India’s household savings rate declined during FY13-18

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Mumbai, March 7 (IANS) Household savings in the country witnessed a negative trend during financial year 2012-13 to FY 2017-18, a report by Kotak Institutional Equities said on Thursday.

Although during the last fiscal (FY18), there was an uptick at 17.2 per cent, the increase was marginal from 17.1 per cent savings rate in FY 2016-17 and was way below the 23.6 per cent savings rate in FY 2011-12.

The savings rate in FY 2012-13 was at 22.5 per cent.

“India’s overall household savings rate has declined over the past few years as household physical savings rate (residential real estate largely) has declined sharply and household financial savings rate has been largely stagnant,” said the report.

“The decline in household physical savings rate is understandable (possibly flat to down in nominal terms, down as proportion of growing nominal GDP base) but we wonder if the decline in overall savings rate is due to some combination of continued high consumption by households, low job creation in general and increase in financial liabilities of households to support short-term consumption,” it said.

India’s net household financial savings rate has stagnated over the past few years despite high real interest rates in the economy and this is “quite puzzling and poses large challenges to India’s policymakers already besieged with the problem of high credit-deposit ratio in the banking system”.

The report observed that although reasons for the anomaly cannot be specified, sharp increases in the household financial liabilities during FY2016-18 should be noted.

–IANS

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