"As incomes rise, households are anticipated to rebuild their financial assets" stated India's Deputy Governor of the Reserve Bank of India (RBI), Michael Debabrata Patra, on Tuesday at the CII Financing Summit. This comes as a positive sign of economic recovery following the pandemic.
“Household savings in India have seen an increase, rising from an average of 10.6 per cent between 2011 and 2017 to 11.5 per cent from 2017 to 2023, excluding the pandemic year,” said Patra, this increase represents the beginning stages of a larger financial asset rebuilding exercise. Patra pointed out that financial assets held by households once peaked at 15 per cent of GDP in the early 2000s, continuing up to the 2008 financial crisis. The current trend indicates a return to higher levels of financial asset accumulation.
As per Patra domestic savings have been the primary source of financing for the economy's investment needs, with external financing serving a supplementary role. “As India's productive capacity and ability to absorb foreign capital grow, there could be significant changes in the volume and composition of external finance,” he stated.
Net household savings as a percentage of GDP have also declined, primarily due to behavioural changes such as the unwinding of pandemic-era prudential savings and a shift from financial to physical assets such as houses. Despite this, the Deputy Governor of RBI believes that families will continue to be the principal net lenders to the economy in the future.
During the pandemic, physical savings increased, reaching 16 per cent of GDP in 2010-11. This period saw an increased focus on tangible assets, but with rising incomes, a transition back to financial assets is expected.
