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India can be broken down into three classes,
The affluent 11 crore people with 6,16,000 Rs per capita income,
the Aspirer class comprising of 14 crore people earning 2,10,000 Rs
per capita and finally you have 114 crore people at the bottom of
the pyramid earning less than 91,000 Rs per capita each year (source
– Oaklane Capital
Management). It is highly
important to understand the consumption pattern of the bottom of the pyramid
class which makes 80% of the population and not just look at the consumption
pattern of the affluent and the aspirer class to navigate our way as equity
investors.
Alpha Invesco in the gone month decided to
interview inhabitants of low income households living out of Pune earning less
than National average per capita income.
The purpose of the exercise was to understand
life of a migrant employed in a city, how does he manage life in a city with
family either residing with the migrant or in his hometown?
In this article you will come across 4 stories
of 4 migrants from outside Pune. Two individuals come from Itawa in Uttar
Pradesh and Samistipur in Bihar while the remaining two come from villages
close by.
Our first migrant, Mithilesh, 23 year old
father of a 1 year old baby girl is employed in a QSR (Noodle Canteen).
Our second migrant, A Lady, she is an
entrepreneur selling fruits at road side. She is a mother of 4 kids. She is in
her early 30s.
Our third migrant, an energetic young man
working as a security personnel in a car park is 21 year old who has quit
studies and has completed higher secondary education from his home town (Itawa)
in Uttar Pradesh.
Our fourth migrant, a young man who is 19
years old is employed in a pharmacy (Wellness Forever). He came from Shirole
village (200 Km from Pune). Our young man is also a B.Com first year student
and writes his test semiannually.
Story Number 1 – Employee at a QSR (Quick Service Restaurant)
Mithilesh works at noodle canteen, He is 23
years old. Father of a 1 year old daughter. He works at a QSR (Noodle
Canteen). He earns 10,000 Rs per month; he saves all the money and sends
it to his hometown (Samistipur) each month.
He has opened up bank account in BOI (Bank of
India) in the name of his wife and he has his own account in SBI. If he saves
all the money, how is he able to survive in Pune? Where does he get his food
from? How does he pay his rent?
He said, he lives with 10 people in a
rented room in the city. The rent of the room is 15,000 Rs per month and
his employer sponsors his dwelling. He further said that he gets 3 meals in the
Restaurant every day.
He gets tipped by some generous people and the
amount ranges from anywhere between 50 Rs to 100 Rs a day. This
tip is what he spends on himself. Let’s assume that he gets 100 Rs every day
that results into 3,000 Rs of disposable money with Mithilesh to spend
in Pune.
His Grandfather is an employee with the Indian
Railways; he lives 25 km away from his home at the railway dock yard. He is a
mechanic and greases the wheels of the locomotives. His monthly income is 45,000
Rs per month.
Mithilesh’s father is a labor who happens to
be working in Punjab in a manufacturing facility where he cleans the shop
floor. His monthly income is 10,000 Rs to 12,000 Rs per month. He became
a labor, 5 years ago and was full time farmer prior to that. Farming is not
remunerative for the family, they have leased out the land to a contractual
farmer and the terms of the deal is to share the half of the produce with
Mithilesh’s family.
Mithilesh said that the produce is enough for the family in
Samistipur.
Women in the house (Mithilesh’s spouse &
his mother) live in Samastipur and they live in a joint family with Mithilesh’s
uncle taking care of the family needs. 10 people live in the samistipur
house.
Mithilesh’s has a sister who is 18 years old
and will get married in another 2 years. Mithilesh is saving money along with
his father and grandfather for Mithislesh’s sister wedding.
On inquiring further, Mihtilesh disclosed his
wedding expenditure (grooms side expenses plus bride side expense).
Dowry Breakup (Mithilesh Wedding)
Mithilesh received cash of 80,000 Rs in
dowry. Further Mithilesh received 36,000 Rs worth gold chain, 15,000
Rs worth gold ring, a 2 wheeler (Glamor Bike), queen size bed and basic
furniture worth 50,000 Rs to 60,000 Rs.
Mithilesh received dowry worth 1, 80,000 Rs
to 2, 00,000 Rs.
