pattern of saving and investment of rural...
TRANSCRIPT
CHAPTER V
PATTERN OF SAVING AND INVESTMENT OF RURAL HOUSEHOLDS
5.1 Introduction
The pattern of disposition of saving is an important factor in
determining how the saved amount is utilised for productive purposes. The
proportion of household saving in financial assets determines the
channelisation of saving for investment in other sectors of the economy. The
volume of investment of saving in physical assets determines the productivity
and generation of income in that sector itself. The present study has made an
analysis of the pattern of investment of the households in the period under
study into financial and physical assets, in general. For the different
occupation groups, for different income groups and for households with
different educational qualifications, there will be differences in the asset
preferences. In this chapter, a detailed analysis is made on the asset
preferences of the households in general and households classified according
to occupation, income and leve I of education.
5.2 Financial Saving
The different financial instruments selected for investment are
classified as deposits, chits, post office saving, insurance, provident fund and
jeweller- and others. The classification is not strictly according to the
classifications in the National Income Accounts. No information on the
currency in hand is collected, as the households are reluctant to part with the
information. Jewellery is considered as a financial asset in the analysis, as this
is considered as more liquid ccmpared to other physical assets. Claims on
government and investment in shares and debentures are included under the
head jewellery and others since these households have invested very little in
these assets.
The households decide its allocation among competing financial assets
Table 5.1 Investment r~ f saving in financial assets
depending on (a) availability cf various assets,. (b) their respective rates of
Type of Asset
Deposits Chits
Post office Saving
Insurance Provident
fund Jewellery &
Others
return and (c) the rates of return on physical assets. The share of saving in the
form of financial investment comes to 45.03 per cent of the total. Of the
Source: Survey Data
Percent of Households reporting
26.00 43.33
39.67
36.33
12.00
7.33
various financial assets, the highest share is in the form of deposits in financial
Aver: r
H
institutions. This forms about 43.05 per cent of the total financial saving.
However, per cent of households reporting saving in the form of deposits in
financial institutions is quite low at 26 per cent of the total. The share of
deposits in financial institution:j as per cent of total saving amounts to 19.38
per cent. Another note worthy point is that only the affluent group in the rural
areas have opted for deposits as a channel of investment.
Chit funds is opted by the people of Kerala as an important form of
saving and borrowing. The fle:iibility in the methods of operation of the chit
funds and the small saving facilities offered by these institutions are perhaps
the main reasons for their popularity among the people. A household's choice
of assets is not guided merely by the rate of return, but also by other built in
advantages of various assets. In the study 43.33 per cent of households have
selected chits as a channel of investment of saving. Claims against chit funds
accounts for 28.23 per cent of'the total financial saving and 12.71 per cent of
the total investment. Wherea:; deposits in financial institutions are made only
by the richer group, chit f u d s in different forms, are opted by households,
bebnging to all income classes as a channel of investment,
Post office saving have also attracted the attention of many rural
households even though the: total amount involved is comparatively low.
39.67 per cent of household3 have reported saving through post office. The
Mahila Pradhans working in the rural areas and canvassing vigorously among
the female folk in the rural households have been responsible for the wide
popularity of the small saving schemes in the rural areas. In spite of the large
number of households reponing saving through post offices, the share of this
portfolio is only 4.44 per ccnt of the total financial investment and 2.00 per
cent of the total investment which makes it clear that this is the channel of
investment for the lower income class in the society.
Rural households have sele:cted contractual saving assets like insurance
and provident fund for investment. One form of contractual saving preferred
by the rural households for investment during the period under study is life
insurance. 36.33 per cent of hou:;eholds have reported an average amount of
Rs.4428 paid as premium. This accounts for 11.05 per cent of the total
financial saving. Thus, insurance habits have started to make their impact in
the rural areas in Kerala. Anothcr form of contractual saving is contributions
to provident funds and pension funds.
Only 7.33 per cent of the households have reported saving in the form
of jewellery and other financial instruments. The researcher observed that the
rural households did not find Ir~vestment in gold attractive because, the
return from this form of investment and value appreciation has not been
considerable. This type of investment is mostly made by the affluent class.
This form of investment occupies 9.21 per cent of the total financial
investment.
The higher level of financial saving among the rural households point to
the fact that physical investment, especially investment in farm assets is not
that attractive for the rural hou:;eholds. "Kerala had a long history of
communication and development of financial institutions. This probably
explains the high level of per capita gross investment in financial assets in
Kerala" (Mody, 1983)'. One of the reasons for the low investments in farm
assets and shift to financial assets is, as observed by Singh and Guznani
I Mody, Asoka (1983), Op.cit., p.799.
(1975)', is that, among a number of farm households a saturation point is
slowly reaching where additional avenues of profitable investment on farm is
drying up, forcing a larger al1oc:ation of increased income to either non-fann
investment or consumption. The fall in the prices of farm products, especially
during the last decade and the high price of land in Kerala are probable
explanations for the high rate of investment in financial assets.
In financial asset preferences regional differences are observed. In V1
22 per cent of households have reported deposits in financial institutions, and
47.54 per cent of the financial saving in V1 is in the form of deposits in
financial institutions. Investment in chit funds has been made by 40 per cent
of households. 24.98 per cent of the financial saving is in chit funds and it
forms 12.1 5 per cent of the total. 45 per cent of households have saved through
post office saving. 43 per ceni: of households have made financial investment
through payment of insurance premium. Investments in jewellery and other
financial instruments is made i-~y 6 per cent of households. The total financial
saving in V1 comes to 48.66 pt:r cent of the total.
In V2 26 per cent of' households have made deposits in financial
institutions, average amount being Rs. 19908. This forms 36.88 per cent of the
total financial saving made by the sample. The average amount deposited is
less than that in V1 and V3. The reason for lower average deposits in this
village is the wide popularity and existence of hundreds of chit funds
functioning in the district. Households, generally, have a preference for chit
funds both in the private sector and in the public sector. As much as 57 per
2 Singh, Harpal and Guzani "]:arm :Saving and Their Mobilization" Indian Journal of Agricultural Economics, Vol.XXX, No.33, p.125.
Table 5.2
Investment of saving in financial assets (villages separate)
(Rs.1
for
Deposits
Chit
Post office saving
Insurance
Provident fund
Jewellery and others
Deposits
Chits
Post office saving
Insurance
Provident fund
Jewellery and others
Source: Survey data.
v1
Average for all
households
v2
22
40
45
43
4
6
L
Deposits
Chits
Post office saving
Insurance
Provident fund
Jewellery and others
cent of households in V 2 have reported investment in different schemes of chit
v3
26
57
42
39
15
8
funds. Saving through chit funds occupy 33.45 per cent of the total financial
Share in total
. financial
investment
26395
7627
1144
4163
3300
15316
30
33
32
27
17
8
saving of the sample. 42 per cent of households have saved through post
Share in total saving
-
office. Insurance premium has been selected as a channel of investment of
5807
305 1
575
1790
132
919
19908
8236
21 10
3847
402 1
14675
26667
13076
1681
5688
5875
:!41 13
47.54
24.98
4.22
14.66
1.08
7.52
5176
4695
886
1500
603
1174
7820
4315
538
1536
1017
1929
23.14
12.15
2.05 -- 7.13
0.53
3.66
36.87
33.45
6.32
10.69
4.30
8.37
45.59
25.15
3.14
8.95
5.93
11.24
15.04
13.60
2.08
4.36
1.75
3.40
i 21.07
11.63
1.45
4.14
2.74
5.20
saving by 39 per cent of households. 15 per cent of households have reported
contributions to provident fund, and 8 per cent of households have invested in
jewellery and other financial instruments. The financial saving in V2, as a per
cent of total investment is only 40.73 per cent of the total. This lower
investments in financial instrur,ents in V2 is because, people here have a
tendency to invest in non-agric~ltural enterprises especially in the particular
small scale industry of the area, namely, jewellery making.
