Are Indians saving enough? There is no clear answer
₹500,000 annually to low-income individuals. An unintended consequence of this can be lower precautionary savings. It is rational for households, especially those with relatively low incomes, to spend more out of their incomes, especially if they are not rising at a robust pace.
Fifth, the formal economy has seen steady expansion. Those employed in it typically have access to retirement and pension funds. In 2022-23, the net addition to employee provident fund subscribers was 13.9 million, compared to around 12.2 million and 7.7 million in the previous two years.
Given their contributions to their retirement funds, people may miscalculate the additional savings needed post-retirement. Sixth, have household borrowings reached an unsustainable level? Back-of-the-envelope calculations suggest that on average, household borrowing, while having risen lately, is still less than 10% of household income. In fact, net household financial savings seem to be still about 20% of household income, calculated roughly as household consumption from GDP plus household savings.
Averages, of course, can be misleading. Among households, savers and borrowers may be different. Incomes and accumulated savings of those who take mortgage loans may be much lower than non-borrower incomes, with a higher risk of default.
But then the question is this: Do tax incentives and government policies favour home ownership, making it attractive to take a home mortgage? Buying a house is attractive because of the standard deduction one can claim on taxable income and also an interest subsidy. The government wants ‘housing for all,’ for which it facilitates access to affordable homes through a credit-linked subsidy scheme. If we don’t want Indians to save in
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