How to address India's falling household savings
Savings have long been the backbone of financial stability in Indian households. Deeply ingrained in the nation’s ethos, the act of saving has traditionally ensured resources for future uncertainties, children’s education, and retirement. Recent trends, however, tell a troubling story. The household savings rate has seen a sharp decline, prompting questions about its causes, broader implications, and what steps can reverse this worrying trajectory.
India’s gross domestic savings rate fell from 34.6% of GDP in 2011-12 to 29.7% in 2022-23—the lowest in four decades. This decline reflects a steep drop in household net savings, which historically constituted 60.9% of aggregate gross domestic savings.
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Key factors behind this trend include shifting consumption patterns and evolving investment behaviours among modern consumers. Households have increasingly prioritized physical assets as their primary savings vehicles, while financial liabilities have surged. Annual household borrowings now account for 5.8% of GDP, marking the highest levels since the 1970s.
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Declining interest rates on fixed deposits and other traditional savings instruments have made them less appealing. In their place, riskier investment avenues like equities and mutual funds have gained favour, driven by the promise of higher returns.
Once conservative savers, Indian households are now embracing diversified investment portfolios. Equity markets, mutual funds, and real estate have emerged as popular choices. Between FY21 and FY23, household investments in equities and mutual funds nearly doubled—from
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