In V3 46.23 per cent of the total saving is invested in financial
instruments. Among the financial investments deposits in financial institutions
hold the prime place. This portfolio has attracted investment of 45.59 per cent
of the total financial investment::. Only 33 per cent of the sample households
have subscribed to the different schemes of chit funds and this investment has
accounted for 25.15 per cent of the financial saving. Compared to the other
two villages post office saving has attracted only less number of households,
i.e. 33 per cent. 27 per cent of households have paid insurance premium an
average amount of Rs.5688, the: average amount being larger compared to the
other villages. Provident h n d contributions have been made by 17 per cent of
households. This head accounts for 5.93 per cent of the total financial saving.
In the case of jewellery and otner financial instruments also V3 stands ahead
of the other two villages. 8 pe:r cent of households have invested an average
amount of Rs.24113 in these a:jsets and this contributes 11.24 per cent of the
financial investments. The particular conditions prevailing in each area have
had its influence in the selection of the different financial instruments.
5.3 Physical Assets
In the classification of physical investment of households sector, the
pattern accepted in most of the studies on household saving was followed,
except for gold, which is included under financial investment. Even though
purchase of land does not create .my net investment in the rural sector, as far as
the particular household is concerned, it is an investment and hence is included
under physical investment. Under land development, land reclamation and
renovation and construction of wells, tanks etc. are included. Investment in
durable consumer goods is nor: included under physical investment as it is
considered as part of consumption expenditure in the present study,
Table 5.3
Investment of Saving in Physical Assets
(Rs.1
Type of Asset investment
investment
Purchase of 67923 2943 16.56 9.10
6.97 12.33 10043 3.83 development
Buildings 42773 3137 17.65 9.70 I
Cattle 30.00 L 7 4 9 3 2248 12.65 6.95 --- I I I
Planting
Equipments
4.67
/Industly&-1 9.00 I 73370 1 6603 1 37.15 1 20.42 1 Business -
Source: Survey data.
3207 I50 0.84 1 0.46 1 trees
.- I
A large part of saving in physical assets is by way of direct internal investment
of households. This type of inv1:stments may not depend on primary rat- of
return. The main determinant of such investment is likely to be its
productivity. 54.97 per cent of the investment of saving of the sanlplc is in
physical assets.
Only 4.33 per cent of households have made any investment for the
purchase of land. The average investment made by the reporting households is
Rs.. 67923. 16.56 per cent of tot11 physical saving is in the form of purchase of
land. For land development activities like rigging of well, land conversion,
and fencing etc. 12.33 per cent of households have invested. The average
investment for the reporting households is Rs.10043. One reason for this large
investment in land development activities is the financial assistance given
through the different programn~es as part of the decentralised planning. 7.33
per cent of the households have invested in construction of houses and other
buildings an average am0ur.t of Rs.42773. However, average for all
households amounts to only Rs.3 137. Building construction has accounted for
17.65 per cent of the total physical investment. Another item in which
physical investment is made by households is pumpsets and equipments. Here
again, the popular planning has been instrumental. 8.67 per cent of the
households have made investments under this head an average amount
Rs.16808. Contibution of th:s item towards total physical investment is 8.18
per cent. Investment in household business and industry has contributed 37.15
per cent of the total physical investment and 20.42 per cent of total saving.
Only 9 per cent of households, have made investments under this head. Thus,
in the rural sector, due to lovier profitability of investment in farm activities
there is a shift towards financial assets and assets in non-farm activities. 54.8
per cent of the physical investme:nt is exclusively in non-fam activities,
Table 5.4 Investment of Saving 111 Physical Assets (Villages Separate)
Purchase of land Land development Buildings Planting trees Cattle Pump-sets & equipments Industry & business
Purchase of land Land development Buildings Planting trees Cattle Pumpsets & equipments Industry & business
V3 1
4
13
12 6
27
9
11
Source: Survey data.
1 12 9
3
26
8
1 1
85000
10508 38083 4667
8741
15278
6.28 18
7 d
200000 2000 10.02 7 - 5 . 3 ' ) -4
3400
1366 4570 280
2360
1375
7130
3.67 7 13.01 0.20
-- 6.84 - 3.84
20.83
11 354
53667 2467
9?69 -
17313
70273
16.60
6.67 22.31 1.37
11.52
6.71
34.82 -J
9.86 - 3.96 13.25 0.81
6.83 -
3.92
20.59 -1 1363
4830 74
2540
1425
7730
6.83
24.20 0.37
12.72
7.14
38.72
In all the three villages , the largest share in physical investment is made
in non-farm sector by the rural households. Investment in buildings is the next
important item of investment in 'J2 and V3, whereas in V1 only negligible
amount is invested in buildings. In V1, investment in purchase of land and
land development together has accounted for a share of 34.27 percent of the
total physical investment.
5.4 Financial and Physical investments of different occupation groups
The preferences of households about the different forms of assets differ
according to the occupation groups, income groups and levels of educaticn.
Krishnamurthy and Saibaba (1981)~ hold that the propensity to save in
financial assets is significantly greater for the non-agricultural houscho!as
where as no significant difference is found with regard to the physical assets
Table 5.5
3 Krishnamurthy,Kand P. Saibaba. Op cit., p.242.
Pattern of Investment of Different Occupation Groups - Financial
Occupation groups
Cultivators Agricultural
labour Non-agricultural
labour Salaried
Self employed Ir Non-farm activities Overseas employed
Total Source: Survey data.
Deposits
5002
81
511
11779
14043
40357
6268
Claims on chit funds
3658
790
1940
9505
6288
2014
4020
P
5.4.1 Financial Investment of Occupation Groups
All the occupation groups of the sample have made some financial
investment. The cultivators who form one third of total sample accounts for
29.71 per cent of the total financial investment made by the sample. These
households have made an average financial investment of Rs.12895 out of
which, 38.79 per cent is in the fonn of deposits in financial institutions. On an
average Rs.3658 is invested in chit funds which forms the second largest
portfolio of investment. An average amount of Rs.612, that is, 4.75 per cent
only is in the form of post office saving. Saving in the form of insurance
premium by the cultivators amount to an average amount of Rs. 1544 where as
these households have invested in provident fund only 2.67 per cent of the
total financial investment. Jewel1f:ry and other financial instruments account
for 13.45 of the total financial saving of the cultivators.
Non- agricultural labour h~~useholds who form 15.67 per cent of the
sample contribute only 4.03 per cent of the total financial saving. The average
amount invested in financial assets by these households is Rs.3719 out of
which Rs.1940 is in chit funds. This forms 52.16 per cent of the financial
saving. Deposits in financial institutions, post office saving and insurance
premium together have accounted for 40.16 per cent of the financial saving of
these households.
The salaried group has contributed the largest share in financial saving.
Average amount of Rs.30250, wdch accounts for 34.15 per cent of total
financial saving of the sample, is invested by these households. Of this,
Rs.11779 is deposited in financial institutions, which comes to 38.94 per cent
of the financial saving of this gro-~p. Rs.9504 is invested in chit funds which
is 31.42 per cent of the investmt:nt in financial saving. Post office saving,
insurance premium and provident fund together claimed 21.32 percent of the
total.
The self-employed households in non-farm activities have invested an
average amount of Rs.25878, which is 20.87 per cent of the total financial
investment of the sample. Rs.14043, that is, 54.26 per cent of the financial
saving of these households is in the form of deposits in financial institutions.