Wedding Expense (Mihtilesh Side)
Mithilesh and his family spent 8,000 Rs
on music, 5,000 to 8,000 Rs on shelter for guests, 15,000 Rs to 20,000
Rs on clothing and footwear, 20,000 Rs on food and 30,000 Rs
on wedding reception.
An interesting expenditure was on vehicles
rented out to carry the groom’s family to brides address. Mithilesh spent 13,200
Rs on vehicle rental. The vehicles were rented out for 2 days and the
wedding happened 25 Km away from Mithilesh’s house.
1,200 (per day rent) x 11 (cars) = 13,200 Rs plus Fuel expense.
Mithilesh’s family spent 1, 00,000 Rs to
1,20,000 Rs on wedding.
Similarly bride’s family spent 300,000 to
400,000 Rs on the marriage.
Do they have Electricity in Samistipur?
Yes, samistipur receives power 24/7
(Mithilesh’s word). He further explained that the department of Electricity has
changed transformers and this has provided un-interrupted power supply to the
households in Samistipur.
How much money is spent on electricity (Ball Park,
Monthly)?
Mithilesh, said that they pay 80 to 100 Rs
per month on electricity. Every month, a person from the department comes
to note down the meter reading. The family has no appliances (Refrigerator,
washing machine, Aqua Guard, Desert cooler), however; they have a television
(LCD).
They no longer cook meals on Chulah, they have
installed cylinders in the house. The cylinder gets refilled every month. The
family pays 1,200 Rs per cylinder per month and the government transfers
5, 00 Rs per month as subsidy in the bank account directly (DBT scheme).
Crop Insurance
Due to harsh monsoon, crop was damaged and the
family filed for claims. The government swiftly transferred money into the
claimant’s account however; crop insurance is not averse to corruption. The
formula to calculate a claim is rudimentary; 1,200 Rs for 1 Katta. There
are 20 Kattas in 1 acre of land. Mithilesh had to bribe the officer with
7, 00 Rs per katta to get his claim from the government. Net claim
recovered per katta was 5, 00 Rs after bribe.
Saving for His Daughter
Mithilesh has been saving 5, 00 Rs per
month in the name of his daughter each month in the post office. The scheme
is interesting- You save 5, 00 rs per month and the government will
match your installment of 5, 00 Rs. The girl will get her money after
she turns 18.
Borrowing Habits
The family is averse to credit, even if they
have to borrow money, they will not go to a formal bank, they will prefer local
money lender. Why? There is wide spread misconception among illiterates
that borrowing from banks is not for the illiterate.
They prefer a money lender over a bank when it
comes to emergency needs of funds.
The local money lender has fixed emi’s. He
will loan you 50,000 Rs and the borrower has to repay the entire amount
in a year’s time with payments happening weekly (1,200 Rs per week).
This translates into ~58,000 Rs per annum of payments to the
lender.
Weekly payment is super genius on the lenders side because the
probability of NPA declines drastically by having this time constraint.
Weekly payments can help banks penetrate deep
into the economy and take greater risk.
What’s the status of savings?
I was confident that Mithilesh would have
decent savings, but it was not the case. Mithilesh’s grandmother is old and she
had to be hospitalized. She was admitted in a private hospital, where
expenditure was high and the savings were spent in meeting those expenses.
Today she is doing fine and saving pool is
getting filled again.
Story Number 2 – Roadside Fruit Seller
Priya is a mother of 4 children (3
daughters and 1 son). Her eldest kid, a daughter is studying in Model
College in Pune. Model College is government funded and subsidies fees for
students. She pays Rs 2,500 for her daughter’s education for the entire
year.
That’s wonderful, education in government run
institutions is affordable for the masses, but she gets little upset and
complains about commute. Daily travel to college is expensive for her
daughter.
The eldest daughter has subscribed to a
monthly bus pass (AC bus) which costs her 1,100 Rs. The regular
bus service is inconsistent and kids prefer travelling comfortably in AC buses.
Her daughter’s yearly expenditure on travel is an exorbitant 13,200 Rs.
The remaining kids (2 daughters and 1 son)
go to a nearby Government school where they pay 1,500 Rs each for the entire
year. If the school provides reasonable education then it is good for the
society.
However, commute for a school kid is expensive
just like it is for her eldest daughter. The monthly run rate is 500 Rs for
each kid which translates into 1,500 Rs for the three kids and 18,000
Rs for the entire year.
