Indian households are moving their savings from financial assets to real assets, says V Anantha Nageswaran, Chief Economic Advisor to the Government of India. 

He said this in response to a question about the increase in household financial liabilities alongside only a slight increase in financial assets, in a conversation with businessline’s editor, Raghuvir Srinivasan, at a ‘breakfast with businessline’ meet, organised by businessline and the event was at ITC Grand Chola hotel. 

RBI data show that the growth of household financial liabilities went up from 3.8 per cent in 2021-22 to 5.8 per cent in the following year; growth of financial assets increased from 10.99 per cent to 11.1 per cent.  

Are Indian households consuming more? Responding to this, Nageswaran pointed out that the 5.8 per cent was an “accretion to household financial savings”, in 2022-23.  “So, the stock of financial assets that the Indian households have, or the net financial assets after liabilities are taken into consideration, continues to rise,” the Chief Economic Advisor said. 

Only in 2022-23, the pace of accretion to the net financial assets of households slowed compared with the previous year’s pace. 

This slowdown is not because Indians are consuming more; it is because they are also acquiring more real assets. The diversion of financial savings went into physical assets. You can see that from the second half of 2020-21, the pick-up in residential loans has been much stronger. Therefore, it is a portfolio re-allocation. Real assets accumulation has happened at the expense of financial asset accumulation, Nageswaran said. 

Income Inequality 

Responding to a question about whether he would stress on growth or on tackling income inequality, Nageswaran said that growth and income distribution were “not conflicting but complementary.” However, “all I am saying is growth is necessary, a pre-condition for us to distribute.” 

Stressing that he was not “trivialising income distribution”, Nageswaran said, “Definitely, extreme levels of inequality have proven to be problematic for growth to be sustained.”  “But growth provides governments with the financial resources to undertake distribution policies, which can lift the under privileged segments of the population that need to be provided a leg up,” he said. 

The Chief Economic Advisor noted that conventional economic wisdom had it that when economic opportunities arise, it is usually those who are at the centre of economic activity who tend to participate more actively first, but the periphery has to be drawn in and brought into the mainstream. 

“This is where the policies on education, health, health insurance, skilling initiatives — all those things will open up opportunities for the periphery to move. So, it is not as if distribution implications or policies have been forgotten. In fact, many of those policies are explicitly aimed at ensuring that the fruits of economic growth are distributed widely and fairly,” Nageswaran said.  

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