Rs.6288 is in the form of claims against chit funds.
In V1 cultivators made an s.verage financial saving of Rs.8361, which is
26.39 per cent of the financial saving in the area. Among the portfolio
preferences of this group chit fund schemes stand first with a share of 43.86
per cent of the total. The salaried class households made an average financial
saving of Rs.16198. In their portfolio, the largest share is for deposits in
financial institutions which come:; to 38.13 per cent of the total. Chit funds
come next with a share of 29.02 per cent. Households whose heads are
employed overseas have made a total financial saving of Rs.198000. This
amount is divided between deposits in financial institutions and insurance in
the ratio of 3: l . Thus, in V1 deposits appear as an instrument of financial
investment of upper income occupation groups. Chit funds has been the most
sought after financial assets by the: households of all occupation groups. In V2,
households of all occupation groups make some investment in deposits,
whereas in V1 agricultural labour households and non agricultural labour
households have not deposited any amount in financial institutions. Chit funds
Table 5.6
Pattern of Investn~ent of occupation groups - Financial (Villages Separate) (r5.1 \ ,
Source: Survey data.
is the most preferred financial asset by all groups of households. In V3,
cultivator households who form 34 per cent of the total have invested more in
financial assets compared to the same group of households in V1 and V2. The
average amount invested by thes: households in financial assets amounts to
Rs.18558 contributing 36.78 per cent of the financial saving of the sample.
43.75 per cent of this is in deposits and 21.20 per cent is in chit funds. Non
agricultural labour households made an average financial saving of Rs.1683.
Chit funds occupy 56.1 1 per cent of these saving. The salaried class in V3
makes the highest financial saving that is an average amount of Rs.45802
contributing 37.38 per cent of the financial saving of the sample. 45.60 per
cent of these saving is invested in the form of deposits and 28.98 per cent is in
chit funds. The self-employed in non- agricultural sector makes an average
financial saving of Rs.24183 out of which 48.59 per cent is in deposits. An
average amount of Rs.6400 is invested in chit funds. Those households whose
heads are employed overseas make an average financial saving of Rs.33933
out of which 71.22 per cent is in deposits. None of these households have
opted chit funds as an avenue of investment.
Thus, generally, chit filnds have wide acceptance among all the
occupation groups. Deposits in financial institutions are made mostly by
households belonging to the cultivators, salaried group, self-employed in non-
farm activities and overseas enlployed. In the post office saving, though not
huge amounts, most of the occupation groups belonging to the three regions
have contributed to. Insurance premium also has attracted investments from
most of the occupation groups in the three regions, though agricultural labour
households and non- agricultural labour households have invested only
negligible amounts. Providenl fund contributions are made by the salaried
members only. Investment in jevrellery and other securities are made by the
households belonging to higher income brackets.
5.4.2 Pattern of Physical Investment of Different Occupation Groups
Households belonging to all the occupation groups have reported
investment in physical assets. However, depending on the nature of
occupation involved each occupation group has its own asset preference.
Cultivator households have made an average investment of Rs.17206 in all the
physical assets put together.
Table 5.7 Pattern of investment oFdifferent occupation groups - physical
C
Source: Survey data
37.20 per cent of this is invested in self employment activities in non farm
sector. This is a pointer towards the changes in the attitudes of even the
cultivator households. In purchase of land, land development and planting
trees together, 27.36 per cent is invested. Construction of building accounts
for 11.97 per cent, which cannot be considered as for farm improvement.
Table 5.8 Pattern of investment of 1)ifferent occupation groups - physical
(villages separate)
Source: Survey data.
Among the different regions studied, cultivators in V l reports the least
investment in value terms in physical assets. However, a major portion of this
investment is in farms or farm related activities. Only a small amount is
invested in household industry and bus~ness. Agricultural labour households
within the area have invested an average amount of Rs.2731 in physical assets,
which is totally related to agricultural and related fields. Average investment
of non-agricultural labour households in physical assets is Rs.3612, which is
distributed in purchase of land, cattle and equipments and pumpsets. Salaried
group has made an average invzstment of Rs.6533. Out of this 20.40 per cent
is invested in household indusiry and business and the rest in agriculture and
related activities. Households self-employed in non-farm sector have made a
huge investment of Rs.63800 in physical assets. However, 70.53 per cent of
this investment is in householcl industry and business and the rest in agriculture
and related activities. The households whose heads are employed overseas
have made an average investment of Rs.50000 out of which Rs.40000 is in
land development and the rest in equipments and pumpsets.
In V2 cultivator households have made a total physical investment of
Rs.18115 which is 120.58 per cent more than the physical investment made by
cultivators of V1, but 47.59 per cent less than that made by the same group of
households in V3. However, only 38.64 per cent of this is in the agricultural
sector and the rest is in buildings and household industry and business. Thus,
investment in agricultural activities as such was discarded by the cultivators in
this area. Agricultural labour households in V2 have made a total investment
of Rs.10239. The housekolds with salaried heads have made an average
physical investment of Rs.27350. 38.03 per cent of this is in construction of
houses. The households primarily employed in non-farm activities have made
an average investment of Rs.38923 is physical assets. 39.53 per cent is in
purchase of land and 41.1 1 per cent in household industry and business.
Households with heads employed overseas have not made any investment in
physical assets in V2.
The average amount inve:sted by cultivator households is Rs.26800, in
V3. 57.06 per cent of this i:; exclusively in the non-farm sector. Only
cultivator households in V3 have made any investment for the purchase of
land. 8.89 per cent is invested in land development, which is made necessary
because of the particular nature of land and climatic conditions prevailing
there. Agricultural labour houst:holds in V3 have made an average investment
of Rs.3511, which is mostly in cattle. The non-agricultural labour households
have made an average physical investment of Rs.7250. An average amount of
Rs.24536 is invested in physical assets by the households with fixed income.
However, 58.22 per cent of this is in construction of house. The self employed
in non-farm sector has invested an average amount of Rs.39354. As much as
70.52 per cent of this investment is in the form of investment in household
business. Average amount invested by households with overseas employment
is Rs.24000 and 48.61 per cent out of this is in buildings. Thus, in all the three
villages, among all the occupation groups, there is a tendency towards
investment in non-farm sectcr rather than in the farm sector. Hence, the
hypothesis that there is a shift away from the farm related assets to the non-
farm assets may be accepted.
5.4.3 Liabilities and Current Saving of Occupation Groups
Although, households have made reasonable amounts as investments in
the financial and physical assets not all of this is made out of saving in the
period of study. Sources for funds include sale of existing assets and
Source: Survey data.
According to NCAER study ( 1 9 6 5 ) ~ there are three kinds of saving,
namely, saving that results fram the surplus of income over consumption, net
increase in borrowing from others and inflow of capital transfer. Households
might acquire some kind of :assets while liquidating others might borrow and
lend money, or might receive or make capital transfers at the same time,
though all types of transactions are not likely to be of the same household.
borrowing.
Table 5.9 Financial, physical, total savin;: and liabilities of different occupation groups
National Council of Applied Ecc~nomic Research, (1965) All India Rural Household Saving Survey, Pattern of Rural Household Saving", p.86.
1
(Rs.)
