At 4% of GDP, household savings touch 30-year low; consumption up

Recent estimates suggest that the net financial savings of households in India fell to a three-decade low of around 4 per cent of the Gross Domestic Product (GDP) in the first half of the current fiscal, the Financial Express reported.

In FY22, the savings stood at 7.3 per cent. This fall in savings indicates an increase in consumption.

The net household financial savings are estimated to have been around Rs 5.2 trillion in the first half of 2023 compared to Rs 17.2 trillion in FY 2022.

There are chances that the trend might reverses, but if savings don’t pick up in the coming quarters, both consumption and investments will suffer, the report said.

Motilal Oswal Securities’ estimate suggests that total savings of households would have come off to 15.7 per cent of GDP in H1 FY23, compared with a level of roughly 20 per cent of GDP in the previous five years.

Quoting Nikhil Gupta, the chief economist at the brokerage, the report said that high inflation might have pushed consumers to spend from their savings.

Notwithstanding lower gross financial savings, the liabilities of households increased to 5 per cent of GDP in H1 FY23, according to Gupta.

The first advance estimates for GDP suggest that the Personal Financial Consumption Expenditure (PFCE) is estimated to contract marginally in the second half of the calendar year.

The consumption demand has slowed after the festive season. A combination of factors, including hiring slowdown, waning of pent-up demand, high inflation, and increase in mortgage EMIs have impacted demand across discretionary categories, with a few exceptions, the report said, quoting Kotak Institutional Equities analysts.

The fast-moving consumer goods sector grew at 8.9 per cent in Q2FY23, 2 per cent lower than the previous quarter, according to the consumer data. The drop in volumes was sharper in rural markets at 3.6 per cent, led by both double-digit price increases and lower unit growth, the FE report said.

The demand for both, staples and discretionary products, recovered in December after sales fell sequentially or remained flat for several months before that with the festival-heavy month of October being the sole exception, according to Bizom data.