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India's House hold savings is still robust if you consider Physical/Housing assets savings also

 India's household financial and physical assets savings as per RBI have declined in recent years.

  • Household financial savings: Household financial savings in India declined to 5.1% of GDP in 2022-23, the lowest since 1976-77. This was down from 7.2% in 2021-22.
  • Household physical assets savings: Household physical assets savings, on the other hand, have increased in recent years. They rose to 11.8% of GDP in 2021-22, up from 10.7% in 2020-21.

The decline in household financial savings is attributed to a number of factors, including:

  • Rising inflation: Inflation has been rising in India in recent months after Covid, which has eroded the purchasing power of households. This has led to households spending more on essential items, leaving them with less money to save. This should have pushed up PFCE as a percentage of GDP but only a tad more than the long term trend
  • Increase in debt: Household debt has also been increasing in recent years. This has put a strain on household finances, making it difficult for households to save.
  • Change in investment patterns: Households are increasingly investing in physical assets, such as gold and real estate, instead of financial assets. This is because physical assets are seen as a hedge against inflation.
  • The decrease in net financial savings of households has resulted in a tandem increase in household savings in gross  physical assets. In fact, savings in physical assets which accounted for more than two-thirds of household savings at the beginning of last decade had declined to 48% in FY21. However, the trend is again moving upwards and the share of physical assets is expected to reach approx 70% level in FY23,  with the decline in share of financial assets. This, as things stand may be due to the fact that the total household savings (both financial +physical) for FY23 would still surpass the FY22 levels despite the decline in financial savings as household savings in  physical assets has jumped Rs 6.5 trillion in FY22 over FY21 and as per existing datapoints, it is expected to move further by upto Rs 5 trillion in FY23 .Therefore this will be more than the increase in household indebtedness. All this clearly shows that the shift from financial savings to physical savings might have also been triggered by a low interest rate regime  during the pandemic.   

The increase in household physical assets savings is attributed to a number of factors, including:

  • Rural savings: Rural households are more likely to save in physical assets than urban households. This is because rural households have less access to financial markets.
  • Investment in gold: Gold is a popular investment option in India, especially among rural households. Gold is seen as a safe and secure investment, and it can also be used as collateral to raise loans.
  • Investment in real estate: Real estate is another popular investment option in India. Real estate prices have been rising in recent years, which has made it a profitable investment.

The decline in household financial savings is a concern for the Indian economy if taken in isolation.But Household savings must be looked at as Financial savings +Physical assets for assessing the health of Household savings.

The government is taking a number of steps to encourage household financial savings, such as:

  • Raising interest rates: The Reserve Bank of India has raised interest rates in recent months to combat inflation. This will make financial savings more attractive.
  • Promoting financial literacy: The government is also promoting financial literacy among households. This will help households make informed investment decisions.
  • Launching new financial products: The government is also launching new financial products, such as the Pradhan Mantri Jan Dhan Yojana, to make financial services more accessible to households.

It remains to be seen whether these measures will be effective in reversing the decline in household financial savings in the years to come

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