6
Current saving (4-5)
14329
-552
6047
5
Liabilities + sale of
assets
15772
7469
7639
4
*Otal
investment
30101
6917
13686
3
Physical investment
17206
5512
9967
1
Occupation groups
Cultivators
Agricultural labourers
Nan-agricultural labourers
50423
72056
74700
3 1993
2
Financial investment
12895
1405
3719 -
14016 20173
46178
17429
17525
Salaried group
Self employed in non-farm sector
Overseas employed
Total
36407 30250
25878
57271
14468
24626
13160
47430 --
74700
18833 L
The net increase in borrowing at the all households level will help partly to
finance the increase in assets, but this does not imply that the net increase in
borrowing of every household resulted in an increase in assets. Saving and
investment of an economic unit need not be equal since investment within a
unit may partly or wholly be financed by its saving or through external sources
or both (NCAER, 1 9621~.
In the sample, the cultivator households have made an average
investment of Rs.30101 out of which 42.84 per cent is in financial assets and
the rest in physical assets. 52.40 per cent of this investment is financed
through borrowing, or sale of assc:ts and the rest by saving of these households.
This amount is larger than the saving figure estimated for the group of
households through the income-expenditure method, to the extent of Rs.2889.
This difference in saving is reported in the case of all the occupation groups,
and income groups. This variation is to be attributed to either the under
reporting of income or over reporting of consumption expenditures. As is
observed by Kraay (2000)~, "to the extent that household survey
underestimates income and to the extent that propensity to save out of
unrecorded income is positive, the survey will underestimate the level of
saving."
Agricultural labour households have made an average investment of
Rs.6917. Financial investment forms only 20.31 per cent of the total and
79.69 per cent is in physical assets. Investment out of saving by these
households is negative as fund:: mobilised through additional borrowing and
5 NCAER (1962), All India Household Saving Survey, New Delhi, p.48, 6 Kraay, Aart (2000), Op.cit., p.552.
sale of assets during the year amounts to Rs.7469. Thus, saving is reported to
be Rs.-55 1.67, which is less than 1.he negative saving figure by Rs.4728.
Households engaged in non-agricultural labour have reported total
investment amounting to Rs.13686. After subtracting the liabilities and value
of sale of assets, investment rnade out of current saving works out to be
Rs.6047 which is larger than the saving estimated for the group as a surplus
over expenditure by Rs.3963. This group has also shown a preference for
physical assets, as the financial investment is only 27.17 per cent of the total.
The salaried group of households has invested more in financial assets.
Their average financial investment works out to be Rs.30250, which is 60 per
cent of the total. Finance mobilised through additional liabilities and sale of
assets by this group is 27.80.
The households who are primarily engaged in household business and
industry have made financial investments worth Rs.25878, which is only 35.91
per cent of the total. Investment in physical assets by this group amounts to
Rs.46178. Funds mobilised through borrowing and sale of assets for making
this investment amounts to Rs.24626 leading to an investment of Rs.47430
through saving during the pe:riod under study.
Average financial investment of the sample as a whole is Rs.14468 and
physical investment is Rs.17525. Thus, 45.22 per cent of the total investment
of the sample is in financial assets and the rest is in physical assets. An
averagc amount of Rs.13160 is raised through borrowing and sale of assets.
Thus, the investment made through saving during the year is only Rs.18832.
Table 5.10
Financial, physical, total saving ;and liabilities of different occupation groups (villages separate)
/ Financial 1 Physical ( Total n "-..-- +: --
16574 10990 5584
3896 4930 -1035
labourers 2473 3612 6085 7015 -930
investment investment
(Salaried class 1 16918 1 6533 1 23451 2920 2053 1
t sale or investment
'Self einployed in non- 1 1 38574 1 70574 1 farm activities
Overseas employed 198000 50000 248000 248000
assets 1 (4-5) /
v2
Cultivators / 12312 18115 1 30426 1 I
13893 1 1 6 5 3 4 1
Self employed in non- 1 1 :::/: 1 3"3 1 f:tf5: 1 23: 1 1 farm activities
Overseas employed . . I I 1
v3 Cultivators / 18558 1 26800 1 45358 1 22750 1 22698
Agricultural labourers I 1 z 1 3511
4616 1 6195 -:::: - 1 Non-agricultural labourers 7250 8933 7658
I I I
Salaried class 1 45802 1 24536 1 70338 1 - 23571
Self employed in non- farm activities I 24183 1 39354 I 63537 I 19333 1 44201 1
I Overseas employed ( 33933 1 24000 1 57933 1 - 57933 -
Source: Survey data.
Analysing the investment of' the occupation groups in the different
regions in V1, cultivators have made a total investment of Rs.16574 out of
which 50.44 per cent is in financial ;assets. Borrowing and sale of assets have
financed 66.3 1 per cent of this inveslment. Agricultural labourers made a total
i~lvestnlent of Rs.3896. Only 29.94 per cent of this is in financial assets. An
amount equal to Rs.4930 was secured from borrowing and sale of assets,
which leads to a net negative saving of Rs.1035. Non-agricultural labour
households have invested an average amount of Rs.6085. However, Rs.7015
has been made available for investment by borrowing and sale of assets. Thus,
the saving of the group is also negative. The salaried group has made a n
average investment of Rs.23451. Financial investment has accounted hi'
72.14 per cent of this. As much as 87.55 per cent of the total investment was
saved during the period.
In V2, cultivator households made a total investment of Rs.30426 out of
which 40.46 per cent is in financ:.al assets. As much as 44 per cent is
mobilised through borrowing and sale of assets. Agricultural labour
households have made a total average investment worth Rs.9890. Only 19.47
per cent of this is in financial assets. Total investment by non-agricultural
labour households is Rs.25210. 27.85 per cent of this is in financial assets.
32.23 per cent of this is obtained through sale of assets and borrowing. The
salaried group of households in V2 has made the largest household investment
of Rs.56713. 51.78 per cent of which is in the form of financial assets.
Subtracting the mobilisation of funds through borrowing and sale of assets, thc
current saving amounts to Rs.4 1563.
. In V3, the total average .nvestment by the cultivator households is
almost thrice that of V1. 40.91 per cent of this investment is in financial
assets. Borrowing and sale of ass1:ts contributed almost half of the investment.
Agricultural labour households made a total investment of Rs.4616 per
household. Physical assets accoilnt for 76.06 per cent of this investment.
Average investment by non-agricultural labour households amounts to
Rs.8933. 18.89 per cent of this is in financial assets. The salaried group of
households has made an average investment of Rs.70338. As in other regions,
financial investment accounts for a major portion of this. Borrowing and salt:
of assets account for 33.51 per 'cent of this investment. Thus in all regions
funds for investment have been ~nobilised by borrowing and sale of assets by
all occupation groups except fnose employed overseas . As the physical
investment increases funds acquired through borrowing and sale of assets have
also increased in the case of all occupation groups.
5.5 Income level and Pattern of Investment
One of the factors having considerable influence in determining the
pattern of investment is the level of income both in rural and urban
households. According to Mod) (1983)' the largest agricultural income group
has significant fixed investment per household in non-agricultural business.
The NCAER study (19791~ found that there was a general decline in the share
of investment in farmland with rising household incomes. Rao (1980)~ has
observed that "financial assets are mostly held by the better off among the
7 Mody, Asoka (1983) Op cit., p.805. NCAER (1979) Op cit., p.87. Rao,V.K.R.V.,(1980) Op cit.,p. 969
income groups and increase in hou:;ehold saving in the form of financial asset
may be another indication of the increase in money income favouring this
class." The present study has also analysed the pattern of investment of the
rural households classified accortling to the level of income and found the
following facts.
