CAFRAL-SRU Brown Bag Seminar - Indian Households Finance: An Analysis Of Stocks Vs. Flows
Speaker(s) Subrata Kumar Ritadhi, Manager, SRU RBI joint work with Pawan Gopalakrishnan and Shekhar Tomar, SRU, RBI Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

How do households allocate their income across different financial assets? Is it governed by culture or rational choice or both? Past studies on India have highlighted that households have low investment in financial assets but they invest heavily in gold and real estate. Using the CMIE Households Consumer Pyramids data, we show that while households may hold high stock of gold and real estate, but in terms of flows, a majority of households choose to invest in financial assets. This reflects that household investments decisions vary distinctly along the intensive and extensive margins. But what explains this behavior? We show that households continue to accumulate gold or real estate but use basic financial assets in transition to purchase these other assets. Using district level rainfall shocks as a source of exogenous variation in household incomes, we find that one positive rainfall shock (yearly frequency) increases households' likelihood of investing in all assets. However, two consecutive positive rainfall shocks decreases households' likelihood of investing in financial assets, while increasing their likelihood of investing in gold and real estate.