People in large cities earn more but save much less
If India’s top 112 cities are
classified into metros, state
capitals and other cities, we see
that metros on an average have
the lowest savings rate and
highest per capita income
Source: City Skyline of
Demand Curve India
India’s high savings rate is touted as a strong
defence against any economic slowdown.
These savings help in routing funds towards
greater investment that in turn fuels growth.
However, the spread and sustainability of
India’s savings rate is unclear. Many believe
that since households in the metros have
higher incomes, they would also be the
highest savers. The numbers do not bear this
out.
The disparity in savings rate in urban India
point to many factors that influence such
behaviour.

People in large cities earn more but save a smaller proportion of their income compared with residents of
smaller cities. There are many reasons for this.
First, larger cities usually have a greater share of slum population that typically save less. Secondly, many
large cities also have a large number of immigrants who repatriate their monthly surpluses to families,
which would otherwise have been saved. Thirdly, larger cities have greater avenues to spend.
Better roads lead to more people buying automobiles, and better entertainment options and higher
property rentals eat away a greater share of incomes. Hence, it is no accident that Mumbai, which has
among the highest average incomes in India, does not have the highest savings rate.
If India’s top 112 cities are classified into metros, state capitals and other cities, we see that metros on an
average have the lowest savings rate and highest per capita income, while capital cities earn more and
save more than non-capital cities.
This is because capital cities typically have a larger share of people in government jobs where incomes
tend to be higher and more stable for the same level of education as someone in the private sector, except
at the top levels.
However, there are significant differences within state capitals. Chandigarh, for instance, has a different
economic structure than, say, Bhopal.
Better infrastructure in state capitals, compared with other cities in the same state, has also led to greater
levels of new economic activities coming up in these, whether it is Lucknow or Patna.
The numbers indicate a clear pattern. Out of the top 30 cities, the smaller ones save at a much higher rate
than the larger.
Also, there are no north-south or east-west divides. In other words, it is not that people in southern India
save more and those in the northern parts of the country save the least.
There may be cultural differences across India’s economic geography, but they do not play out strongly
where savings rates are concerned.
Demand Curve is a weekly column by research firm Indicus Analytics Pvt. Ltd on consumer trends and
markets.