india and china - savings and spending patters

SAVINGS AND CONSUMPTION PATTERN

-GROUP 9

INDIA VS CHINA

CONSUMPTION

• Consumption is the value of goods and services bought by people. Individual buying acts are aggregated over time and space

• Consumption is normally the largest GDP component• Before Economic Reforms, consumption comprised of

approx 52% of the GDP, however after reforms, it has grown its share to more than 62%

• Many persons judge the economic performance of their country mainly in terms of consumption level, which is distributed in the consumption of three categories of products, namely durable, nondurables and services

INDIA VS CHINA CONSUMPTION

• As emerging economies become more affluent, the size of the global middle class is expected to increase, from fewer than half a million in 1960 to 4 billion in 2030• The largest number will live in China and India• Both have large populations, industrializing

economies and rising living standards• Residential water and energy use, car ownership,

personal travel, food — notably meat and dairy — consumption, and waste generation all increase with income

CONSUMPTION DEPENDS ON….

• Value of goods and services bought• Largest GDP Component• Division of Consumption• Judging development level of a country• Determinants of consumption• Role of demographics in consumption• Impact on other variables• Business Cycle behaviour of Consumption

DIVISION OF CONSUMPTION

• Food• Clothing• Housing• Heating and energy• Health • Transport• Furniture and appliances• Communication• Education • Entertainment

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DETERMINANTS OF CONSUMPTION

• Current income• Cumulated Savings• Expectations of Future income

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IMPACT ON OTHER VARIABLES

• GDP• Savings• Imports• State Revenue

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HOUSEHOLD FINAL CONSUMPTION EXPENDITURE AS A % OF GDP

FOOD – AS % OF HOUSEHOLD CONSUMPTION EXPENDITURE

HEALTH – AS % OF HOUSEHOLD CONSUMPTION EXPENDITURE

HOUSING – AS %OF HOUSEHOLD CONSUMPTION EXPENDITURE

EDUCATION & RECREATION – AS % OF HOUSEHOLD CONSUMPTION EXPENDITURE

GOVERNMENT FINAL CONSUMPTION EXPENDITURE AS A % OF GDP

FINAL CONSUMPTION EXPENDITURE AS % OF GDP

CHINA CONSUMPTION PATTERN

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

Household Final Consumption Expendi-ture as a % of GDP(Absolute)Government Final Consumption Ex-penditure as a % of GDP(Absolute)Final Consumption Expenditure as a % of GDP(Absolute)Gross National Income, US Dollars(Growth)

INDIA CONSUMPTION PATTERN

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

90

Household Final Consumption Expendi-ture as a % of GDP(Absolute)Government Final Consumption Ex-penditure as a % of GDP(Absolute)Final Consumption Expenditure as a % of GDP(Absolute)Gross National Income, US Dollars(Growth)

SAVINGS PATTERN

National Savings comprises of: • Household Savings

• Corporate Savings

• Government Saving

GROSS NATIONAL SAVINGS AS % OF GDP

GROSS HOUSEHOLD SAVINGS AS A % OF GDP

HOUSEHOLD SAVING RATE

FACTORS AFFECTING HOUSEHOLD SAVINGS

• Demographics

• Pension funds

• Private home ownership

• Precautionary Savings

• Cultural & Habit persistent

MEDIAN AGE

CORPORATE SAVING

HIGH CORPORATE SAVINGS IN CHINA

• Growing Economy makes retaining & reinvestment attractive

• No Dividend Policy

• Massive subsidies for land and energy reducing the input cost

• Economic and Demographic trends

• Corporate restructuring (1995-05)

• Agriculture share in GDP fell from 30% to10% during 1980-2008

• Agriculture share of total employment from 70% to 40%

• Urban population rose from 20 to 45%• One-child policy• Dependency dropped from 68 to 38% within a

generation resulting in working-age share of population from 60 to 74%

Large-scale labour migration from FARMS to FACTORIES at relatively LOW WAGE rate

CORPORATE RESTRUCTURING

• Large scale labour retrenchment – employemnt at state companies was halved• Small money losing companies were shut down

altogether

Enterprise based cradle-to-grave social safety net shrank rapidly resulted in a boost in corporate efficiency and thus corporate savings

REFERENCES

• Datamonitor.com• http://www.thehindubusinessline.com/features/

investment-world/article2077037.ece• www.mckinsey.com

THANK YOU!!!