Households’ financial liabilities jumped to ₹8.2-lakh crore, outpacing the increase in gross financial savings at ₹6.7-lakh crore, thus explaining the fall in household net financial saving by ₹1.5-lakh crore or 2.5 per cent of GDP, according to SBI Group Chief Economic Advisor Soumya Kanti Ghosh.
The ₹4.1-lakh crore increase in households’ assets was led by investments in insurance and provident and pension funds, whereas on the liability side, ₹7.1-lakh crore growth was led by increased household borrowings from commercial banks.
“We find that 55 per cent of the retail credit to households in the last two years have gone to housing, education and vehicle purchase,” Ghosh said in his ‘Ecowrap’.
The comments come after RBI data showed that net financial savings of the household sector, the most important source of funds for the general government sector and non-financial corporations, moderated to a 47-year low of 5.1 per cent of GDP in FY23.
Household financial borrowings in FY23 surged to 5.8 per cent of GDP, the second-highest in the post-Independence period, Motilal Oswal said in a note, adding India’s non-mortgage household debt is similar to that in other major economies such as the US, China, Japan, and Australia, while mortgage debt is among the lowest.
Capital formation
SBI Research said the share of households’ savings in physical assets is expected to reach 70 per cent levels in FY23 from 48 per cent in FY21. It jumped to ₹6.5-lakh crore in FY22 and is expected to rise to ₹5-lakh crore in FY23, thus outstripping the increase in household indebtedness.
“This clearly indicates that the shift from financial savings to physical savings was also triggered by a low interest rate regime in pandemic. We also believe that the shift to physical assets is also triggered by a recovery in real estate sector and the increase in property prices,” Ghosh said.
Further, capital formation as a share of household gross savings increased to 60 per cent in FY22 from a low of 53.2 per cent in FY16 (exception: 47.8 per cent in FY21), which indicates that households have now started utilising more of their savings for capital formation and is expected to touch a decade high of around 68 per cent in FY23.
“Weak income growth, coupled with robust consumption and investment growth (iphysical savings) can occur only if HHNFS (household net financial savings) decline significantly. This is exactly what has transpired. Notably though, such economic growth is highly unsustainable,” Motilal Oswal EcoScope said.
Nominal FY24 growth
It added that in FY24, nominal GDP growth is likely to be only 8 per cent and household income growth is also likely to be similar. In such a scenario, either consumption growth will be very weak or household investments will weaken substantially, since a further fall in financial savings looks very difficult.
“Further, with expectation of narrowing CAD, investments can increase only if savings rise faster,” it said, adding that if savings fails to pick up, it will become increasingly challenging to fund the narrowing fiscal deficit.