By Natasha Agnes D’cruze, Dvara Research
Given the background of informal employment, poverty, and weak investment portfolios in a developing country like India, we seek to explore the theme of financial portfolios of low-income households in India on Day 2 of the 5th Dvara Research Conference on Household Finance.
The financial products available are often unsuitable for poor households as they fail to account for the three-fold impact of low and irregular incomes coupled with unfit financial instruments (Collins et al., 2009). It has been observed that a major fraction of Indian households prefer to invest in gold and real estate rather than focusing on portfolio diversification through investment in different financial assets. The high ratio of real assets to total assets together with high non-institutional debt levels are indicative of the sheer vulnerability of the balance sheet of households in India (Badarinza et al., 2016). The Reserve Bank of India’s Household Finance Committee Report (2017) also highlights that the investment portfolio of Indian households is skewed towards physical assets like gold or real estate. The participation of these households in the financial market, especially in insurance and retirement accounts, is meagre.
While gold features as a dominant asset in Indian household portfolios, there is a gap in understanding this asset in the background of the country’s macro and financial environment. In this conference, we will aim to investigate the position of gold in portfolios of Indian households and its relevant properties that drive this investment behaviour. The team at NIPFP and IIT-Delhi will explore gold as an asset class in India, considering its importance in the given context. Despite India’s persistent financial policies that incentivise- through taxes, import duties, and quantity limits- switching away from physical gold, households continue to hold their strong preference for physical gold. This dynamic will be unpacked by examining the long-term returns earned on physical gold and gold ETFs and their performance with respect to other asset classes like fixed deposits and equity.
Keeping the focus on low-income households, we aim to examine the predetermined socio-demographic features that can explain people’s investment holdings and suggest targeted policy interventions to improve investment behaviour. The team from Sharada University and BITS Pilani will take this conversation forward by examining the socio-economic profiles of the low-income Indian households that invest in financial assets and physical assets. Depending on features like education, income and nature of employment, caste, religion, family size and composition, and social network, the study will investigate how structural identities translate to differing investment goals and provide policy inputs to financial and investment preferences based on the same understanding.
In studying the influences on a household’s portfolio participation, we find that its demographic characteristics like education, income, occupational profile, and family size and composition directly affect the household’s participation, particularly in risky assets (Gao and Fok, 2015). Although there is no clear evidence on financial risk-taking behaviour being gender-specific since women are a vulnerable group, with low health insurance uptake (including public health insurance) but high healthcare demand (Sengupta & Rooj, 2019), it becomes important to assess the impact of a household’s chosen portfolio and financial savings on women. It is safe to argue that both savings and portfolio diversification have a strong influence on women’s healthcare demands, potentially translating to the healthcare received by her newborn and the rest of her family. As Dowie (1975) says, ‘Health’ is an essential commodity and health production is taken on by combining several financial and health service inputs. A household’s attitude towards saving and overall portfolio choice can determine their resilience to any health shocks they might face, influencing their readiness to access timely and quality healthcare. Hence, in exploring the healthcare seeking behaviour of Indian women in their reproductive age (15-49 years) and its interlinkage with their household’s portfolio choice, the team at FLAME University will seek to examine the role of both saving behaviour and portfolio in health outcomes.
The conference will also host a conversation session between Vimal Balasubramaniam and Monika Halan on the theme of household portfolios.
To explore these discussions on household portfolios and more, do register and attend the conference from 7th to 11th June between 16:00 to 19:00 IST.
Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the Poor: How
the World’s Poor Live on $2 a Day. Princeton University Press.
Badarinza, C., Balasubramaniam, V., & Ramadorai, T. (2016). The Indian household finance
landscape. India Policy Forum, 13, 1-71.
Reserve Bank of India (2017). Report of the Household Finance Committee.
Gao, M., & Fok, R. (2015). Demographics, family/social interaction, and household finance.
Economics Letters, 136, 194-196.
Sengupta, R., & Rooj, D. (2019). The effect of health insurance on hospitalization: Identification of adverse selection, moral hazard, and the vulnerable population in the Indian healthcare market. World Development, 122, 110–129.
Dowie, J. (1975). The Portfolio Approach to Health Behaviour. Social Science & Medicine, 9, 619–631.