Credit cards, Gold ETFs: How India spent and saved during Covid-19 lockdown

The Covid-19 pandemic triggered a two-month nation-wide shutdown towards the end of March 2020 and brought all economic activity to a near standstill. Over these two months, while companies went back to the drawing board to redefine and work under the 'new normal', employees across organisations suffered pay cuts and job losses.

Despite the government’s efforts to stem the economic fallout of the pandemic, the fall in income levels triggered a fall in consumption/spending as people spent mostly on essentials and purchase of big-ticket items was put on a backburner. Maruti Suzuki India, for instance, reported zero sales in the domestic market, (including sales to OEM), in April 2020 as all production facilities were closed in compliance with the government orders.

Following the Covid-19 led lockdown, the Reserve Bank of India (RBI) extended the moratorium on loan repayment till the end of August and banks offered the same option to the customer. However, the number of loans under moratorium varied across banks.

According to a June 29 report by State Bank of India's economic wing, card spending declined significantly during April, with the total value of credit and debit card transactions slipping sharply from Rs 1.51 trillion in January 2020 to around Rs 50,000 crore in April 2020.

"Per card transaction also declined from as high as Rs 12,000 to Rs 3,600 in the case of credit cards and Rs 1,000 to Rs 350 in the case of debit cards. It could be also possible that consumer spending has shifted from luxury purchases to purchases of daily essentials and groceries," wrote Dr. Soumya Kanti Ghosh, group chief economic adviser at State Bank of India in the June 29 note.

Interestingly, even as credit card spending has significantly declined during April 2020, SBI's estimates of the short-term consumer leverage (sum of credit card, personal loans, advances against fixed deposits, shares, bonds outstanding, etc.) that had reached a peak in the financial year 2017-18 (FY18) at Rs 1.56 trillion declined significantly to Rs 1.29 trillion. However, during FY20, it has increased marginally to Rs 1.35 trillion, reflecting possibly consumer stress.

"In April, short-term consumer leverage declined by a whopping Rs 50,076 crore as compared to March 2020. It may be noted that in April there is always a decline, but in the current fiscal because of exceptional circumstances this decline is 16 times more than what happened in April 2019. Consumers are also vigorously using gold holdings on their household balance sheet by taking gold loans," Ghosh added.

Gold exchange-traded funds (ETFs), according to the report, saw a cumulative investment of Rs 1,546 crore in April and May 2020, which is equivalent to 3.7-3.8 tonne of gold. Investment into gold ETFs picked up in January this year, with investors putting in Rs 202 crore – the highest in seven years. That was followed by an all-time high investment of Rs 1,483 crore in February. Gold buying in the form of sovereign gold bonds in the June quarter has been 6.7 tonne, with investment up to Rs 3,107 crore.