How Much Does she earn from Fruit Stall?
Selling fruits as business is only good when
you have reasonable demand and predictability. Priya explained that she
purchases 17,000 Rs of fruits every 2 to 3 days from marketplace in
Pune. The fruit inventory gets sold in another 2 to 3 days. On an
inventory of 17,000 Rs, she gave a ball park range of profit between 1,000
Rs to 1,500 Rs.
Priya however, also stressed on days when
spoilage leads to a loss. Priya has spent 2 months selling fruits, she is new
into business. She works 12 hrs a day.
On the costs side, Priya has to pay rent of 5,000
Rs a month for occupying the real estate (on the road side). This money
goes to the land lord who has no name and Priya said, we pay to the village
people who have allowed us to set up a stall here.
One more insight we gained couple of weeks ago
was that, if you rent out spaces on the foot path from the municipal
corporation, you will pay anywhere close to 1,000 Rs to 1,500 Rs a month.
We spoke to another fruit seller who
had set up her shop close to Priya, she said she incurs 920 Rs a month on
rent and she pays directly to the corporation. She was a lady in her early
60s.
Further, a chia wala sitting close by said
that he incurs 1,500 Rs a month on rental cost which he pays directly to
the corporation in lum sum.
Our understanding of variation in rental costs
between private land lord (in case of Priya) and corporation (in case of
chai wala) is limited supply of licensed spots which gives abnormal
bargaining power to private land lords to ask abnormal rents.
What does Priya’s husband do?
Priya’s husband is an auto rickshaw driver
and he makes anywhere between 400 Rs to 600 Rs each day after costs (gas
cost). This translates into 12,000 to 18,000 Rs of monthly income.
Priya said that the Auto rickshaw business was
remunerative for her family in the past when there were fewer autos on
the road. There was time when her husband used to earn 1,000 Rs to 1,500
each day after costs. Today it is very difficult to make beyond
500 Rs a day being an auto driver.
Priya’s husband is not able to drop kids off
to school because he prefers leaving early in the morning to places where
probability of finding long haul commutes is high.
Household Expenditures
Priya lives in a rented shelter, 1 RK (one
room kitchen) in close by area with her family of 6. She incurs monthly
rental expenditure of 7,000 Rs.
Summing It Up
Aggregating the monthly incomes of the two
bread earners (Priya and her husband), we arrive at 20,000 Rs to 22,000 Rs.
Out of this 7,000 is spent on rent, leaving 14,000 Rs in hand.
If we believe Priya, she spends another 5,000
Rs in rent for her roadside stall, leaving 9,000 Rs to 10,000 Rs in hand.
Out of this, 2,500 Rs is spent on commute (3
school kids plus 1 college going daughter). It leaves 7,000 Rs to
7,500 Rs in hand.
Another 750 Rs is spent on Monthly gas
cylinders, leaving 6,500 Rs to 7,000 Rs in hand for the family of 6
to buy groceries.
On inquiring further on cylinder run rate, she
said her kitchen gas lasts 35 to 40 days and during winters, they
boil water on the stove which results into faster consumption of fuel.
She however, said she used to get 200 Rs to
250 Rs in subsidy for her gas cylinder till some time ago. These days she
is not getting the subsidy. How is she so sure?
Priya remembers, receiving SMS each
time she got her cylinder re filled and in the recent past, she has not
received any SMS from the authorities which makes her conclude that subsidy
payments have stopped.
Conclusion of Story Number 2
The low income
household in urban city is running on a tread mill with little to no savings.
If the bread earner falls sick, it can be detrimental for the entire family and
would possibly lead to kids quitting education to run business and support
siblings.
Residential rental yields are low in India but
it varies category to category. Rental yields in the 2,3 and higher BHKs are
abnormally low due to plentiful supply but the rental yield in 1, 1 RK and
lower category are abnormally high due to limited supply of these properties.
Story Number 3 – Security Guard from Itawa
Jeetu Yadav, is 21 year old boy working as a
security guard in a parking lot in Shivaji Nagar (Pune). He is from Itawa in
Uttar Pradesh. He has been working in pune for the last 3 years and this
happens to be his 3rd job as a security guard.
