Household savings fall to 5-decade low

financialexpress.com:

Net financial savings of households fell to a nearly five-decade low of 5.1% of GDP in FY23, down from 7.2% in FY22, Reserve Bank of India (RBI) said on Monday. The numbers suggest a severe income crunch and likely transience of the post-pandemic rise in consumption.

Worryingly, annual financial liabilities of households rose sharply by 5.8% of GDP compared with 3.8% in FY22, indicating larger-than-usual resort to loans for consumption purposes, and purchase of real estate.

The rate of increase in financial liabilities last fiscal was the second highest since Independence; only in FY07, the the flow was sharper (6.7%).

In absolute terms, net household assets dropped sharply from Rs 22.8 trillion in FY21, the pandemic year which saw a huge drop in spending, to Rs 16.96 trillion in FY22, and further to Rs 13.76 trillion in FY23. Household debt, in terms of the stock of financial liabilities, consequently remained sharply elevated at 37.6% of GDP in FY23, as against 36.9% in FY22.

Falling or stagnant household and SME incomes, at a time of raging inflation, is probably the main reason for the subdued savings and higher borrowings.

The latest RBI data on household assets and liabilities also raise worries about the immediate growth potential of the economy. The support to growth from private consumption may turn out to be weaker than anticipated, even as a private capex cycle appears to be delayed.

Nikhil Gupta, economist at Motilal Oswal said the combination of weak income growth and falling financial savings, led by borrowings, is unsustainable. “We believe that consumption growth is unsustainable. Whether it will be substituted by investments is not our base case, though the jury is still out,” Gupta said. According to