Most Indian households continue to pursue their dream of owning a house and a major portion of fixed capital expenditure is on “residential plots and buildings”.
In fact, 68 per cent of the capital expenditure by households in rural India and 75 per cent of capital spending by households in urban areas were towards buying property for a house, according to the latest report on household capital expenditure by the National Sample Survey Organisation (NSSO).
The only exceptions were rural Punjab, where more investments were made in farm business and urban Gujarat and Odisha that registered more capital expenditure on non-farm business.
The survey, which is a part of the decadal All India Debt and Investment Survey, was carried out in agricultural year 2012-13 (between July 1, 2012 and June 31, 2013) and involved 1.08 lakh households across the country. The last such survey was carried out in 2002-03.
Investments on farm business in rural areas and in non-farm business like workshops and manufacturing units in cities were also important.
However, in terms of number of households, 20.5 per cent of houses in rural areas invest in farm business, while in cities, non-farm business is the most common expenditure head with 7 per cent households investing in it.
The NSSO survey also revealed that more households are investing in fixed capital formation than before, and their average investment has nearly trebled. “In 2012-13, about 31 per cent of the rural and 15 per cent of the urban households reported incurring expenditure towards formation of fixed capital,” it noted.
In contrast, just 13 per cent of the rural households and 8 per cent of urban households invested in fixed capital in 2002-03.
Similarly, in the 2012-13 survey, the average investment per cultivator household in rural areas was ₹22,741 compared with a mere ₹3,237 in 2002-03. In the urban areas, self-employed households spent, on an average, ₹26,197 on fixed capital expenditure in 2012-13, as compared to ₹6,596 a decade ago.
The survey further revealed that in both rural and urban areas, Kerala reported the highest average fixed capital expenditure (AFCE) at ₹35,978 and ₹48,674, respectively.
Further, in rural areas of Maharashtra, Punjab, Karnataka, Tamil Nadu, Rajasthan, Haryana and Kerala, AFCE was more than the all-India average, while in urban areas of Maharashtra, Punjab, Jharkhand, Assam, Tamil Nadu, Rajasthan, Uttar Pradesh and Kerala showed more than the AFEC observed at the all-India level.
The survey also revealed increasing disparity in the average value of assets. The value for the lowest decile in rural areas was ₹25,071 as compared with ₹56.89 lakh for the highest decile.
In urban areas, this was even more striking. The average value of asset for the lowest decile in cities was a mere ₹291 as against ₹1.45 crore for the highest decile.
Sources of financing
In an indication of high savings, the survey also found that very few households in both urban and rural areas reported borrowing for capital expenditure. The use of institutional credit was even lower.
For instance, just 1.3 per cent of households in rural areas and 1.1 per cent in urban areas borrowed to finance their residential property or building. Of this, 0.9 per cent of rural households and 0.6 of urban families chose non-institutional credit such as moneylenders.
But, for ‘non-farm business’, borrowing from institutional agencies was more prevalent compared with non-institutional agencies in both rural and urban areas.