As of today, India has record number of Billionaires, second only to India U.S and China according to the Forbes India Rich List – 2011. And the combined wealth of these 55 Indian stands at a whooping USD 246.5 Billion (that is close to 11 Lakh Crore rupees….did I get that calculation right?).
Now, the question is what do they really do with so much of money? Indian Billionaires are not really not known for their philanthropic activities – So whether do these Ultra rich Indians spend their monies?
Crisil Research and Kotak’s Wealth Management arm launched a new report – Top of the Pyramid – that gives you a fair bit of idea on what India’s Rich do with their money.
Contents
Overview of India’s Rich
India’s Rich list is rapidly bulging – India is currently estimated to have 62000 households who have net worth of over Rs. 250 Million (25 crore rupees) and these wealthy households are expected to rise to 219,000 in next 5 years!
Wealthy Indian Households by 2015-16
Compared to the wealthy households, the ultra wealthy (the Billionaire club) ones will grow even faster – Their collective wealth will move from 45 trillion rupees currently to over 235 trillion rupees, a big 5-fold jump!
Spending Habits of India’s Rich
If you thought, India’s rich splurge their money on Fancy Ferrari’s & Lamborghini’s, you are wrong – According to the report, the biggest spend that India’s rich do are for customized exclusive vacations – and this is common thing for all (100% of) the Ultra wealthy Indians. The next item which is splurged by most (98%) is expensive watches and third being the jewellery & precious stones (90%).
Surprisingly, very few Indians splurge on expensive cars and automobiles !
Here is another interesting nugget from the report – Many of the rich fear buying goods, or even booking flights and holidays online because of potential credit card fraud. So, many of them tend to use their corporate credit cards rather than their own personal cards.
Investments of India’s Rich
India’s wealthy like Real Estate – Over 37% of all their investments are in Real Estate, while equity makes up for about 33%.
The report also mentions that about 1/5th of the their income goes into increasing their personal wealth, while 28.4% is put back in their business as investment!
Only 6.3% of their wealth goes for Charity or Philanthropic causes!
They are pretty smart not to spend money on expensive cars where they only depreciate. Real estate ( and jewellery ) are real assets.
Why do they not spend on building yards.
I’m a brand manager of an apparel company, that recently launched in India. Found some really interesting stats and data in Kotak Wealth and Crisil report – Top of the Pyramid. Otherwise, had not come across much information on the Ultra High Net worth Segment in India. Kudos to the team for bringing out this report!
“The report also mentions that about 1/5th of the their income goes into increasing their personal wealth, while 28.4% is put back in their business as investment!” – golden lessons for the middle class.
great story dude.
If I take note of the article, it says there are 62,000 people / families worth more than 25 crores.
As per Abhishek, there are 20,000 plus people / families which earn more than 1 crore.
I think both are different.
In some pockets, the land values have skyrocketed so much that in sorrounding villages, an acre land could cost anywhere between 50 lakhs to 5 crores an acre. If a family which lived in that village for generations has about 10 or 20 acres land (which is not unusual), they are worth more than 25 crores. However such asset wont earn them income in crores. So though they have assets worth crores, their income is meger.
I see one reason for investments in real estate. I am not talking of people in realty sector or people buying appartments/villas. I am talking about buying land (agricultural land in villages or residential land in towns). The value of the land may not neccessarily depend on the income it can generate. The very fact that it can no tbe stolen gives it a premium. As taxations are complex and vary from State to State, the value of the land is stated in black and white. Some areas after you finalize on price, the next issue to be finalized is the % in black and white. Some places it is 50-50, meaning the declared price is half of the deal amount. It varies between 20-80 to 80-20. In rare cases all is white i.e.100%.
If you have one crore rupees which consist of 50 lakhs black and 50 lakh white, you can not buy stocks worth one crore or else you have to explain the other 50 lakhs. So the natural tendency is to go for real estate where you buy a property worth one crore and declare to govt its worth 50 lakhs. The other 50 lakhs passes to the seller un accounted that is into the parellel economy. Such “facility” is not there in other sectors of investment. (Pardon me for saying it as “facility” instead of avading taxes).
As Abhishek has stated, luxury spending, travel, real estate all take care of a persons unaccounted money and the spending helps in washing the color of the money from black to white.
Now if any one asks the basic question of why anyone hides the asset value in the first place, the answers are twofold.
1. The authorities may be charging taxes at a rate which are too high and the person want to resist the loot. (This is on one extreme side)
2. The person is outright greedy and do not want to pay any tax at all. (This is another extreme side).
Everybody falls somewhere in the above two extremes based on their belief.
Altaf
Quite an accurate analysis of land value and the “facility” it provides. One comment on the last point, I see that point # 2 i.e. greed to be more dominant as if people pay their tax honestly, the tax rate could easily come to half with same govt spending or people can get much more benefits. A simple back of envelop calculation says that if instead of 20000 people, their are 1 Cr people with taxable income of 1Cr each, the tax collection increases roughly 20% of entire direct & indirect tax collection.
While Forbes’ list differ a lot from and our Income Tax department list who estimate only 20 thousand odd Indians to have annual income of 1 Cr or more, the spending pattern is consistent as large portion of super rich money is black in nature and will be channeled into avenues like Real Estate and Luxury spending which are cash transaction friendly.
http://epaper.timesofindia.com/Repository/getimage.dll?path=ETM/2011/06/03/1/Img/Pc0011000.jpg
Like this article for converting USD & Millions to INR & Crore (USD 250 Million (over 1100 crore rupees)
@ Indiran,
Actually it is a typing error I think. The report says Rupees 250 million which is 25 crores. However the essence of the article is same. It gives an insight into the pattern of habits.
Yeah…its a typo…it should be Rs. 250 million and not USD…
India’s super rich have a whole lot of Black Money which usually goes into Real Estate. But that money is not taken into account as the details of the same are not available
India’s super rich have a whole lot of Black Money which usually goes into Real Estate. But that money is not taken into account as the details of the same are not available.