Declining household savings after demonetisation, GST hit investment

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Published: February 16, 2019 3:26:41 AM

Net financial savings of households have come down from 7.4% of GDP in FY12 to 6.6% in FY18 because of a rise in households' financial liabilities.

Domestic savings, as a proportion of the gross domestic product at current prices, declined to 30.5% in FY18 from 34.6% in FY12, stymieing investment significantly. Household savings, the largest contributor to savings in the economy, plunged to 17.2% of GDP in FY18 from 23.6% in FY12. While private corporate sector savings stagnated, public sector savings rose marginally, according to data from Central Statistics Office.

The declining trend of household savings from a high 25.6% of GDP in FY10 to 18% in FY16, 17.1% in FY17 and 17.2% in FY18 has affected overall investment, which has dropped from 34.3% of GDP in FY12 to 28.7% in FY16, 28.2% in FY17 and 28.6% in FY18.

Net financial savings of households have come down from 7.4% of GDP in FY12 to 6.6% in FY18 because of a rise in households’ financial liabilities. Gross financial savings, which touched an all-time high of 12.2% of GDP in FY10, dropped to 9.4% in FY17 and inched up to 10.9% in FY18.

Investment by households has fallen from 15.7% of GDP in FY12 to 10.3% in FY18 and the share of households in capital formation has slipped from 45.9% of GDP in FY12 to 35.8% in FY18. As household savings are a major source of funding investment in the economy, the declining trends seen after the twin policy shock of demonetisation and implementation of goods and services tax coupled with rising liabilities will pose a serious challenge to investment and employment generation.

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