(MENAFN- KNN India) New Delhi, May 8 (KNN) India's household net financial savings plummeted to a five-year low of Rs 14.2 trillion in the fiscal year 2022-23 (FY23), a sharp decline from Rs 17.1 trillion in the previous year.
This drop is primarily attributed to a significant surge in short-term credit, particularly from credit cards and other bank advances, according to data released by the Ministry of Statistics on Monday.
As a percentage of Gross Domestic Product (GDP), the households' net financial savings in FY23 stood at a mere 5.3 per cent, the lowest level in nearly five decades.
Historically, between FY12 and FY22 (excluding the COVID-19 year FY21), the net financial savings hovered between 7-8 per cent of GDP.
The gross financial savings of households amounted to Rs 29.7 trillion in FY23, while their financial liabilities soared to Rs 15.6 trillion, a staggering 73 per cent year-on-year increase. In contrast, household savings rose by only 14 per cent during the same period.
Among financial liabilities, "bank advances" or short-term credit, typically availed through credit cards, experienced a remarkable 54 per cent year-on-year growth in FY23, the fastest rate recorded since at least FY12. Bank advances accounted for a substantial 76 per cent of the overall liabilities of households during FY23.
Economists attribute this trend to 'a lot more leveraged consumption and spending' facilitated by greater and faster access to credit.
Sakshi Gupta, Principal Economist, HDFC Bank, stated, "The data (FY23) depicts that the nature of financing consumption has changed."
She noted an increase in demand in certain sectors, such as housing, where the housing credit to GDP ratio stood at 7.1 per cent in FY23, slightly higher than FY22's 7.0 per cent.
However, some economists warn that weak wage growth and leveraged consumption could potentially hinder consumption growth.
The growth in private final consumption expenditure was 6.8 per cent in FY23 and is expected to slow down to 3 per cent in FY24, according to the National Statistical Office's second advance estimates.
The finance ministry, on the other hand, does not perceive any signs of distress in the FY23 data.
In September 2023, the ministry attributed the decline in net financial savings to 'changing consumer preferences for different financial products.'
They also highlighted that household net financial assets are still growing, albeit at a slower pace, as households are increasingly taking loans to purchase real assets like homes.
Looking ahead to FY24, economists anticipate a further reduction in households' net financial savings due to the rise in household financial liabilities (borrowings).
However, Gaura Sen Gupta, Economist, IDFC FIRST Bank, noted that "despite the increase in financial liabilities, household debt to GDP remains moderate compared to other emerging markets."
Overall, the data underscores a shift in household consumption patterns, with a rise in leveraged spending facilitated by increased access to credit, particularly short-term credit from banks and credit cards.
While the finance ministry remains optimistic about the trend, some economists caution about the potential impact on consumption growth if wage growth remains subdued.
(KNN Bureau)
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