5.5.1 Financial Investment of Il~come Groups
As in the earlier studies, in the present sample also there is a tendency
for the investment in financial assets to rise for the higher income groups. The
lowest two income groups do not go for the deposits in financial institutions as
a channel of investment. Most of these households expressed an aversion
towards the formidable formalities involved as a big problem in investing their
financial saving in formal financial institutions. However, the lowest income
households subscribe to chit funds and post office saving, popularly known as
"Post Office Kuri". The easy terms and conditions, lack of formalities
involved, the attitude of the agents and institutions towards the low income
households and the possibility c ~ f easy remittance facilities, without the loss of
time and working days have, probably, attracted these households, towards
these channels. These two groups of households contribute little towards total
financial saving, but this shcruld always be expected as they are on the
minimum needed for their biological subsistence. The cumulative contribution
of 23.33 per cent of households in these two income brackets is only 1.31 per
cent of the total financial saving of the sample.
Table 5.1 1 Pattern of investment of different income groups - financial
Further trends also revealed that as the income level increases there is a
tendency for the households tcl invest more in the form of deposits in financial
institutions. At this level people prefer more of security of funds. Tlie
financial asset, which is selected by households of all income groups as an
important asset is chit funds. 'The large number of chit funds functioning in ail
parts of the state in the public sector, co-operative sector and i ~ ! the ;xivat;. . . sector have been responsible for the preference of this asset by the rural
households. The lower income households have invested a greater percentage
of their saving in chit funds. I-Iouseholds belonging to all income groups have
made their investment in post office saving and insurance. Jewellery and other
financial instruments were selected for investment by only the richer classes.
Post office saving
240
283
518
613
939
836
1252
228 1
Source: Survey data.
Providept Jewellery Insurance Total fund and others
313
799 1 2683 -.
725 336
1928 753 786 15363
2613 792 3357 29578
4274
9863
2605
2873
5542
9217
56761
84346
The share of these items in the portfolio has increased with higher income
groups.
Table 5.12
Pattern of investment of different income groups - financial (villages separate)
150000-200000 1 25487 1 2006; 1 400 1 2133 1 1 4513 / 52600
200000 & above 1 64515 / 1120C1 1 3000 / 18021 1 - 1 4135 1100871
Source: Survey data.
0-25000
25000-35000 35000-50000
50000-75000 75000-100000 100000-150000 150000-200000
200000 & above
-. T~---~--~
- 1 - 1 454 I20
23 392
477
662
967
2607
500
-- 274
77
400
1400
2415
6294
7989
1032
4923
13572
45200
37500
-- - I 400
900
60
300 .-
508
2905
5292
6983
15600
14000
1 545
1336
1198
3420
4720
--
559 -
800
2955
7000
13667
5918
14413
28091
80122
78376
Region-wise, in all the three villages, there is a general preference for
chit funds among all income groups, eventhough, in percentage terms, the
amount invested comes down as income increases. Deposits form an
important item in the portfolio of the upper income classes. As income level
increases higher percentage o f the financial saving is deposited in the financial
institutions. Post office saving is another fonn of saving, which was selected
for investment in all the three villages at all income levels. Households
belonging to all the three village:; have invested in insurance. The wide
acceptance of chit funds, post office saving and insurance among households
of all income classes list less formalities, extreme flexibility of operations and
the great effort put in by the agents in canvassing clients as the major factors
behind popularity. Investment in jewellery is made by the middle income and
upper income groups of household:;. However, the percentage of investment
in this asset has come down because of the lower capital appreciation of gold
in recent times. Government securilies and corporate securities have not made
much head way in the rural households. Whatever little investment, made by
rural households in the securities is rnostly by the upper income class.
5.5.2 Pattern of physical investmc:nt of income groups
As in the case of financial investment, lowest investment in physical
assets is also made by the lowest income groups. Average physical investment
of the <25000 income group is Rs.2844. 46.71 per cent of this is in cattle.
Households in the Rs.25000 - 35000 have made an average investment of
Rs.4415. However, 32.71 percentage of this is in construction of houses. The
subsidies received as part of the Mythri home scheme has been instrumental
for this higher percentage of investment in buildings.
Table 5.13
Pattern of investment of different income groups - Physical
Ms. )
Source: Survey data.
The topmost income group has reported a lower physical investment per
household, compared to the next lower income group. Average amount
invested in physical assets b), these households is Rs.60500. Investment in
household business and industry by this group is only a lower per cent (27.17).
This is because the main source of income of many of the households
belonging to this group is i:mploynent overseas who are not very much
interested in making investment in such assets. Rather, these households like
to make their investment in real estates and buildings, and hence they krwe set
aside 41.56 per cent of this physical investment for purchase of land and land
development. Another 23.61 per cent is invested in buildings. Thus, as the
income level increases, households have a tendency to invest more in
productive assets in the non-farm sxtor .
Table 5.14 Pattern of investment of different income groups - physical (Villages Separate)
IRs) \ ,
m w a m -3
Y x 5 2 ." e, ..- & 9 -
m Income Groups 5 f a g.3 -
C
C m U . " 5 ... 2-2 t-" w 5 5
a W
v1
Source: Survey data.
sdnoi~ amo3u1 jo sa!l!l!qeq pue luaurlsanuI plo~ pue 'le3!sAqd 'IE!~UVU!~
SI'S a1qQL 'luauqsanu! lrrlol
e se a(~rz3 JO a3uelda33e aprm ay1.10~ suoseal aql JO auo s! dnoiB auro3u! iaMol
arp 8uou1o alga3 JO uo!lnquls!p aql purr ue~d s,aldoad aql~o suo!~e~uarualdur!
s! all123 u! IrraurlsaAu! '~ol3as uuej aql u~ .slo)gas uuej-uou 01 lolgas
~u.iej uolj luamlsanu! aql 8u!lj!qs ioj Lsuapua) e s! alaq 'ley1 s! slasse le~!sLqd
In the study, the lower income groups prefer more of physical assets
than financial assets. This is the result of lack of sufficient formal financial
institutions in the rural areas and the formalities involved in making financial
investment. Also whatever s a ~ i n g they manage to set aside, they want to
invest in quick rewarding asset:; like cattle and other farm assets. The falling
rate of return from financial assets has also stood in the way of making
financial investments by the lovier income group.
Analysing the distribution of investment between financial assets and
physical assets, there is a clear trend visible, that is, as the level of income
increases there is a preference for financial assets among the households and
the hypothesis that as income: increases households prefer more of financial
assets than physical assets is accepted. The only exception is the income group
Rs.150000 - 200000, where financial investment has declined compared to the
next lower income group. Another trend visible is that, as the investments in
physical assets decline, the per cent of funds mobilised through borrowing and
sale of assets also decline. Fiouseholds invest more in financial assets, out of
their current saving whereas more of physical investment is made out of
borrowed funds. Another noteworthy point is that at high income level, if the
percentage of investments in physical assets is higher, it is not investment in
farm assets, but in non-farm assets.
'Table 5.16
Financial, physical and total investment and liabilities of income groups (villages separate)
Source: Survey data
v7
5298
12347
16435
16189
43880
55231
123497
163526
0-25000
25000-35000 -
35000-50000
50000-75000
75000-1 00000
100000-1 50000
150000-200000
200000 & above
7800 -2502
11309
11777
5914
15000
15575
41200
50000
898
937
2958
8459
14880
34648
35897
76776
.
1037
4658 -
10275
28880
39656
82297
113526
- -
4400
1 1409
13477
7729
29000
20583
87600
86750
For all the income groups, physical investment is greater for the
households in V2 compared to \I1 and V3. However, as a percent of total
investment, funds raised through borrowing and sale of assets do not show
much difference. In all the three villages, funds raised through borrow~ng and
sale of assets show an increasing t ~ e n d as the share of physical investment
increases. The larger share of financial assets in total investment for the upper
income groups is more pronoun:ed in V3 and V1 whereas in all the income
groups in V1, financial investment forms only less than SO per cent of the total
investment. In V1 and V3 the lower income groups have invested more in
physical assets, but there are not investments out of current saving. For two
income groups in V1, namely, P.s.75000-100000 and Rs.200000 and above. all
the investment is made out of saving from current income.