He earns 10,000 Rs a month and has to
spend 12 hrs (8 am to 8 pm) daily at the spot.
How did he come to Pune from Itawa?
Jeetu has 3 brothers (all security gaurds) in
pune. He has 2 elder brothers and 1 younger to him who also works as a security
guard.
The eldest brother works at a Restaurant in
Shanivaar Peth (Pune) and earns 15,000 Rs a month for 15 hrs
every day, second elder brother guards an ATM and works in 2 shifts (8 hrs per
shift) and earns 14,000 Rs.
Younger brother guards a hospital and also
earns 14,000 Rs a month for a 16 hr shift.
Dwelling
Leaving aside Jeetu, all siblings sleep at the
respective spots. Jeetu, however has made a nearby Government school his
dwelling. Jeetu’s brother in law and uncle happen to be guards at the school
and they are allowed to reside in the school premise after 5 pm.
Jeetu, sleeps in the school premise after work
and saves rental cost.
Jeetu cooks food for 2 of his brothers who
travel from their respective guarding spots in the morning and collect tiffin
from Jeetu.
Jeetu spends 1,500 Rs on food every
month and 450 Rs on fuel (gas cylinder).
Family in Itawa
4 members (Jeetu’s Mom, dad and Sister in law
along with a 7 year old niece) live in Itawa. Jeetu’s father is a farmer who
grows paddy. Jeetu’s father sells paddy worth 150,000 Rs in a good year
and 2019 was a good year for the family.
Jeetu’s niece is in grade 1 & the
family spends 17,000 Rs on her education per annum (commute included).
Family has no exposure to lenders and Jeetu
thanked al mighty that they never borrowed money during bad times, they
survived on dal and roti but did not borrow money from bank or local lender and
he also applauded his brother’s wisdom of deciding to keep farm land and not
sell it to anyone under desperation.
Family is highly averse to borrowed capital.
Household
Jeetu’s home in Itawa receives electricity 24×7
and the family has not paid electricity bill even once.
They have one big appliance in Itawa, refrigerator
which they got in dowry when the eldest brother got married many years
ago. Other than refrigerator, house in Itawa has desert cooler, ceiling fan
and tubes.
Jeetu also a has sister who got married
5 years ago and the family spent 4 lacs on her marriage including
dowry and they gifted a bike to the groom.
Summing it up
4 brothers and father earn close to ~64,000
Rs a month. 64,000 Rs is divided amongst 8 people (bread
earners plus dependents in Itawa).
All brothers have account in IDBI bank
along with dependents in Itawa.
Jeetu did not give a break up of expenditure
and broadly said that, you have some or other expenditures happening every now
and then.
If we broadly add the living expenditure of 4
brothers, we arrive at ~7,000 Rs of monthly run rate on food
leaving aside 56,000 Rs in hand. Of this another 6,000 Rs would
be spent by family in Itawa on food, leaving 50,000 Rs in hand.
Of these, 1,500 Rs is spent on Jeetu’s
niece education leaving 48,000 Rs to 48,500 Rs in hand.
Jeetu’s father would spend some money on
agriculture; we have no idea of that expenditure.
To simply things further, let’s assume that
the family is able to save 30,000 Rs each month, which translates into 360,000
Rs of savings each year.
How does future look like?
Future of Jeetu’s family is not rosy.
Today dependents in Itawa are 4 in number, tomorrow all of Jeetu’s brother’s
will get married and they will start a family of their own. When the dependent
count rises, family will begin to feel the heat.
Insights
Though wages in Delhi were competitive to that
in Pune, Jeetu and his brothers migrated to Pune for one simple reason; pleasant
weather. Jeetu tried working in Delhi but gave up due to the scorching heat
and winter chills.
Conclusion of Story Number 3
- Parents (white collar or blue collar workers) want their offspring’s to study in good schools and they will not mind spending hefty amounts on private school education. Jeetu’s elder brother decision to get his daughter admitted in private school against Government school shows noncompetitive nature of government schools in Itawa.
- Jeetu and his brothers migrated without family, hence saved hugely on rental expense.
- Professions such as those of Jeetu’s have no competitive edge; hence wages will rise slowly and will not keep pace with rising cost of education and healthcare.
