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Durables ownership to rise, mid-income household to grow rapidly: NCAER study

28-February-2002
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Durables ownership to rise, mid-income household to grow rapidly: NCAER study

According to a study conducted by the National Council of Applied Economic Research (NCAER), the decline in population growth combined with a healthy GDP growth would result in higher income and savings growth in the country.

According to the data, the income-wise distribution of households has undergone a sea change since 1994-95, with the number of lower income households declining sharply while both the middle and high-income households have increased in number.

The projected number of households in different income classes show that the bottom layer will shrink to more than half from 72 million households in 1997-98 to 29.4 million in 2006-07. On the other hand, the number of middle-income households is expected to witness a 1.6 times increase in this period. A jump of about 237 per cent is also expected in the high-income households.

What is worth taking note is, both the rural and urban areas exhibited similar trends, although the decline of low-income households was greater in the case of urban areas, as compared to the rural. A break-up of distribution between the urban and rural areas shows that the movement between different income groups is faster in urban areas. For example, out of a total number of 27.7 million households in the high-income category, 18.1 million are urban.

The study also finds that with a greater number of households rising to the high and middle-income category, the average purchasing power as well as the basket of goods bought is likely to undergo a change.

The study projects that the ownership of the 12 consumer durables, which was 655 million units in 1997-98 and 835 million units in 2001-02, would further go up to 1.14 billion units by 2006-07. On the other hand, the demand for these 12 consumer durables, which stood at 53 million units a year in 1994-95 is expected to reach 85 million units in 2001-02 and further to 114 million units a year by 2006-07.

The demand for the most expensive durables is likely to have the highest growth of 10.5 per cent. Also, the share of these products is expected to increase from 15.3 per cent in 1997-98 to 21.2 per cent in 2006-07. However, in terms of market size, wrist watches occupy the pride of place accounting for over 30 per cent of the total demand (as well as projected) of these 12 durables throughout the period between 1995-2007.

Bicycles, which held second place in 1994-95 would lose its position to cassette recorders in the coming years. Sewing machines and washing machines, which occupied the last two places, would continue to remain so in the coming years also.

Rural households, which form 71.7 per cent of the total households in the country, account for a considerable share of the consumer goods also. According to NCAER, average number of durables goods in rural households is expected to increase from 3.05 in 1997-98 to 4.55 in 2006-07.

Surveys reveal that low penetration rates can be attributed to three major factors - low income levels, inadequate infrastructure facilities and different lifestyles. Among different goods, Group III consists of electric goods, while Group I goods are non-electrical goods. Lack of the spread of electricity is the single most important factor explaining the rural-urban differential in penetration levels followed by the difference by income disparity and difference in lifestyles.

Source: Business Line

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