The latest edition of the Handbook on Indian Statistics released by the Reserve Bank of India (RBI) depicts some interesting trends in domestic savings. Gross Domestic Savings (GDS), which was recovering steadily post demonetization, has again declined post Covid. However, the decline since FY17 is entirely due to lower savings in the corporate sector. The household savings have actually risen sharply, especially during Covid.
Contrary to popular perception, the Indian households are allocating much less to the capital market products (shares and bonds) post Covid. Even contributions to the provident funds have declined materially, indicating lower employment in the organized sector. Bank deposits have seen an increase. The contribution of Indian households to Investments (Gross Capital Formation) is stable at the elevated levels seen post demonetization, implying a rising trend towards self-employment.
Key trends
· Gross Domestic Savings (GDS) in India that had recovered from Rs48.2trn in FY17 to Rs 60trn in FY19, declined to Rs55.9trn in FY21.
· Household’s share in GDS increased from 58% in FY17 to 79% in FY21. During Covid it increased from 65% in FY20 to 79% in FY21. At the same time the share of the private corporate sector in GDS declined from 34% in FY17 to 30.6% in FY21.
· The share of financial assets in household’s total savings has seen an increase from 41% in FY17 to 52.5% in FY21. In the same period the share of physical assets declined from 57.2% to 46.7%; and the share of gold and silver ornaments fell from 1.7% to 0.9%.
· Contrary to popular perception the share of allocation to capital markets (shares and debentures) fell from a high of 9% in FY17 to 3% in FY21.
· Household share in investment has increased from 32% in FY17 to 38% in FY21.
Indications
Post demonetization and GST, the private sector profitability (hence savings) have been impacted.
Households are increasingly becoming cautious. They are controlling their consumption and adding to savings.
Employment conditions may have worsened. More households are engaging in self-employment.
Deployment of savings in physical assets like personal vehicles, housing etc. is being avoided to maintain liquidity.
Risk appetite has been impacted adversely; and households are preferring safer bank deposits over riskier capital market assets.
The study is quite counter intuitive... the consumption spirits in the urban areas appears to have gathered tailwinds... the retail holding in equities has inched up considerably... thus the study may be indicative of the stress in semi-urban and small towns...
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