HMI-I - the biggest market potential

5% of households with 17% of income saves 64%

Income is concentrated in the higher middle income (HMI) groups in India. A little over a fifth of the households belong to this group and they earn 44 per cent of the total income of all households.

The HMI group consists of 54 million households and they collectively earned Rs.16 trillion during 2011-12. This is a group that earns between Rs.180,000 and Rs.720,000 per annum. The average annual income of a household in this group is Rs.310,000.

There are three sub-groups within the higher middle income group - at the higher end is HMI-I with an income range of Rs.360,000 to Rs.720,000; in the middle is HMI-II with an income range of Rs.240,000 to Rs.360,000 and; at the lower end is HMI-III with a range from Rs.180,000 to Rs.240,000.

The average income of HMI-I was Rs.485,000 in 2011-12. The 13 million households of this group earned Rs.6.4 trillion. This is the largest sub-group of all the sub-groups of the income distribution. This sub-group accounts for 5 per cent of all households and 17 per cent of all household incomes.

This sub-group has the largest share in the market for a large range of goods and services that reflect a more comfortable life style. It accounts for 37 per cent of all household expenses on domestic help, 35 per cent of all household expenses on holidays/tourism, 32 per cent of all expenses on household air travel, 32 per cent of all expenses on painting and renovation of their houses.

90 per cent of the HMI-I households own a two-wheeler and 57 per cent of them own a car. This sub-group is the largest source (26 per cent) of all general insurance and of all motor vehicle repairs by households (23 per cent). They are also the largest source of demand for diesel and petrol.

HMI-I households account for 40 per cent of households expenses on Internet services. These 5 per cent households account for over 20 per cent of the entertainment industry’s retail business, over 34 per cent of the market for professional education and hobby classes. Interestingly, this is not the largest market for cell phone rentals.

Their expenditure on health is lower than that of some of the other income groups, but their expenditure on premiums for health insurance is the highest amongst all income groups. It accounts for 36 per cent of all premiums paid by households for health insurance.

HMI-I households do not rely on borrowing too much. Less than 9 per cent of the households had borrowings as of March 2012. This is much lower than the middle income households where 12 per cent of the households were borrower households or the lower middle income households where 13 per cent of the households were borrower households. But, the HMI-I group accounts for 30 per cent of the EMI for house and 28 per cent of all EMIs for cars by households. This indicates the relatively larger ticket size in loans to this sub-group.

In spite of the sub-group’s large share in a number of spending categories, its potential spending power remains very high. Although the average annual income of a HMI-I household is Rs.485,000, the average annual consumption expenditure of this sub-group was only Rs.173,000 per household in 2011-12.

HMI-I is the largest source of household savings. This group alone saved about Rs.4 trillion in 2011-12. It has a high savings rate of about 64 per cent. Evidently, the discretionary spending power of this sub-group of about 13 million households with Rs.4 trillion of surplus income is high.