- Pleasant weather is a determinant in labor migration
- With no hope of Jeetu wages rising in the near future, only the big expenses on education and healthcare have to correct for these migrants labors to feel relaxed.
Story Number 4 – Ganesh Pawar, Worker at a PharmacyGanesh Pawar is a 19 year old boy working out of a pharmacy (Wellness Forever) in Pune. He has enrolled for a B.com course in his village. He sits for semi-annual examinations and works full time otherwise in the pharmacy.He has spent 2 months in the pharmacy and his monthly income is close to 10,000 Rs.He lives with 3 of his friends in a nearby locality and spends 1,500 Rs on monthly rent. The 4 men spend 6,000 Rs on dwelling.He spends 3,000 Rs on food which leaves close to 5,000 Rs in hand each month which he sends to his parents. Ganesh has opened account with SBI and also has an account with City Union bank.Ganesh’s family has a gas connection and they consume one cylinder in 3 to 4 months and spend 750 Rs on each cylinder. Ganesh does not remember receiving gas subsidy from Government of India.Ganesh’s family is dependent on him. Ganesh’s father is a farmer growing Cotton. On enquiring further on income from agriculture, Ganesh said for the full year, Ganesh’s father is able to save 30,000 Rs to 40,000 Rs, which translates to 3,000 Rs a month.Ganesh’s village shirole (200 KM from Pune) receives electricity 24×7 with Ganesh paying bill on time each month. Since, it’s a joint family, where Ganesh’s parents live along with his brother and few other relatives; they pay 500 Rs on monthly electricity.On usage of consumer durable in the house, Ganesh said that they have socketed a television along with ceiling fans and tubes in each room.Conclusion of Story Number 4
1. Ganesh could have stayed a full time student
during his bachelors and helped himself learn soft skills with focus into
studies but today he has to work 12 hrs each day, post which he has
little time to put into studies.
2. Children of famers have to leave household at
early age and migrate to towns in search of work. If the farmer could provide
for his family for the entire year, these kids could have stayed at home and
put time into educating themselves. It is quite evident, that the future for
majority of famers in India is not rosy since they are low earners.
Some Measures-
Bringing a minimum
wage law cannot help the workforce, it will lead to further unemployment but
prescribing reasonable work hours can definitely help Ganesh spend more time
with books. If he could spend 8 to 9 hrs at work and remaining 4 hrs
before mid-night at a Public library or at home, he would quickly learn the
hard skills which can then help him bag high paying jobs.
Conclusion
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S. No.
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Problems of an Urban
Household
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Probable Solutions
to these Problems
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1.
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Expensive Private
Education
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1] Improving the quality of public education
and making it competitive.
2] Private schools built on expensive real estate are pressed to charge higher fees because the fixed cost of land and capital are high. Affordable real estate can make private education affordable. 3] Campaigning for MooC courses (Massive open online Courses) and virtual classrooms. |
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2.
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Urban Commute
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For urban low income household, daily
commute is expensive. Fast pace construction of public transportation
infrastructure such as Metro would bring some relief to the low income
household.
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3.
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Affordable Health
Care
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All migrants had one common complain that
health care is expensive and it sucks all savings. India needs to make
private health care affordable and it can only be done when the incentives of
care givers are aligned with those of receivers. India needs to regulate
doctors who get incentives from Pharmaceutical companies to prescribe their
medicine, which in turn inflates the cost of the medicine.
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4.
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Urban low Income
Housing
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Due to limited supply of smaller dwelling in
cities (1 RK and 1 BHK), the low income household has to let go of 30% of the
monthly income into paying rents. Capping rents would spoil the quality of
apartments and wages for the majority of the low income household would not
rise at greater pace due to lower amount of skills, hence the only solution
to low income housing is to shorten the commute time of the labor from house
to work, the labor would then not mind living at the out skirts of the city
and travelling to city center for work. The only remedy to affordable low
income housing is creating public transportation infrastructure which is
quick, such as Metro.
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5.
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Working Hours
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Government can prescribe reasonable working
hours across various professions. Generally the kids in low income jobs are
part timers in colleges. Not being able to spend time reading academic books
makes them vulnerable to becoming jobless or stay low earner all life. If the
working hours could be laid out and public libraries could be constructed,
many of these young kids can spend time educating themselves, which can then
help them bag high paying jobs.
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Happy Investing
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