Household savings decline for third consecutive year: Report

Household savings decline: Household savings are projected to have dwindled for the third consecutive fiscal year in FY24, as per the latest data from the National Account Statistics 2024, released by the Ministry of Statistics and Programme Implementation (MoSPI). The net household savings plummeted by Rs 9 lakh crore to Rs 14.16 lakh crore over the span of three years up to 2022–23.

The decline is primarily attributed to a substantial 73 per cent year-on-year surge in liabilities during 2022–23, according to Aditi Nayar, Chief Economist at ICRA. Nayar anticipates that the trend of diminishing household savings will persist in 2023–24, with data for the period expected to be disclosed later. However, she remains optimistic about a potential reversal in the trend for the fiscal year 2024–25, citing the impact of the Reserve Bank of India's (RBI) measures to restrict unsecured personal loans.

Chief Economic Advisor V Anantha Nageswaran suggested that the decline could be linked to a shift in investment preferences, with savings being redirected towards real assets. He addressed concerns about lower net financial savings flows in FY23 during a recent event at NCAER, attributing it to a portfolio reallocation towards tangible assets.

Historical data reveals a notable fluctuation in household savings. In 2020–21, amid the COVID-19 pandemic's second wave, household savings peaked at Rs 23.29 lakh crore. However, this figure progressively dwindled to Rs 17.12 lakh crore in 2021–22 and further dropped to Rs 14.16 lakh crore in 2022–23.

The surge in liabilities, primarily stemming from housing, auto, personal, and other loans, has contributed to the erosion of household savings. Loans extended to households by financial corporations and non-banking financial companies (NBFCs) skyrocketed to Rs 3.33 lakh crore, marking a four-fold increase from Rs 93,723 crore in 2020–21. This trend continued with a 73 per cent surge over the previous fiscal year.

Nayar highlighted the factors contributing to escalating liabilities, citing the revival of the housing market post-COVID and subsequent increases in housing sales. However, the surge in liabilities extends beyond housing loans to encompass vehicle, education, agricultural, and business loans.

(With PTI inputs)