Centre for Development Economics
Department of Economics
Delhi School of Economics


Consumption Smoothing and Household Savings in India:
Role of Demographics and Durables

Areendam Chanda
(Louisiana State University)

August 4, Thursday at 3:05 PM  IST (Venue: AMEX Room)


Canonical life-cycle models predict that rational, fully forward-looking agents should per-fectly smooth consumption over their lifetime. This prediction, while not supported by the data, has been mostly tested for developed countries like the U.S. We use recently available, rich longitudinal data for a large sample of households to understand patterns of consumption expenditures, income growth, and savings rates in India. Our empirical analysis has several important findings. First, growth in total household consumption and income is comparable to that of the U.S. However, unlike the U.S., Indian households exhibit no growth in non-durable consumption expenditures after adjusting for family size. We document signifcant hetero-geneity along various population sub-groups, but none of them exhibit growth close to U.S.households. Savings rates, measured as total income net of non-durable expenditures, on theother hand, exhibit a strong hump over the life-cycle. We present evidence that the need tosave for lumpy investments such as housing, cars, tractors, and cattle are key drivers of thehigh savings rate growth over the life-cycle for Indian households.

All are cordially invited.


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