Mint Explainer: What plummeting household savings mean for the economy
Mint delves deeper into the development. Yes. They have been saving less and borrowing more to spend.
The net financial savings of Indian households, which includes bank deposits, stocks, bonds and insurance policies, dropped to ₹13.8 trillion in 2022-23, or 5.1% of GDP. This was the lowest savings rate in 47 years. In 2020-21 household savings were at ₹22.8 trillion or 11.5% of GDP.
The worrying part is the increase in household liabilities, which have shot up by 76%. Borrowings (personal, auto and home loans) have risen sharply. There are many potential reasons.
First, household income has either stagnated or fallen in recent years. At the same time inflation – in food, fuel, healthcare and education – has risen consistently. This has eaten into households’ disposable income and impaired their ability to save.
However, a smaller surplus has not stopped people from spending on consumer goods, services, gold and real estate. Private consumption increased by 7.5% in 2022-23 and by 6% in the first quarter of 2023-24 as people borrowed to fund their purchases. That explains why borrowings from banks rose by 57% and retail loans increased by 21% in 2022-23 over the previous year.
It is indeed a critical factor. Consumerism, which got a leg-up thanks to the post-pandemic spending spree, continues to be fuelled by things like EMIs, cash-back schemes and so on. Household liabilities have thus risen by ₹11 trillion in just 12 months.
As a percentage of GDP, they grew by 5.8% in 2022-23 – the second annual growth in India’s history after 6.7% in 2006-07. A high savings rate (including both financial and non-financial or physical assets such as gold, real estate, etc) is a prerequisite for high economic growth. In 2022-23, though
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