Household Savings Reflect Changing Consumer Preferences, Not Economic Distress: FM

The Finance Ministry has contended in its latest report that households are now accumulating fewer financial assets than in the past due to their increased use of loans to purchase real assets like homes and cars, which is “not a sign of distress but of confidence in their future employment and income prospects.”

Data from the Reserve Bank of India released this week showed that net household financial savings decreased from 7.2 per cent of the GDP in 2021–2022 to 5.1 per cent of the GDP in 2022–2023—the lowest level in 47 years, or since 1976–1977. In addition, household financial liabilities increased from 3.8 per cent of GDP in 2021–22 to 5.8 per cent last year, raising concerns that many households’ recovery from the COVID–19 epidemic is still insufficient and that high inflation has eroded savings.   

The ministry claimed that although fresh inflows have decreased, overall net financial assets are still increasing. “Between June 2020 and March 2023, the Stock of Household Gross Financial Assets went up by 37.6 per cent and the stock of household gross financial liabilities went up by 42.6 per cent — there was no big difference between the two,” the Ministry said. 

Since September 2022, vehicle loans have increased by more than 20 per cent, with double-digit growth since April 2022. Clearly, the household sector is not in difficulty. They are financing their purchases of cars and homes, the Ministry claimed.

This, it stated, demonstrated that as of 2021–2022, the proportion of household savings to nominal GDP had stayed consistent, dropping from about 20 per cent to 19 per cent.