Early indicators show that household savings may have revived in FY24, after falling to a multi-year lower in FY23, while growth in household liabilities could have likely moderated, a report by Crisil said on Tuesday.
In FY23, India’s households’ net financial savings plunged to a five-year low of Rs 14.2 trillion in FY23, sharply down from Rs 17.1 trillion in FY22, primarily owing to a sharp rise in borrowing. The fall could be attributed to “a lot more leveraged consumption and spending” due to greater and faster access to credit, as per economists.
Households “increasingly added physical assets” to their savings after the pandemic, which rose above the pre-pandemic average of 12.2% of GDP after dipping to 10.8% in FY21.
Savings in physical assets surged at 17.1% on-year growth during FY21-23, compared with just 2.2% growth in net financial savings. Savings also rose in gold and silver, and high-yielding assets compared to bank deposits though they accounted for a much smaller proportion of overall household savings, the report noted.
As a percentage of GDP, however, the households’ net financial savings in FY23 was at 5.3%, the lowest in around five decades. Between FY12- FY22 (excluding Covid-19 year FY21), the net financial savings hovered between 7-8%.
In FY24, at the overall economy level, savings could likely have ticked up. This can be inferred from lower India’s current account deficit (CAD), said Crisil. The country’s CAD in FY24 is estimated to have narrowed to about 1% of GDP from 2% in FY23. CAD is the difference between domestic savings and investments.
“Amid low CAD, increasing domestic savings are likely to have financed rising investments in the economy,” the report said. Crisil estimates that total domestic savings likely grew stronger in FY24, compared with 10.7% on-year in the previous fiscal.
Of this, some disaggregated information on household savings can be estimated for fiscal 2024. Households account for a lion’s share in domestic savings, and early indicators suggest a pick-up in this savings category in fiscal 2024, the report said.
Recent data for some financial instruments suggests a rise in gross financial savings in FY24. For instance, bank deposits, which constitute the largest chunk of gross financial savings, grew 13.5% in FY24, compared with 9.6% in the previous year. Bank deposits also grew faster than the 9.1% nominal GDP growth in FY24. The pickup in bank deposit rates over the past year following the RBI’s repo rate hikes may have contributed to this, the Crisil report said.
In FY23, household savings constituted around 18% of India’s GDP, accounting for 60% of gross domestic savings. The latest data from NSO, for FY23, shows savings in physical assets were the highest at 12.9% of GDP, followed by net financial assets at 5.3% and gold and silver at 0.2%.
Household savings had averaged 20.1% of GDP in the decade before the pandemic. In the first year of the pandemic, the number rose briefly to 22.7% as lockdown and mobility restrictions curbed consumption. But the excess got spent quickly as the economy reopened. So much so, in fiscal 2022, household savings reverted to the decadal average and then slipped to 18.4% of GDP in fiscal 2023, the report noted.
While gross financial savings grew at 10.3% y-o-y on average between FY21-23, household financial liabilities rose at the rate of 30.1%. Gross financial savings as a percentage of GDP stagnated, while liabilities grew. “Since fiscal 2018, there has been a marked rise in financial liabilities. This has coincided with surging retail growth,” the report said.