New Delhi: Indian households' savings fell to a five-year low in 2021-22 as rising inflation gnawed into the purchasing power of the middle class.
Also, due to the Coronavirus-induced lockdowns, people were forced to dig into their savings, as the pandemic also led to severe job losses and in the absence of steady incomes, savings were the last resort for people to run their households.
Compared to 15.9 percent in 2020-21, the gross financial savings of households stood at 10.8 percent in 2021-22. In the three previous fiscal years, it was 12 percent.
Though initially during the lockdowns, people saved their funds, keeping in mind the possibilities of spending on healthcare. Once the restrictions eased, they went on a spending spree, which economists termed "revenge spending".
This led to the depletion of their savings, and a situation arose when spending exceeded income. There were cases when, despite having no jobs, expenditures rose, and savings bore the brunt of this excess or revenge spending, economists explained.
Household savings figures were down to 2.5 percent
According to official data, household savings figures were down to 2.5 percent of the GDP in 2021-22, while the share of other savings avenues like insurance, provident funds, and pension funds went up to 40 percent of gross financial savings.
In 2021-22, shares and debentures' portions were also at a five-year high of 8.9 percent, while the share of small savings hit a 16-year high of 13.3 percent, according to reports.
According to a consulting firm, high inflation has been the major reason behind the fall in savings, and in order to increase investments, savings need to be encouraged.
Indian households account for 60 percent of the country's savings
Indian households account for about 60 percent of the country's savings, but this is falling gradually. Lower domestic savings expose borrowers to overseas markets, weakening India's external position and raising external debt.
India's savings rate had touched a 15-year-low as gross domestic savings stood at 30.9 percent of GDP in FY20, down from a peak of 34.6 percent in FY12.
Household savings fell from 23 percent of GDP in 2012 to 18 percent in 2019.
