Recent data from the Reserve Bank of India (RBI) reveals a concerning trend in Indian household savings, painting a picture of an income crisis amidst rising costs of living.
Recent data from the Reserve Bank of India (RBI) reveals a concerning trend in Indian household savings, painting a picture of an income crisis amidst rising costs of living.
Recent data from the Reserve Bank of India (RBI) reveals a concerning trend in Indian household savings, painting a picture of an income crisis amidst rising costs of living.
Here’s what the data tells us in simple terms:
Declining Savings:
In the fiscal year 2023, household net financial savings (which means savings after accounting for debts) shrank by 19%, showing a drop in people’s ability to save money. This is in contrast to a 2% average growth over the previous four years.
Borrowing on the Rise:
People are borrowing more to bridge the gap between their income and expenses. In FY23, non-mortgage borrowing, excluding housing loans, shot up by 99%. This indicates that more individuals are turning to loans to maintain their lifestyles, compared to the 24% average increase over four years.
Slow Income Growth:
Despite an 8.9% increase in private consumption spending over four years, when adjusted for inflation, it amounts to a meager 3.2% growth in real terms. The estimated real income growth is just 2.9%, one of the slowest in 40 years.
Assets vs. Liabilities:
While financial assets like deposits, mutual funds, and equities grew by 13.9% in FY23, financial liabilities, or debts, grew even faster at 75.5%. This means that the increase in savings is overshadowed by the surge in debts.
Physical Savings:
The physical savings of households, which include investments in tangible assets, only grew by 6.2%, indicating a struggle to save money beyond their immediate expenses.
Consumer Lending on the Rise:
Home loans are no longer the dominant form of lending. Instead, there is an increase in consumer lending. Outstanding retail loans of banks have hit a 30-year high at 30% in FY23, while the contribution of home loans has fallen from 56% in FY16 to 47% in FY23.
In summary, Indian households are facing an income challenge, where they are struggling to save while simultaneously grappling with the rising cost of living. As a result, they are resorting to loans to sustain their lifestyles. This trend has led to one of the slowest income growth rates in 40 years, suggesting that a significant portion of the population is finding it hard to make ends meet.
The data reveals the structural fragility of the Indian economy, with income growth consistently trailing behind consumption growth, making this one of the longest phases of income shortfall in decades. This situation underscores the need for measures to boost income and ensure that households can save and invest for their future, thus achieving financial stability.
Chirag Raghu
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