5.6 Level of Education and Pattern of Investment
The level of education of the head of the household plays an important
role in determining the choice '2etween the financial assets and physical assets.
The specific instruments selected from among the different financial assets and
from among the physical assets, to some extent, depend on the level of'
education. The NCAER study (1964)" points out that "preference for financial
assets, especially bank accounts, rises markedly with education. Thus, it would
appear that efforts to popularise financial forms of saving are needed,
particularly, among the less educated members of the upper income groups.
Conversely, the preference for business investment declines somewhat with
education, but rises with income.
10 National Council of Applied Ecsnomic Research [lY64), Op.cit., p.23.
5.6.1 Financial Investment and Level of Education
In the study, the lowest financial investment is made by the households
whose heads are illiterates. Average investment in financia! assets of this
group is Rs.1234. As much as, 64.86 per cent of this investment is in chit
funds and 30.66 per cent in post ol'fice saving.
Households with heads having primary education have made average
investment of Rs.8615. In this g o u p of households also, the largest share of
37.98 per cent is in chit funds. These households have made 34.07 per cent of
financial saving in deposits.
An average amount of Rs.:.8086 is invested by households whose heads
have secondary education. With the increase in the level of education the share
of bank deposits in the financial ;assets has increased to Rs.8283, which forms
45.85 per cent of the total. The second place in terms of the share in financial
assets is occupied by subscriptions to the schemes of chit funds, that is, a share
of 21.57 per cent
Table 5.17 Pattern of investment according to level of education - Financial
(Rs.) Provident
fund
276
1146
1284
2067
Source: Survey data.
Jewellery and others
578
1912
, .,
Total
1234
8615
18068
8548
5333 69155
Households with higher education of degree and above have made an
average investment of Rs.66195 in financial assets. Out of this 46.69 per cent
is in the form of deposits in financial institutions, and 29.96 per cent is in chit
funds. Thus, there is a marginal increase in the share of deposits whereas the
share of chit funds has increased l ~ y 8.39 per cent. 12.86 per cent of the total is
invested in jewellery and other securities
An average amount of F.s.69155 is invested in financial assets by
households, having heads with professional qualifications. 64.83 per cent of
this is in the form of deposits. The next in priority by these households is
insurance. Chit funds is not much preferred asset of this group.
Thus, there is a trend visible in the asset preference by the sample
households when making their financial investments. Those households with
lower education levels have gone for financial instruments, which involve less
formalities and are flexible in operation. The demand for other instruments
provided by the formal financial institutions, such as deposits and insurance
premium, tends to increase for hcluseholds with more education. Jewellery and
other financial securities do not tind much importance in the portfolio of any
of the households of different education levels. In terms of per cent of
investment made, chit funds occupy the prime place in the portfolio of the
illiterates and households with heads having education up to primary level.
The percentage invested in chit funds comes down as the level of education
increases. Saving through post office is selected by households of all levels of
education whereas contribution towards provident fund is made by the salaried
members only.
Pattern of investment according to level of education (villages separate)
I
56 800 4400 -
- 198000
635 8861
170 1284 2150 1339 1015 19963
10000 57333
500 9368
2066 5000
Source: Survey data.
However, village level differences are visible in the amount invested in
financial assets and asset selection from among the different financial assets by
households belonging to different education levels. In V1, the illiterate
households have made an average financial investment of Rs.7636. Chit funds
occupy the first place in the asset preference of these households closely
followed by deposits. Household heads having secondary education have
made an average financial investment of Rs.13545. Deposits occupy the prime
place in the portfolio of these hc~useholds as 57.87 per cent of saving is in this
form. Average investment of the households with graduates as heads is
Rs.49195 out of which 36.12 per cent is in deposits and 42.00 per cent in chit
funds. Those with professional qualifications have made an average financial
investment of Rs.198000 out of which 75.76 per cent is in deposits and the rest
is in insurance.
In V2, average financial investment of households with illiterate heads
is Rs.1280 out of which Rs.780 is in post office saving and Rs.500 in chit
funds. Households, whose heads with only primary education, have made an
average investment of Rs.8861 out of which 45.28 per cent is in chit funds and
23.28 per cent is in the form of deposits in financial institutions. Households
having heads with education up to secondary level have made an average
investment of Rs.19963, where deposits account for 42.60 per cent of the total.
Average investment made by nouseholds with graduate heads is Rs.57333. The
share of deposits has increased to 57.56 per cent and that of chit funds
declined to 21.80 per cent. Professionally qualified household heads have
made an average investment of Rs.43000 out of which the share of depos~ts is
45.73 per cent, a lower share compared to the graduates. The share of chit
funds and post office saving has also come down. However, the share of
insurance shows an increase to 1'1.83 per cent. Financial investment in V2 has
increased with the level of eduzation as in other regions and the share of
deposits has increased whereas the share of chit funds has declined with
increasing level of education.
In V3, average investment of households with illiterate households is
higher compared to the same group in V1 and V2. The share of deposits in the
average financial saving of Rs.9368 of the households with heads with primary
education is 42.61 per cent. Their share is greater compared to the other two
regions. In the households where the heads have education up to secondary
level, average financial invesrment is Rs.20925. In this group also, with a
share of 44.75 per cent, deposits occupy the prime place, followed by chit
funds with 19.93 per cent share. Households headed by graduates have made
average financial investment of Rs.79671. 46.04 per cent of this investment is
in the form of deposits while 29.18 per cent is subscribed in the schemes of
chit funds. Among the professionally qualified household heads, average
financial investment is Rs.43966. Lion's share of this investment, i.e. 68.23
per cent is deposited in financial institutions. This group has not made any
investment in chit fund schemes. Thus, in V3, the share of chit funds in the
portfolio of different education groups is lower whereas the share of deposits
is positively related with edwation.
5.6.2 Education Level and Pattern of Physical Investment
Level of education of the head of the household is an important factor
influencing the decisions on different physical assets, chosen for investment.
In the study, households, headed by the illiterates, make an average investment
of Rs.3538 in physical assets. 45.1 1 per cent of this investment is in cattle.
Table 5.19
Pattern of investment acccrding to level of education - Physical
(Rs.1
1 : 1 896 1 1 6 ' 7 1 417 1 3917 1 8:3 1 27500 1 50229 1 above
Professional 11667 2000 3667 8333 25667
Equipime
Source: Survey data.
Industry
Households, headed by primary educated people, have made an average
investment of Rs.16546 in physical assets. A total of 48.35 per cent is
exclusively investment in the non-farm sector. Households, heads with
education up to secondary level have invested an average amount of Rs.1569
in physical assets. More of this investment is in the non-farm sector, namely,
41.31 per cent in householc~ business and industry and 19.90 per cent in
buildings.
Average physical investment of households headed by graduates is
Rs.50229. Though in volume, the investment has increased manifold,
compared to the previous group, amount invested in farm related activities
actually came down. 54.75 per cent of the total physical investment is in
I
Education level ment 1 !
Purchase of land
Land / develop- Buildings
Planting trees
Can,e nts and pumpsets
and business
Total 1 I I
household industry and business s.nd another 33. 18 per cent is in construction
and maintenance of buildings. Thus, only 12.07 per cent of the phys~cal
investment is, in any way, related to farm activities.
Households, headed by pc:ople with professional qualifications, have
made an average investment of Rs.25667 in physical assets. 32.47 per cent of
this investment is in household business and industry. A sizeable share of
45.45 per cent is set aside for land development.
