 "RBI, Reserve Bank of India")
The household savings rate plummeted to a five-decade low in 2022-23 as people started spending after the restrictions on movement ended after the pandemic, the Reserve Bank of India said on Friday.
Deputy Governor Michael Patra said the dip in net financial savings of households to 5.1 per cent of the Gross Domestic Product (GDP) in FY23 also includes an increase in liabilities, much of which are home loans that will show as investments in the next year.
When asked if the decline in savings to a 47-year-low is indicative of over-leverage among the households, Patra reminded that historically, the average household savings rate was about 7.5 per cent but during the pandemic, it had gone up due to a variety of factors, including inability to spend due to the restrictions and also because of precaution savings.
"as these movement restrictions were removed, people went out to spend and started to draw down those precaution savings. That is some of the phenomenon that we're seeing now," Patra said, explaining the decline.
He also pointed out that the rate has increased from 4.2 per cent in the first quarter of FY23 to 7 per cent by the end of the quarter, adding that it is going "towards the trend". Even on an absolute level, the savings have risen by 14 per cent in FY23, Patra added.
Additionally, the dip in the rate at a net level is accompanied by a rise in liabilities, Patra said, adding that most of these are housing loans.
"So what a housing is doing, they're shifting from financial savings to physical savings. When they do that, they actually add to investments," he said.
This rise in liabilities will reflect as investments, which show a rise next year, Patra said.
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