Recent statements by the Deputy Governor highlights a shift in household savings rate post-pandemic as households are building back their financial savings and are expected to become the primary net lenders to the economy in the coming years.
- Household savings have increased from 10.6% of GDP during 2011-2017 to 11.5% of GDP during 2017-2023.
Implications for the Economy
- Impact on Financial Sector: The decline in financial savings poses challenges for the banking sector in maintaining liquidity and managing credit risk.
- Public Sector Borrowing: The public sector continues to be a net borrower due to its role in fiscal policy. Net dissaving in this sector is moderating but remains uneven.
- External Financing: India’s investment needs are primarily financed through domestic savings with external financing playing a supplementary role. Future shifts in external financing may occur as the economy’s productive capacity and ability to absorb foreign resources expand.
About Household savings
- Household savings rate is the ratio of household savings to Gross domestic product (GDP).
- The household sector generates surplus savings relative to its investments, lending excess resources to other sectors.
Categories of Household Savings
- Financial Savings:
- Includes assets such as currency, deposits, and life insurance funds.
- The decline in financial savings poses challenges for the banking sector, impacting liquidity and credit risk management.
- Physical Savings:
- Consists of investments in physical assets like housing, gold, and silver.
- Physical savings have risen post-pandemic and remain a significant portion of household savings.
Ref: Source
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Frequently Asked Question:
What is the household savings rate?
The household savings rate is the ratio of household savings to a country’s Gross Domestic Product (GDP).
What are the categories of household savings?
Household savings are categorized into financial savings, such as currency and deposits, and physical savings, like housing and gold.
How does household savings impact the financial sector?
A decline in financial savings affects banking liquidity and complicates credit risk management.
How does public sector borrowing compare to household savings?
While households are net lenders, the public sector remains a net borrower due to fiscal policies.