Why India's savings culture serves everyone except the saver
India’s love for fixed income isn’t just cultural—it’s structural. Banks and governments benefit, while savers quietly lose wealth to inflation, taxes, and time.
A couple of years ago, I wrote about how India remains, at its core, a fixed-income country.
I pointed out that even the Public Provident Fund (PPF)—arguably the best fixed-income option available—delivered only about ₹60 lakh over 44 years of systematic investing. An equivalent investment in the Sensex, meanwhile, would have grown to roughly ₹2.3 crore. That’s nearly four times the wealth—the difference between being merely comfortable and being genuinely wealthy. And yet, India remains a nation of fixed deposit holders.
The question that has been nagging me lately is this: why does this persist?
It’s not as if the information is hidden. Mutual fund advertisements are everywhere. Financial literacy campaigns run constantly. The maths is simple enough. And still, behaviour doesn’t change meaningfully at scale.
Follow the money
Part of the answer lies in understanding who benefits from India’s fixation on fixed income.
When you deposit money in a bank, it doesn’t sit idle in a vault. A substantial portion is channelled to the government through statutory requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio (CRR).
Banks are mandated to park a share of deposits in government securities and cash reserves with the RBI. In effect, this creates a captive lending system, giving the government access to vast pools of cheap capital without competing in the open market.
Viewed from the government’s perspective, the incentive is clear. Why would any government—regardless of political ideology—actively push citizens away from bank deposits towards the stock market? Every rupee that shifts from a bank account to an equity mutual fund is one less rupee supporting this comfortable arrangement.
PPF and other small savings schemes operate on a similar logic, except the government pays slightly more for the money. Post office deposits, National Savings Certificates, and Sukanya Samriddhi accounts allow the government to borrow directly from citizens. The rates appear attractive, the sovereign guarantee provides comfort, and the tax benefits are real. But the underlying transaction remains unchanged: you are lending to the government at rates that barely keep pace with inflation.
Cultural conditioning
The cultural dimension is equally powerful. For generations, the Indian middle class has been raised with a deep suspicion of risk.
Fixed returns—however modest—feel safer than volatile returns, however superior. Parents advise children to stick to FDs. Bank managers are trusted figures. The stock market is viewed as a playground for speculators and the wealthy. This instinct isn’t entirely irrational. Given India’s economic history, capital preservation has long taken precedence over capital growth.
Here lies the tragedy. This mix of institutional incentives and cultural conditioning creates a system in which the average saver is quietly impoverished over decades. Inflation steadily erodes purchasing power. After tax and inflation, most fixed-income returns merely mark time. The saver feels safe but is, in reality, falling behind. Meanwhile, banks, the government, and insurance companies selling traditional products continue to thrive.
Is escape possible?
Will the Indian saver ever escape this trap? The rise of SIPs suggests some movement, particularly among younger investors. Yet the bulk of household savings still sits in fixed-income instruments. Structural incentives remain unchanged. Governments still need cheap capital. Banks still need stable deposits. And the cultural preference for safety over growth remains deeply ingrained.
Perhaps “escape" is too strong a word. What we can hope for instead is a gradual awakening—a recognition that the real risk isn’t volatility but inadequacy. That guaranteed low returns are not safety, but a subtler danger—one that becomes evident decades later, at retirement, when the numbers simply don’t add up. The system won’t change to protect you. You’ll have to change despite it.
Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm.
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