Households saving more in physical assets; making funds inaccessible for investment

With inflation continuing to hurt daily budgets, Indian households are finding it difficult to save money.

- Tushar K Mahanti

Indian households saved a smaller portion of their income in 202223 compared to previous year and net financial savings have dropped to a five-year low. The Reserve Bank of India has noted that household net financial savings fell sharply to 5.1% of GDP in 2022-23 from 11.5% in 2020-21, well below its long-run annual average of 7-7.5%.

This is disturbing news for our policy makers. Savings and investments are two key variables which play a pivotal role in economic growth and expansion. A fall in savings thus, is feared to affect the country's ambitious investment plan, the key to achieve higher GDP growth.

India's economy will expand by 8% in 2023-24 and is projected to grow by 7% in the current year, V Anantha Nageswaran, chief economic adviser to the government, has claimed recently. Several agencies have recently revised their estimates on India's FY24 GDP growth. Ratings agency Moody's increased its estimate from 6.6% to 8%, citing strong government expenditure and domestic consumption. Fitch Ratings also raised India's growth forecast for FY25 from 6.5% to 7%, highlighting investment as a significant growth driver.

The International Monetary Fund (IMF) has raised India's growth forecast for 2024-25 to 6.8% from 6.5% on the back of strong domestic demand and a rising working-age population.

RBI estimates the economy to grow at 7% in the current financial year.