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The Union Finance Ministry on Thursday chose to allay the concerns on falling household savings, saying the decline is due to change in consumer preference like buying house and car instead of putting money in bank accounts.
This comes after Reserve Bank of India (RBI) data showed that net household savings dipped to near five decades low of 5.1% of GDP in the financial year 2022-23 as compared to 7.2% in the previous year.
In a post on X (formerly Twitter), the finance ministry noted, “lately, critical voices have been raised with respect to household savings and its overall effect on economy.”
“However, data indicates that changing consumer preference for different financial products is the real reason for the household savings and there is no distress as is being circulated in some circles,” it added.
The central bank’s data indicates distress on two fronts. On the one hand, there is a sharp drop in the net financial savings by households, while on the other there is a jump in borrowings.
As a percentage of GDP, households’ financial liabilities jumped to 5.8% in 2022-23 from 3.8% in the previous year.
Some analysts argue that the decline in savings coupled with increased borrowings indicate that the households income has not increased in line with the cost of living and thus they are forced to borrow to meet their expenses.
Criticising the central government for failing to control inflation, Karnataka’s IT and rural development minister Priyank Kharge said, “Medical inflation here is the highest among Asian countries. The cost of treatment has doubled in five years. Education inflation has risen by over 12%. 74% in India can’t afford a healthy diet. Price of a Veg thali has increased by 24%.” “Modi Sarkar is rigging data on economic growth,” Kharge wrote in a post on X on Thursday. “Call it Bharath or India, the fact remains that financial savings of households fell to a 50 year low,” he said.
In absolute terms, the net addition in households' financial assets declined from Rs 22.8 lakh crore in 2020-21 to Rs 16.96 lakh crore in 2021-22 and to Rs 13.8 lakh crore in 2022-23.
“So, they (households) added less financial assets to their portfolio than in the previous year and the year before, but it is important to note that their overall net financial assets are still growing,” the finance ministry noted in its post.
The ministry further noted that the households added financial assets by a lesser magnitude in 2022-23 than in the previous years “because they have now started taking loans to buy real assets such as homes.”
To buttress its arguments, the finance ministry highlighted the increase in housing and auto loans. It noted that there has been a steady double-digit growth in loans for housing since May 2021, while vehicle loans have been growing at double digits year-on-year since April 2022.
“The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” the ministry said.