Sharp Slump in Net Financial Savings of Households

The recent data from the Reserve Bank of India show that the net financial savings rate of households has slumped. The net financial savings of households, which are their gross financial savings minus financial liabilities, fell to 5.1% of the gross domestic product (GDP) in 2022–23, a 47-year low. Even in nominal terms, the net financial savings of households have now fallen to `13.76 lakh crore, which is even lower than the levels achieved four years back in 2018–19. Hence, this is a major setback as household savings are the backbone of investments and their depletion can seriously erode the growth potential of the economy.

The net financial savings of households are crucial for two reasons. First, it accounts for a dominant share of the household sector savings, which roughly contribute about three-fourths of the gross savings in the economy. The private corporate sector savings are the next biggest component accounting for around a one-third share. The government savings, the third component, have almost always been negative for decades.