Why did household savings fall in FY23? SBI Research shares the ‘real’ reason

financialexpress.com:

It has been reported that household savings dropped to 50-year low in FY23. However, SBI Research says such a claim is misleading as it does not take into account the sum total of physical and financial savings.

According to the latest Ecowrap report by SBI Research, household financial savings may have dropped because the ownership of physical assets has jumped. Also, it believes that the low interest rates since the pandemic and corrections in the real estate market may have led to a paradigm shift from household financial savings to household physical savings.

“The net financial saving of the household sector – the most important source of funds for the two deficit sectors, namely, the general government sector and the non-financial corporations – moderated to 5.1% of GDP in FY23 from 11.5% in FY21 and 7.6% from FY20 (pre-pandemic). It has been said that it fell to 50 50-year low, however, this is completely misleading as household savings must be looked into as a sum total of physical and financial savings,” writes Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in the report.

While household savings moderated in FY23, household ownership of physical assets has jumped. The report says that ownership of physical assets by households or household gross capital formation has been turbocharged by low interest rates in the pandemic regime coupled with a recovery in housing prices.

Also Read: Household savings fall to 5-decade low

According to the report, the sharp rise in financial liabilities in hindsight may reflect a drawdown in precautionary savings during the pandemic. However, a deeper look at the data reveals otherwise.

The following are some interesting observations from the report:

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