Quick Edit | State of household finances

Quick Edit | State of household finances

The Reserve Bank of India’s annual report for 2008-09 released on Thursday offers an early look at the state of household finances in India.

Investments by households in shares, debentures and mutual funds collapsed in a volatile year. Household savings in tradable financial products dropped from Rs89,134 crore in 2007-08 to a modest Rs19,349 crore in 2008-09. As a percentage of India’s gross domestic product (GDP), they fell from 1.9% of GDP to 0.4% of GDP.

Interestingly, other avenues of financial savings did not benefit. Money pulled out of the capital market did not flow into cash, bank deposits, insurance and provident funds.

Anecdotal evidence does not suggest that this money went into physical assets such as gold and real estate either. We wonder: Are household savings dropping as a proportion of GDP? If yes, this is not good news.

There is some good news. Household debt has dropped from 4.3% of GDP in 2006-07 to 3.1% of GDP in 2008-09. So family balance sheets are in better shape.