Fin Min rejects concerns about falling household savings, says assets ‘still growing’

According to the finance ministry, there is “no big difference” in the growth of households’ gross financial assets and liabilities over the last three years or so

The Ministry of Finance has rejected concerns about Indian households' savings falling, saying their assets were “still growing” and that there is “no distress”.

“Lately, critical voices have been raised w.r.t. to household savings and its overall effect on the economy. However, data indicates that changing consumer preference for different financial products is the real reason for the household savings and there is no distress as is being circulated in some circles,” the ministry said on X, formerly Twitter.

“The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” it added.

The response from the finance ministry comes after Reserve Bank of India (RBI) data released on September 18 showed net financial savings of households, as a percentage of GDP, fell to a near-five-decade low of 5.1 percent in 2022-23 from 7.2 percent of GDP in 2021-22. This was driven by households' liabilities being 76 percent higher in 2022-23 from 2021-22, with borrowings from commercial banks jumping 54 percent.

Also Read: Households' net savings hit multi-decade low in FY23

“…weak income growth, coupled with robust consumption and investment growth (i.e., physical savings) can occur only if HHNFS (household net financial savings) declines significantly. This is exactly what has transpired,” noted Nikhil Gupta, chief economist at Motilal Oswal Financial Services.

However, according to Soumya Kanti Ghosh, State Bank of India’s group chief economic adviser, financial and physical savings put together should be considered as households’ savings.

“To start with, the sharp rise in financial liabilities in hindsight may reflect a drawdown in precautionary saving during the pandemic… it is entirely possible that a low-interest rate regime resulted in a paradigm shift of household financial savings to household physical savings in the last 2 years,” Ghosh said in a note on September 21, adding that a shift to physical assets was also triggered by a recovery in real estate sector and increase in property prices.

Also Read: India Ratings hikes FY24 growth forecast, but sounds consumption warning

In its own 12-point rebuttal to concerns about falling household savings, the finance ministry said the following:

• There was "no big difference" in the growth of households' gross financial assets and liabilities – up 37.6 percent and 42.6 percent, respectively – between June 2020 and March 2023.
• Households' net financial assets – which rose by Rs 22.8 lakh crore in 2020-21, Rs 17.0 lakh crore in 2021-22, and Rs 13.8 lakh crore in 2022-23 – "are still growing". The annual increase has been lower because households are taking loans to buy real assets such as homes.
• Since May 2021, home loan growth has been in double digits, while vehicle loans have been growing at more than 20 percent since September 2022.

Source: Ministry of Finance

• Overall household savings, including financial and physical assets such as jewellery, has grown at a compound annual growth rate of 9.2 percent between 2013-14 and 2021-22. Over the same period, nominal GDP growth has been 9.65 percent. As such, household savings as a percentage of nominal GDP has been stable: from 20.3 percent in 2013-14 to 19.7 percent in 2021-22
• A key factor in lowering the addition to households' net financial savings in 2022-23 was borrowings from non-bank finance companies (NBFCs), which surged to Rs 2.4 lakh crore from Rs 21,432 crore in 2021-22. Meanwhile, outstanding NBFC retail loans amounted to Rs 10.5 lakh crore in 2022-23
• Of the outstanding NBFC retail loans, 36 percent are vehicle loans, which is "not a sign of distress on the part of households but of confidence in their future employment and income prospects"