Thus, the general trend is a movement away from farm investment as
level of education goes up. The illiterates have made most of their physical
investment in farm related assets. With primary education, investment in fann
related assets has come down to 51.65 per cent of the total. When the
household heads have education up to secondary level, investment in f a ~ m and
related activities has furthei come: down to 38.79 per cent of the total physical
investment. Where the heads of' households have education of degree and
above, physical investment has ir~creased, but the share of investment in non-
farm assets has gone up to 87.93 per cent. However, investment in farm assets,
by the professionally qualified, is as much as 67.53 per cent.
The same pattern is not visible in the case of different regions. In V1,
out of an average physical investment of Rs.800 by households with illiterate
heads, 93.75 per cent is in cattle. Households, where the heads have education
up to primary level, have made an average investment of Rs.9811 in physical
assets. Purchase of land and land development have claimed 35.84 per cent. In
those households where the heacls have education up to secondary level, the
average investment in physical ;issets is a lower amount of Rs.8345. Out of
'Table 5.20
Pattern of investment accc~rding to level of education - physical (villages separate)
(Rs.)
trees
Professional 40000 10000 50000 I I 1 1 L I
v2 i - Illiterate 3750
Primary 3810 651
Secondary 3704 2689
Degree & above
- Professional -
Illiterate 4250 - 4250
Primary 2517 1708 8583 21178
Secondary 2196 43 1500 1071 6357 1 i739 1 --
/Degree& 1 - I 1792 I 33333 I 833 1 5333 I 1667 I 50M) / 47958 1 above
Source: Survey data
I I ' --4 Professional 6000 25000 4 6 0 g
this, 28.92 per cent is in household industry and business. Rest of the
investment is mostly in farm related activities. Average physical investment of
households, whose heads are graduates, is Rs.105000. 95.24 per cent of this
investment is in household industry and business. Households, whose heads
have professional qualifications, have made an average investment of
Rs.50000, where the distribution is between land development and cattle in the
ratio of 4: 1. Thus, in V1, in all groups of households, except in the households,
where the heads are graduates, major investment is made in farms and farm
related activities.
In V2, households with illiterate heads have made an average
investment of Rs.6250. 60 per cent of this investment is in land development.
Households, where the heads have primary education, average physica!
investment is Rs. 18762. Household industry and business together claimed
32.65 per cent of this investment. Average investment in physical assets in
the households with secondary education is Rs.30411, out of which,
investment in household business and industry is 39.82 per cent and
investment in buildings is 31 .ti6 per cent.
Households with graduate heads have not reported any investment in
physical assets. Average physical investment of households with
professionally qualified heads is Rs.4000, which is entirely invested in cattle.
In V2, the physical investment of households with illiterate heads, primary
educated heads and secondary educated heads are far more than the same
groups in V1, whereas for the other two groups the volume has come down.
Graduates have reported the largest physical investment in V3 and V1 while in
V2 these households have not reported any physical investment.
In V3, the households with illiterate heads have made an average
investment of Rs.4250, which is entirely in cattle. Average investment of
households with primary education is Rs.21178, in which, 40.53 per cent is in
household industry and business and a total non-farm investment of 61.54 per
cent. In those households, whos~: heads have education up to secondary level,
investment in physical assets i:; Rs.11739. In this group also, non-farm
investment has exceeded farm investments. Households with graduate heads
have made an average investment of Rs.47958 in physical assets. A major
share of this investment is in house construction, which amounts to 69.50 per
cent. Households, which have heads with professional qualifications, have
made an average investment of Rs.46000. As much as 54.35 per cent of this
investment is in self-employment activities in non-farm sector. In V3 also
there is a shift to non-farm assels in making decisions on physical investment.
5.6.3 Liabilities, Current Saving and Level of Education
As a good part of thc investment made by the households of all
education groups are financec by borrow~ng or sale of existing assets, the
figure for total invesrment does not give any idea about investment ow of
saving of the period under stucly. Hence an analysis of the investment with the
source of finance becomes pertinent.
Table 5.21
Financial, Physical and Tohl Investment and Liabilities of Households According to Level of Education
Source: Survey data.
I 2 3 i 4
Education Financial Phjsical Total level investment inveztment investment
r--
In the study, households ,with illiterate heads have made an average
Illiterates
Primary
Secondary
investment of Rs.4772 out of which 25.84 per cent is in financial assets.
Borrowing and sale of existing assets account for Rs.8915. Average
1234
8615
18068
investment by households, whose heads have education up to primary level, is
Rs.25184. The share of financial investment of these households has risen to
- 3:38
16546
16569
34.21 per cent of the total. Financing of investment through new liabilities and
sale of assets has come down to 47.65 per cent of the total. The households
4772
25184 ppp
34638
whose heads have education up to secondary level have made an average
investment of Rs.34637. Compared to households, whose heads have only
8915
12000
12167
primary education, financial investment of these households further increased
-4 143
13183
22469
to 52.16 per cent of the total. The contribution of borrowing and sale of assets
towards the new investment has ccsme down to 35.13 per cent. Households
with graduate heads have made a total investment of Rs.116698 during the
period under study. Investment in financial assets comes to 56.96 per cent.
However, financing of the investment through borrowing and sale of assets has
increased to 42.13 per cent of' the total investment. Average investrnent of
households whose heads have professional qualifications is Rs.94822. The
share of financial investment in this has increased to 72.93 per cent and the
whole of the investment is reported to be out of saving in the current period.
Thus, among the differen1 education groups, total investment illcreases
with rnore education. Education seems to have a definite impact on the
determination of the shares of linancial assets and physical assets. In the
present sample, with higher level of education, the share of financial
investment has increased from 25.84 per cent for the illiterates, to 34.21 per
cent for the households with heads having primary education and further to
52.16 per cent, where the level of education has increased to secondary level.
This share has hrther increased to 56.96 per cent for the households with
heads having higher education of degree and above. The professionally
qualified households have more pn:ference for financial assets as the financial
investments in their portfolio is 72.93 per cent. Regarding investment through
borrowing and sale of assets, it is found that as the level of education increases
the share of liabilities and sale of' assets come down. The exception is the
households, whose heads have edilcation degree and above, when this head
accounts for 42.13 per cent of total investment compared to 35.13 per cent in
the case of household heads with se~;ondary education and no borrowing in the
case of professionally qualified hou~ehold heads. But it should be kept in mind
that 87.93 per cent of the physical investment of this group is in buildings and
household business and indushy.
'Table 5.22 Financial, physical and total investment and liabilities of households according
to level of education (villages separate) (Rs.)
assets
!~econdary 1 ;:.;; 1 11739 1 32664 1 7 : y l Degree & above 47958 127630 55000 72630 Professional 43966 46000 89966 89966
Source: Survey data.
In the three regions under study, in V1, average investment of
households with illiterate heads is Rs.1544, out of which, 48.19 per cent is in
financial assets. An average amount of Rs.17726 was invested by households
whose heads have primary education. 43.08 per cent of this investment is in
financial assets and 37.65 per cent of the investment is financed by borrowing
and sale of assets. In those households, where the heads have secondary
education, average investment is Rs.21890. 61.88 per cent of this is in
financial assets. Borrowing and sale of assets have financed 42.71 per cent of
the investment. Househqlds with graduate heads have made an averagc
investment of Rs.154200. The share of financial assets in this has come down
to 31.91 per cent of the total. With the increase in physical investment, the
share of borrowing has also increased to 56.20 per cent of the total.
Households with professionally qualified heads have made a total investment
of Rs.248000 out of which 79.84 per cent is in financial assets.
