What does a drop in household financial savings imply for India?
SummaryThough household debt has risen, the overall savings rate hasn’t suddenly fallen. But it must rise for faster economic growth
The household financial savings data recently published in the latest issue of the Reserve Bank of India (RBI) bulletin created quite a stir. It indicated that India’s net household financial savings rate had declined to only 5.1% of GDP in 2022-23, the lowest in decades. Some analysts interpreted this as a symptom of rising indebtedness among households. Others interpreted the data as a worrying indication of a declining savings rate, noting that India’s high growth in the first decade of this century had been enabled by a high savings rate in that period. To calm market sentiments, the finance ministry found it necessary to issue a clarification that the decline in our financial savings rate is not a symptom of any distress in the household sector, but merely a reflection of changing household preferences in the composition of their asset portfolio.