contributed the the middle income group (MIG) decision on curtailing their spends in the last 6 months. With food and education of children eat up most of their incomes, saving are likely to be impacted revealed the ASSOCHAM survey.

Conducted in a period of two months beginning March to April 2012 in major places like Delhi, Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabd, Pune, Chandigarh, Dehradun etc, A little over 200 employees were chosen from each city on an average for the survey. 

"While the Indian national capital Delhi ranked first in curtailing their expenses, the Indian commercial capital Mumbai came second followed by Ahmedabad, Chandigarh, Kolkata, Chennai and Dehradun," said D S Rawat, secretary general ASSOCHAM.

The nationwide survey also ascertained that food inflation impacted the most consumers in metros and other major cities Vis-à-vis tier-III and semi-urban area due to sudden hike in the fruits, vegetables and milk prices. It added that the rise in inflation and per capita income was utterly disproportionate.

Around 55% of the survey respondents fall under the age bracket of 20-29 years, followed by 30-39 years (26%), 40-49 years (16%), 50-59 years (2%) and 60-65 years.

The survey targeted employees from 18 broad sectors, with maximum share contributed by employees from IT/ITes sector (17%) followed by financial services (11%), employees working in engineering and telecom sector (9% and 8% respectively). Nearly 6% of the employees belonged to market research/KPO and media background each while 5% each were management, FMCG and infrastructure sector employees. Respondents from power and real estate sector contributed 4% each. Employees from education and food & beverages sector provided a share of 3% each.

Consumers' growing unease is reflected in their saving rate and spending habits, with many middle income and lower income group indicating that they are finding ways to cut back spending now or indicating they will do so in the future. Around 69% of the respondents have cut down in their saving rate.

Nearly half of middle income group either avoid shopping altogether or shop only for those things that are absolutely needed. Moreover, 76% said that their shopping has been restricted to only necessities and splurge in their spending is totally occasional.

About 88% of respondent said that they have cut back on everyday expenses by avoiding outside food, car-pooling, cutting down on gas and use of electricity.

The survey also revealed that the high income groups, particularly the younger lot and working couples with twin salary benefits during every weekend spend more than 25% of their income on clothes, shoes, movies, buying CDs of films and music, eating out, etc.

The Chamber also estimates that inflation has also impacted the urban male and females personal expenses. The urban male used to spend Rs 500-2,000 per month on drinks, cigarettes, gutkha, pan etc. which has come down by 20% due to upward inflation. On the other side, urban women now spend around Rs 500-1000 per month on cosmetics, beauty treatments etc which was earlier Rs 1500-2,000.

Over 87% of the respondent said that monthly grocery bills have jumped to about Rs 7,000 to 8,000, compared to Rs 3,000 in the last two years. “Earlier they could buy a bag full of vegetables for Rs 100 but now, even Rs 1,000 isn't enough to sustain for a couple of days. The middle class and the lower class are the worst hit,” the report said.

One in four respondents said they will work towards increasing their income to stay financially afloat by switching to a better-paid job, taking a second job option or working overtime hours.

Commenting on the overall scenario and possible measures to be taken, Rawat said, “The government must look to manage its wasteful expenditure by enforcing austerity drive so as to reduce its borrowing from the markets which will ultimately have soothing effect on interest rate there by providing some relief on inflation.”

Nearly 78% of the respondent said that they have cut back on protein intake like eggs, have switched to a coarser rice that costs less, consumes less cooking oil, uses the less washing powder for utensils and for clothes and also stopped using the cosmetic things.

Eighty-six percent of the respondents said that they cannot predict their monthly household expenses for next month owing to unpredictable prices of not only commodities but also vegetables, fruits, milk, pulses and other household items.

Over 87% of vegetarians said that they face even more problems due to steep increase in prices of vegetables and fruits and worried of lower intake of vegetables and may affect health of their family. The survey also found that low-income groups (LIG) are increasingly cutting back on the nutrient-rich snacks because they can no longer afford them.

Rawat further said that all this leads to a spiralling effect as it becomes more difficult for poor people to improve their conditions and lead a life where they are not devoid of basic amenities.

Highlights of ASSOCHAM survey:

 - Average monthly expenditure has increased from Rs. 2,000 to Rs.6,000. More importantly, food expenditure as a percentage of monthly household expenditure has gone up from 40% to 100%.

 - Consumption of individual food items show a significant reduction as well, particularly in case of rice, wheat, yellow daal, onion, tomato, butter, milk, sugar and fruits and vegetables, the number of households consuming milk at least twice a day.

 - The growing food budget has invariably led households to cut costs in other areas such as healthcare and transportation.

 - Over 75% of the surveyed households now go to government hospitals or doctors instead of private doctors or hospitals.

 - 78% have decreased spending on eating out and rest preferred on occasions.

 - 65% decrease in the amount they spend on clothing.

 - 77% indicated fall in the amount they spend on vacations.

 - 49% have decreased the amount they spend on home appliances; 44% for home and personal electronics; 42% for automobiles; and 35% for real estate.