The Reserve Bank of India (RBI) today said the net financial saving of the household sector declined further to 7.8 per cent of GDP in 2011-12 from 9.3 per cent in the previous year and 12.2 per cent in 2009-10.
The fall was mainly due to high inflation, decline in small savings and slower growth in households’ holdings of bank deposits, currency and life funds. “The persistence of inflation at a high average rate of about nine per cent during 2011-12 further atrophied to stave off the downward pressure on their real consumption or lifestyle,” said RBI in the Annual Report released today.
RBI said two years of high inflation amidst wide fiscal and current account deficits had an adverse impact on welfare. “Poor households are unable to maintain the consumption levels at current prices and therefore, they are particularly worse off in an inflationary situation,” said RBI.
With real interest rates on bank deposits and instruments such as small savings remaining relatively low and the stock market adversely impacted by global developments, households favoured investment in valuables like gold. The valuables have increased from 1.3 per cent of GDP in 2008-09 to 2.8 per cent in 2011-12.
Also, various schemes mooted by banks to promote gold as an investment asset among individuals added to the demand of gold, RBI said. The central bank said that India’s gold import is estimated to have grown by 39 per cent during 2011-12. According to the World Gold Council, India's quantum of gold imports accounted for a quarter of the world demand in 2011-12.
RBI said that the diversion of household financial saving to investment in gold may have impacted the growth in term deposits which fell to 16.7 per cent in 2009-10 to 2011-12 from 23 per cent in 2006-07 to 2008-09. "Since such investments in gold do not contribute to capital formation, they are likely to have implications for overall investment and economic growth," said RBI in its report.