India’s net financial savings of household (HH) sector increased to Rs 15.52 lakh crore (in current prices) in FY24 from a five year low of Rs 13.31 lakh crore in FY23. As a percentage of GDP, the net financial savings inched up to 5.2% of GDP in FY24, up from nearly a five-decade low of 5% in the corresponding previous fiscal year.
Analysts say a lower net financial savings of households leads to delayed consumption, which subsequently affects investments by corporates as well as micro, small, and medium enterprises (MSMEs). In the pre-pandemic year, FY19, net financial savings stood at 7.9% of the GDP.
"In addition to uncertainties globally, if the domestic demand is low, companies would hold on to their investments," Jayanth Varma, former member, RBI’s Monetary Policy Committee told Moneycontrol.
"If a company wants to set-up a factory, it would want to ensure that there is enough demand to sustain production for at least next 10 years," Varma said adding that savings play a key role in pushing demand and consumption.
The gross fixed capital formation (GFCF)—a proxy for investments (in current prices)—stood at 27.7% of GDP in FY24, up from 25.4% in FY23. In FY19, however, the GFCF was at 29.5% as a ratio of GDP.
"Despite banks and corporates having a health balance sheet, we haven’t seen any sizeable pick up in corporate capex, primarily due to uncertainty in demand, both domestic and external," said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.
Further, household savings affect household investments, which is mainly into real-estate & smaller companies. "If the savings are low, capex by households will reduce too," noted Sen Gupta. According to statistics ministry’s data, investments by household sector fell slightly to Rs 18.1% of GDP in FY24 from 18.6% in FY23. In FY19, the figure stood at 20.3% of the GDP.
In absolute terms, however, household investments stood at Rs 54.61 lakh crore in FY24 as against 50.1 lakh crore in FY23, and Rs 38.44 lakh crore in FY19.
Although, MoSPI has not provided any data on household savings for FY25, economists feel there should be a slight improvement in the net figures, as in FY25 for most months, interest rates stayed high, which would’ve prompted households to increase their deposits and park more money into financial instruments.
Sen Gupta, however, feels the savings in physical assets by HH woud’ve reduced FY25, as the overall savings (which includes government, private and HH) is estimated to be lower in FY25.
'Borrowing financing consumption'
The finance ministry in a note earlier, while commenting on the FY23 household savings number, had stated that HH are not in "distress", as the decline in net financial savings are changing consumer preferences for different financial products. The ministry had noted that households are borrowing more to buy real-estate, and vehicles.
"[Households] added less financial assets to their portfolio than in the previous year (FY22) and the year before (FY21), but it is important to note that their overall net financial assets are still growing," the ministry had said.
In FY24, households' financial liabilities rose 17.7% on year to Rs 18.79 lakh crore from Rs 15.96 lakh crore in FY23. In FY19, the liabilities were Rs 7.71 lakh crore. As a percentage of GDP, HH financial liabilities hit at-all time high of 6.2% in FY24.
The gross financial savings, meanwhile, stood at Rs 34.31 lakh crore in FY24, up 17.2% from Rs 29.28 lakh crore in FY23. In FY19, the gross savings were Rs 22.63 lakh crore. As a ratio of GDP, the gross savings stood at 11.4% of GDP in FY24, up from 10.4% in FY23.
Madan Sabnavis, chief economist, Bank of Baroda said the FY24 data shows that HH are using leverage to buy homes, vehicles as well as using the same for consumption purposes. "Hence, higher savings have been associated with higher borrowings too which is not unusual in growing economies where households are willing to borrow to buy assets," he said.
"However, borrowing for consumption could be considered to come in the way of future investment," added Sabnavis.
MK Saggar, professor at IIM Kozhikode & former ED of RBI, said the all-time high financial liabilities of HH has certainly caused a drag on their net financial savings. "It is notable, that the delta has essentially come from bank advances to households in 2023-24 which in flow terms shot up from 4.4% of GDP (in FY23) to 6.2% of GDP (FY24) – a huge delta of 1.7 percentage points," he said.
"This probably vindicates RBI’s macro-prudential measures of November 2023 that increased the risk weights on consumer credit exposure of commercial banks and NBFCs, credit cards receivables and on bank credit to NBFCs," Saggar added.
As per statistics ministry’s data, households saving in physical assets rose 6.4% on year to Rs 38.45 lakh crore in FY24. And in FY19, it was Rs 23.09 lakh crore. The HH savings in form of "gold & silver ornaments" stood at Rs 65,104 crore in FY24, slightly higher than Rs 64,504 crore in FY23. In FY19, such savings stood at Rs 42,673 crore
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