The Wire Staff 
New Delhi: Indians are spending a third of their income on paying off loan installments, a new study has found.
‘How India Spends’, a report by PwC and Perfios, anyalysed the spending behaviour of 3 million individuals who primarily used fintech, non-banking finance companies (NBFCs) and other digital platforms.
Participants of the study ranged from tier-III cities to metropolitans, with income levels ranging from Rs 20,000 to Rs 1,00,000 per month.
According to the report, upper-mid-level earners made up the bulk of those paying EMIs, while entry-level earners accounted for the least. It also found that those in lower salary brackets were more likely to borrow from friends, family or local lenders as opposed to formal sources.
The report categorises expenses into three broad categories – obligatory expenses (39%), necessities (32%) and discretionary spending (29%).
Obligatory expenses were defined as loan repayments and spending on premiums for insurance policies while discretionary spending includes expenditure on online gaming, dining-out or ordering food, entertainment etc. Necessities included basic household needs such as utilities (water, electricity, gas, etc.), fuel, medicine, groceries etc, per the report.
Necessities vs discretionary spending
“Individuals in lower salary brackets are primarily channeling most of their earnings toward meeting essential needs or servicing debt. Conversely, those in higher salary bands are allocating a significant portion of their income toward obligatory and discretionary spending,” the report said.
The report suggests that loans in the higher-income segments are indicative of higher living expenses as well as increased aspirations for luxury goods and holidays.
Discretionary spending increased from 22% to 33% as one moved from the entry-level income band to high-income bands, the report found.
“A similar trend is observed for obligatory expenses, where the percentage of spending goes from 34% for entry-level earners to 45% for high-income earners. However, a converse trend is observed for necessity expenses, where the percentage of money spent decreases with an increase in salary – declining from 44% for entry-level earners to 22% for high-income earners,” the report stated.
Lifestyle purchases accounted for over 62% of discretionary expenses, with people from high-income groups spending nearly three times as much on such items (Rs 3,207 per month) as entry-level earners ( Rs 958), the report found. Online gaming is most popular among lower earners (22%), decreasing to 12% for higher earners.
The study also found that people in tier-II cities spend the most on medical expenses, averaging 20% more per month than those in tier-I cities.
Obligatory spending
The report found that salaried individuals allocated between 34-45% of their income to obligatory expenses, 22-44% to necessities and 22-33% to discretionary expenses on average. However, this varied across different salary brackets.
“The lines between discretionary spending and future obligations have been blurred by the rise of personal lending through form factors such as embedded finance, peer-to-peer loans and credit cards, and other traditional loan categories like home loans, education loans and auto loans,” the report said.
Plummeting savings
India’s household savings dropped to a five-year low, accounting for a mere 5.1% of the GDP, according to RBI data. This, despite an increase in consumption. The decline in household assets has coincided with a surge in personal loans, which have grown by 13.7% year-on-year.
“While consumption has gone up, we have seen a decline in financial assets and savings,” Sabyasachi Goswami, CEO of Perfios, told Mint, adding that while consumption is flourishing, lower savings put stress on households.
“This is despite a 9.1 % year-on-year jump in salaries over the past six years. What we see is debt levels are rising as households buy vehicles and houses,” said Goswami.