The no-cost EMI that was not free
The Sharma household in a tier-2 town has one earner, a shop assistant with a take-home salary of ₹42,000 a month. Fixed commitments are rent ₹9,000, school fees for two children ₹5,500, a two-wheeler loan EMI ₹3,200, electricity, water and mobile ₹2,800, and tuition ₹1,500. Food costs about ₹11,000 a month. The family has no savings, and in each of the last three months borrowed ₹5,000 from a neighbour. A dealer offers a 55-inch television priced at ₹38,000 on '12-month no-cost EMI' of about ₹3,167 a month, with 'zero down payment', if they sign today. The semi-automatic washing machine has stopped working and repairs will cost ₹2,200. The elder child's board exam is four months away and the tuition teacher recommends a ₹4,000 guide set. The mother wants the TV because 'the children are bored at home'; the father wants to postpone everything until his bonus in six months.
1. Prepare a monthly budget from the given data, find the surplus, and explain why the family is still borrowing every month.
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Budget:
| Item | ₹ |
|---|---|
| Rent | 9,000 |
| School fees | 5,500 |
| Two-wheeler EMI | 3,200 |
| Utilities and mobile | 2,800 |
| Food | 11,000 |
| Tuition | 1,500 |
| Total committed | 33,000 |
| Surplus | 9,000 |
Why the borrowing? Income exceeds planned expenditure by ₹9,000, yet ₹5,000 is borrowed each month and a ₹2,200 repair is pending. The only explanation is leakage: about ₹5,000–14,000 of real outflow never reaches the budget. Typical leaks are festivals and gifts, eating out, data top-ups, tobacco, impulse buys and informal interest.
Reasoning: a budget shows only what is planned; the management function that is missing is controlling - recording and comparing actual with planned spending. Without a record, the leak is invisible, and because there is no emergency fund, every small shock (the machine repair) is converted into debt. The family's problem is not low income but uncontrolled outflow plus zero buffer.
2. Evaluate the 'no-cost EMI' offer. Is it affordable for this household?
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What 'no-cost' hides: the interest is usually subvented by the manufacturer, but there is often a processing fee, GST on the interest component, a mandatory add-on insurance or extended warranty, and loss of the cash discount. The EMI runs on a credit card or consumer loan with penal charges for a single late payment, and 'no cost' is conditional on perfect repayment.
Affordability: ₹3,167 is 35% of the ₹9,000 surplus. That looks payable only if nothing else goes wrong - yet the family already has informal debt, no emergency fund and an unfunded ₹2,200 repair. A 12-month commitment taken at zero savings means the EMI is paid before food, school fees or medicine. Any month of reduced income pushes them to the moneylender at far higher effective cost than the 'zero' interest.
Opportunity cost: ₹38,000 would fund the washing-machine repair (₹2,200), the guide set (₹4,000, unless a library or second-hand copy is available) and still start an emergency fund of about ₹25,000–30,000, which is the resource the family actually lacks.
Verdict: not affordable on the present cash flow; the offer is a financing decision disguised as a bargain.
3. Using the steps of management, recommend what the family should do this month.
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Planning: set three concrete goals - repair the machine within a fortnight, build ₹10,000 as an emergency fund in six months, and buy the guide set (or borrow it) before the exam. A goal with a date and a rupee figure can be controlled; 'save more' cannot.
Decision-making among alternatives: compare repair versus replacement versus hand-washing part-loads; compare new guide set versus school library versus a senior's copy. Rank the TV last: it is a want that competes directly with a need already causing borrowing.
Controlling: start a daily expense diary (paper or UPI app), check it against the budget every Sunday, and use a shopping list and cash envelope for food. The first month's purpose is diagnostic - find the ₹5,000 leak.
Use of resources: use the bonus for the emergency fund, not the TV; sell unused household items; ask about the 5-star/3-star running cost of any appliance before purchase.
Communication: hold a short family meeting, involve the children in a simple version of the budget, and let the mother see the arithmetic of the EMI against the food and fee lines. Decisions made jointly are kept; decisions imposed are abandoned.