RBI’s new annual report offers further proof that household savings in India are dropping rapidly as a proportion of GDP
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The Reserve Bank of India’s (RBI) new annual report offers further proof that household savings in India are dropping rapidly as a proportion of gross domestic product (GDP). Most of the decline over the past few years is thankfully explained by a decline in physical savings. Financial savings are relatively more stable. And net financial savings as a proportion of GDP have actually gone up since the end of FY14 from 7.2% to 7.5%. Inflation declining faster than interest rates has meant that Indian households now have greater incentive to keep their money in the financial system rather than buy physical assets. Those who want premature rate cuts should note this.
Corporate savings have actually gone up sharply between fiscal 2013 and fiscal 2015—a sign that companies have begun to mend their balance sheets. Government dissavings have also come down, thanks to fiscal consolidation. Yet, the national savings rate has to increase to support the next wave of asset creation.