The Union Budget Should Focus on Lifting Consumption Growth

That is key, since investments haven't picked up, but there may be little fiscal space for big tax cuts

- VIVEK KAUL

The Reserve Bank of India (RBI) recently released figures for net household financial savings (flow) during 2023-24. These savings stood at 5.3% of gross domestic product (GDP), up slightly from 5% in 2022-23. In 2019-20, they stood at 8.1%. The pandemic broke out in March 2020 and in 2020-21 these savings jumped to 11.5%. So, what do these figures tell us?

First, net household financial savings have come down significantly over the years. In 2018-19, before the pandemic, they stood at 7.9% of GDP.

Second, in the post-pandemic world, income growth for an average Indian has been slow, and given that they have had to spend a greater proportion of their income to meet expenses, household financial savings have fallen. One possible explanation could lie in the fact that more people are working in agriculture now than before the pandemic.

Third, high food inflation from 2022-23 seems to have led to a greater proportion of income being spent. From April to November this year, food inflation, which forms nearly two-fifths of the consumer price index, has averaged 8.4%. It averaged 7.3% and 6.9% during the same period in 2022 and 2023, respectively. With quite a few state governments launching cash distribution schemes, food inflation is likely to remain high.