In V2, households with illiterate heads have made an average
investment of Rs.7430. Only 17.00 per cent of this investment is in financial
assets. Average investment made: by households where the heads have primary
education is Rs.27623. Financial investment form 32.08 per cent of the total. .
Borrowed funds and funds raised through sale of assets is utilised for financing
44.17 per cent of this investment. Households with heads having education up
to secondary level have made an average investment of Rs.50374 where
financial investment forms only 39.63 per cent of the total. Investment out of
current saving form 60.23 per cent of the total. Households with graduate
heads, in V1 have made an average investment of Rs.56333, which is entirely
in financial assets, and out of saving from current income. Average investment
made by households with professional qualification is Rs.47000. 91.49 per
cent of this investment is in financial assets and no bomowcd luilils are used.
In V3, households wit11 illiterate heads have reported an average
investment of Rs.6050. Funds raised by borrowing and sale ol .,ssets come to
92.98 per cent. Households, whose heads have primary education, made an
average investment of Rs.30546. 30.67 per cent of this investment is in
financial assets. Additional liabilities and sale of existing assets have
contributed 56.61 per cent of the funds needed for investment. The
households, where the heads havz education up to secondary level, made an
average investment of Rs.32664 out of which 64.06 per cent is in financial
assets. The share of borrowing and sale of assets in this investment is only
22.96 per cent of the investment. Average investment made by househo!ds,
whose heads have education of degree and above is Rs 127630, out of which,
62.42 per cent is in financial assets. 43.09 per cent of the funds needed for
investment was mobilised by committing new liabilities and sale of assets.
Households, where the heads have professional qualifications, have invested
an average amount of Rs.89996 where, only 48.87 per cent is in financial
assets. The whole of the inve:stment is funded from current saving by this
group of households. Thus, in all the villages, among the illiterates an(!
households, where heads havz primary education, a major portion of the
investment is in physical asset:;. In households, where thc heads are educated
up to secondary level or more. financial'investments are in excess of physical
investment, except in V3, where the professionally qualified households hsve
made marginally higher investments in physical assets.
5.7 Analysis of Liabilities lncurred
In a particular period of time the households acquire some assets, the
finance for which may be entirely met from current saving or partly from
current saving and partly by borrowing and liquidation of certain assets.
Sometimes, households are forced to borrow to meet some contingencies, for
marriage celebrations or even for ordinary consumptior, expenditures.
Therefore, an analysis of the liabilities incurred, the source of borrowing and
the rate of interest of the borrowi,sg are to be considered when analysing the
investment pattern of the households.
Table 5.23
Addition to liab'.lities of sample households
(Us.)
Source: Survey data.
Percentage Per cent of Average for Average for share in
Type of liability household:: reporting all tctal I reporting households households
In the study, 24.67 per cent of households have reported borrowing
from formal financial institutions namely, commercial banks, co-operative
banks and regional rural banks. Average amount of loan for the repot-:ing
households is Rs.31108. Advances availed from thz formal iinai-~eid
institutions work out to be 60.85 per cent of the total. Borrowing from money
lenders constitute 9.92 per cent of the total liabilities. 6.33 per cent of
households have reported taking advances from this source, an average amount
Loans from financial institutions
Borrowing from money lenders
Borrowing from other sources
Liabilities to chit funds
24.67
6.33
2.00
23.67
31108 I
7673 1 69.85 1
-- - -. -. - 1
--
1721 1
10925
8462
1090
219
2002
9.92
1.99
of Rs. 172 11. However, for the sample as a whole the average works out to be
only Rs.1090. Other sources like friends, relatives and neighbours have been
utilised by 2 per cent of the households. This source has accounted for only
1.99 per cent of the total liabilities. Average amount for the reporting
households is Rs.10925, whereas for the sample, the average is only Rs.219.
23.67 per cent of households have utilised chit funds as a source of credit.
These households get the amount they subscribe to in advance either by be~ng
prized or by getting the amou,it in auction, at a discount. When a chit is
auctioned an asset is being liqu~dated and at the same time a borrowing, to the
extent of future liability, is being taken up. 18.23 per cent of households have
reported availing funds from chit funds. The average amount for the reporting
households is Rs.8462 and for the sample as a whole, it is Rs.2003.
Thus., a major share c~f the borrowing is from the formal financial
institutions. However, it should be kept in mind that, this source is used,
mostly, by the upper-income groups. A few of the households belonging to the
lower income groups have alss availed funds from this source, but, as part of
the schemes of the popular planning. Money lenders are considered as a
source of borrowing, mostly, by the lower income groups and the utilisation of
these funds has not been for productive purposes. Chit funds, as a source of
finance, is utilised by all income groups, even though, the lower income
groups consider this as the best because of the flexibility of operations of these
institutions.
'Table 5.24 Addition to liabilities of sample households (village separate)
(Rs.1
Source: Survey data.
.
In the three villages studled, in V1, 27 per cent of households have
Per cent share in total
liabilities Type of liability households reporting
reporting households
reported having availed advances from formal financial institutions. Money
I
Average for all households
71.03
7.63
Loans from financial institutions Borrowing from money lenders
lenders have been the source of finance for 5 percent of households. 7.63 per
cent of the total liability of the sample households is from this source. 3 per
Borrowing from other sources
Liabilities to chit funds
Loans from financial institutions Borrowing from money lenders Borrowing from other sources - Liabilities to chit funds
Loans from financial institutions Borrowing from money lenders Borrowing from other sources
Liabilities to chit funds
27
5
cent of households have report(:d advances taken from other sources like
friends and relatives, the average amount being Rs.6333. 14 per cent of
14
23 -
6
1
27
24
8
2
30
21370
12400
households have used chit funds for the credit needs. 19 per cent of the total
5770
620
liabilities committed is from chit funds
6333
11026
v2
35870
18333
10700
9118
v3
37500
19375
17925
6673
190
1544
-
1100
107
2462
9000
1550
359
2002
0.90
20.66
69.71
12.00
2.78
15.51
Percentage of households 1-eporting loans taken from formal financial
institutions during the year is 23 per cent, in V2. The per cent share in the
total is marginally lower at 69.2.2 per cent, compared to the figure in V1.
Money lenders have financed 6 per cent of households, an average amount of
Rs.18333, the share of this sourcc: in the total being 9.23. Only one per cent of
households have committed liabilities from friends and relatives. 27 per cent
of households have taken credit facility from chit funds in the form of prized
or auctioned chits.
In V3, 24 per cent of 'louseholds have availed loans from formal
financial institutions, an average amount of Rs.37500. 69.7 per cent of the total
liabilities is from these institutions. 8 per cent of households have borrowed
from money lenders. For 2 per cent of households the source of finance has
been other sources. The highat per cent of households who have availed
credit facilities from chit funds is in V3. 30 per cent of households in this area
have availed an average amount of Rs.6673 from this source, even though, the
share of this source in this village is lower compared to the other two villages.
The discussion on saving will be complete only if we discuss how the
saving is converted into investment either physical or financial. Examination
of these trends and patterns was the focus of this chapter. The discussions
broadly inferred that still physical investment dominates in n~ral households.
But there is a recent tendency to make a shift from farm investments into non-
farm investments. In the case of financial investment, the low income or even
middle income group prefers smaller investment devices compared to formal
instruments. In this chapter, ;md also in the previous chapters we tried to
discuss the income, expenditure, saving and investment behaviour of rural
households. Whatever be the financial rationale behind all these decisions, the
decisions are also motivated or constrained by non-monetary considerations
also. Hence, in the succeeding chapter an attempt is made to identify the
managerial and operational constraints that restrict saving and investment,
which is an objective of the stud!^.