Household Savings Decline To 50-Year Low In FY23: Report

The net financial savings of households slumped to almost a five-decade low in the fiscal year 2022-23 (FY23), revealed the Reserve Bank of India (RBI) data on Monday. The savings dropped from 7.2% in FY22 to 5.1% of gross domestic product (GDP) in FY23 due to an income crunch and a short-term spike in post-pandemic consumption.

Annual financial liabilities of households rose by 5.8% of GDP in FY23, as against 3.8% in FY22.

Net assets of households were valued at Rs 22.8 trillion in FY21, but the figure fell to Rs 16.96 trillion in FY22 and further fell to Rs 13.76 trillion in FY23.

Reports published separately have said that household debt, as measured by financial liabilities, remained significantly high at 37.6% of GDP in FY23 against 36.9% in FY22. RBI's data suggested that the rate of increase in financial liabilities in FY22 was the second highest since Independence. The only time the flow was sharper was in the Financial Year 2006-07 when it was 6.7%.

The main reason behind decreasing savings and increased borrowing is credited to the combination of stagnant or declining household incomes amidst rising inflation.

In a shift from the usual pattern, private consumption final expenditure (PFCE) witnessed a year-on-year (YoY) improvement of 6% in Q1FY24, surpassing 2.8% in Q4FY23 and 2.2% in Q3FY23. However, data for the months of July and August showed a mixed picture for consumption. Passenger wholesale car sales, auto retail sales, and air traffic performed positively, while wholesale two-wheeler and tractor sales, rail passenger traffic, aviation cargo, and consumer goods imports did not perform as well. The GDP data for Q1FY24 indicated that investment showed greater strength than consumption, and urban demand exceeded rural demand.

When it comes to the health of financial institutions, liquidity in the Indian banking system has reached its deepest deficit in nearly six months, according to a recent report by The Economic Times. The stark dip in liquidity is believed to have inflated borrowing costs, as outflows due to corporate advance taxes and the Reserve Bank of India's (RBI's) likely actions to stabilize the domestic currency Indian Rupee have drained lenders of funds.

It is worth mentioning that the RBI is legally mandated to achieve a 4% CPI (consumer price index) inflation target, with a band of (+/-) 2% around it.