Household sector not in distress, says Finance Ministry

Changing consumer preferences for different financial products is the real reason for the drop in household savings.

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In response to the growing concerns over declining household savings and its impact on the economy, the government has clarified that the decline in household savings is actually the result of consumers’ shifting preferences for various financial products and highlighted that there is no distress.

As per the Reserve Bank of India’s Bulletin for September, the net household savings declined to a 47-year low of 5.1% of gross domestic product in FY23, as compared to the 7.2% recorded in the previous year.

In its statement, the finance ministry explained, “Between June 2020 and March 2023, the stock of household gross financial assets went up by 37.6%, and the stock of household gross financial liabilities went up by 42.6%—no big difference between the two.” 

The drop in net financial assets (also called net financial savings of households) in FY23 is the result of a sharp rise in additional financial liabilities, which increased from Rs 5.9 lakh crore in 2021-22 to Rs 15.8 lakh crore in 2022-23.

According to the Finance Ministry, the households added net Financial Assets of Rs 22.8 lakh crore in FY21, about Rs 17 lakh crore in FY22 and Rs 13.8 lakh crore in FY23. The households are now adding fewer financial assets than in the past because they are now taking and utilizing loans to purchase real assets like homes and vehicles. It is an indication of optimism about their future employment and income prospects, rather than distress, the ministry said.

The ministry further informed that the overall household savings at current prices, (including financial, physical and jewellery) have increased at a CAGR of 9.2% during the period 2013-14 to 2021-22. Nominal GDP has grown at a CAGR of 9.65% during the same period. Thus, household savings as a percentage of nominal GDP have remained constant, from around 20.3% to 19.7% as of FY22.