Indian household savings, which have been declining since the covid-19 pandemic owing to higher borrowings, may have rebounded in FY24, rating agency Crisil said in a report on Tuesday.
While official data from the National Statistical Office (NSO) is still awaited, early indicators are that household savings may have revived in FY24 and growth in household liabilities is likely to have moderated, the rating agency said.
"India’s current account deficit (CAD) is estimated to have narrowed to about 1% of GDP in fiscal year 2024 from 2% in the previous year. But investments rose to about 33.7% of GDP from 32.2% of GDP in the previous year," read the report, titled 'Trends in household savings and debt after the pandemic'.
"Amid low CAD, increasing domestic savings are likely to have financed rising investments in the economy. We estimate that total domestic savings likely grew stronger in fiscal 2024, compared with 10.7% on-year in the previous fiscal," it added.
A current account deficit occurs when the total value of goods and services a country imports exceeds the total value of goods and services it exports.
"Bank deposits, which constitute the largest chunk of gross financial savings, grew 13.5% in fiscal year 2024, compared with 9.6% in the previous year. Bank deposits also grew faster than the 9.1% nominal GDP growth in fiscal 2024," the report said.
"Mutual fund investments by households have grown at a faster rate in fiscal 2024 compared with the recent past. Investments through systematic investment plans (SIPs), mostly opted by individuals in the country, continued to rise in fiscal 2024," it added. Bank retail credit growth remained relatively high at 17.7% in FY24, though down from 21% in FY23, it added.
Crisil said that while Indian households continued to invest in real estate in FY24, a slowdown in private consumption during the fiscal year, despite high GDP growth, hinted at increased household savings.
"Early indicators are that overall household savings likely rose and contributed to higher total savings in fiscal year 2024," it said.
"The expectations of rate cuts have been pushed ahead amid inflation risks and buoyant growth. Further, the transmission of the RBI’s past rate hikes could encourage households to increase their savings," the report added.
Fears overblown, says chief economic advisor
According to the latest data from the ministry of statistics, net household savings declined sharply by ₹9 trillion to ₹14.16 trillion in the three years to FY23. Overall, India’s household savings rate has fallen from 22.7% of GDP in FY21 to 18.4% in FY23.
In his column for Mint on 29 April, the government's chief economic adviser Venkatraman Anantha Nageswaran argued that household financial savings are expected to increase in coming years on the back of an increase in household employment and income, strong private and banking sector balance sheets, and private-sector capital formation.
"In sum, the hysteria being whipped up about a decline in household savings appears excessive, especially considering that the fall was more precipitous in the boom period of 2003-2008 when there was a big rise in private corporate savings," he said.
