 "tax saving")
Indian households saved a smaller portion of their income in 2022-23 compared to previous year and net financial savings have dropped to a five-year low of Rs 14.16 lakh crore, according to the latest MoSPI data. This decline in savings happened despite, or perhaps because of, an increase in borrowing from banks and non-banks. People are taking out more loans. The borrowed money is being used to invest in physical assets, which could include things like real estate, gold, or a car.There's also a rise in investments in various financial instruments like mutual funds, stocks (direct equities), bank deposits, and life insurance.
Net savings as a share of GDP:
Sharp Decline: Net financial savings of Indian households dropped significantly to Rs 14.16 lakh crore in 2022-23, representing a mere 5.3% of GDP. This is a substantial decrease compared to 7.2% in the previous year.
Reason: Economists attribute this decline primarily to a rise in household financial liabilities (loans).
Increased borrowing by households:
Loan surge: Bank advances to households witnessed a significant jump of 54% to Rs 11.88 lakh crore in 2022-23, compared to Rs 7.69 lakh crore in the previous year.
More From This Section
Non-Bank Borrowing Up: Loans from non-banking companies also saw a rise, reaching Rs 3.33 lakh crore in 2022-23 from Rs 1.92 lakh crore in the previous year.
Possible reason: The increase in borrowing could be due to a desire to invest in assets like real estate or stocks, potentially driven by the expectation of higher returns compared to traditional savings options.
Growth in financial investments
Mutual Funds boom: Gross savings into mutual funds experienced a remarkable surge, reaching Rs 1.79 lakh crore in 2022-23 from Rs 61,688 crore in 2019-20. This trend continued throughout the period.
Stocks gain traction: Similar growth was observed in household investment in shares and debentures, rising from Rs 94,742 crore in 2019-20 to Rs 2.06 lakh crore in 2022-23.
Financialization of savings: Economists believe this trend signifies a growing preference for financial instruments over traditional savings methods. This is further supported by the increasing number of demat accounts (used for stock trading).
There's also a rise in gross savings in bank deposits, insurance funds, and life insurance funds, indicating a more diversified investment approach by households.
Despite the rise in financial investments, gross savings in physical assets, including real estate and gold, also increased to Rs 34.83 lakh crore in 2022-23 from ₹29.68 lakh crore in the previous year.
People are saving less as a proportion of their income but borrowing more to invest in a wider range of financial instruments, including stocks, mutual funds, and insurance products. This trend suggests a growing financialization of the Indian economy and a potential increase in risk appetite among households.
In 2022-23, Rs 540,561 crore went into life insurance funds from level of Rs 4,75,850 crore in previous year. Similarly, the gross savings in insurance funds stood at Rs 5,47,333 crore as against Rs 4,86,889 crore in previous year.
Gross financial savings in physical assets zoomed to Rs 34.83 lakh crore in 2022-23 as against level of Rs 29.68 lakh crore in previous year. The level of gross savings in physical assets in 2019-20 was Rs 22.52 lakh crore and Rs 21.35 lakh crore in 2020-21, official data showed.
SBI Research suggested that the sharp decline in savings may be related to a ‘paradigm shift’ in saving — away from monetary assets to physical assets such as real estate. Such a transition is typically seen in times of high inflation, as monetary assets can’t always keep up with the value appreciation delivered by physical assets during such times.
“To start with, the sharp rise in financial liabilities in hindsight may reflect a drawdown in precautionary saving during the pandemic,” noted the analysts from SBI.
