Page 13 - CII Artha Magazine 2022

Domestic Trends

India’s Proportional Share of Household of Savings Components (%) and pension funds. Rising retail “International experi-
participation in the markets is
ence, especially from
another encouraging sign.
high-growth East Asian
1.9
1.7
1.9
1.6
1.6
1.6
1.4
Savings Rate: 100.0 67.3 65.5 62.0 62.0 53.2 57.2 59.0 60.1 57.9 0.9 Conclusion economies, suggests that
1.1
1.1
such growth can only be
80.0
46.7
sustained by a ‘virtuous
60.0
cycle’ of savings, invest-
India has grown fastest when
An Analysis 20.0 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 its economy has entered the ment and exports
40.0
52.5
virtuous cycle of savings and
catalysed and supported
44.9
41.1
39.6
41.0
38.8
36.1
36.4
32.8
31.1
investment. The periods of
by a favourable demo-
0.0
falling savings and investment,
graphic phase,”
and corresponding
Physical assets
Net financial saving
have not yielded similar
Source: MOSPI and CII Research Valuables consumption driven growth Economic Survey 2018-19
results in terms of growth as Going forward, structural
is evident from the below transformation away from
financial savings. Share of graph. agriculture, rising urbanisa-
Trajectory of 2017-18 when the Indian Disaggregated Similarly, there has been a The rise of Gross household Investments into small Decline in domestic tion, digitalisation, invest-
ment education and a large
savings etc. has risen too.
financial savings is a positive
1
economy grew at 7.6 per
decline in the share of savings
household savings rate has
India’s Gross cent, the savings rate had Household into valuables. On the other sign, showing increasing This is promising as it come through falling savings working age population
preferring fast moving assets,
provides more funds to the
financialization of the
risen to a peak of 32.1 per
hand, the share of net financial
particularly into physical
are expected to further
government to finance its
economy. However, it is
Savings Rate cent. The subsequent decline Savings savings rose from 31.1 per important to look at each of fiscal deficit. assets. This has been driven by push up savings rate. Further,
in savings rate to 28.2 per
cent to 41 per cent over the
falling growth in disposable
there is a need to push for
these components to
cent is thus a matter of
same period. The pandemic
incomes, increased bank
financialization and diversifi-
Further, provident and
T he savings rate is an concern. The contraction in Within the household sector, has only pushed this change in understand the exact place pension funds’ share have borrowings & running down cation of household savings
where funds are going/are
GDP and rise in
the profile of Indian
of savings to meet existential
into rural India. Support to
risen. This has been driven by
the largest component has
being saved.
important variable for
precautionary household
economic development, savings in the pandemic year been savings into physical household’s financial savings. government’s measures to and consumption needs. MSMEs reeling under the
particularly for developing of 2020-21 did not help assets like house, land and This reversal in the pattern of The below graph represents enhance pension coverage However, a fall in share of impact of the pandemic, is
countries like India. Savings either, as gross savings rate as farm implements. However, household financial savings is the share of various financial like opening of NPS savings into valuables like gold essential to bring up savings
(household, corporate, and a per cent of GDP continued savings into physical assets (as welcome. While savings in instruments in Indian (National Pension Scheme) and silver, and a rise in in both physical and financial
government) are needed to their declining trend. a % of GDP) has seen a physical assets are relatively household’s portfolio. It is to general public, as well as financial savings represents a assets. To achieve the
finance private investments/ significant decline from 15.9 less efficient and not easily evident that the Indian the introduction of the Atal positive trend towards ambitious 2047 Vision, the
capital formation and public per cent in 2011-12 to 10.3 available to the banking household has been Pension Yojana for the financialization of the Indian elephant must start
sector borrowing per cent in 2020-21. system, financial savings are diversifying its portfolio away unorganised sector. However, economy and diversification of running now and the
requirements. And thus, are SAVINGS RATE HAS more productive and critical from low yielding bank the share of life insurance Indian household’s financial domestic savings can be its
important to sustain growth MODERATED SHARPLY The share of the physical for the economy. deposits to other financial funds has declined before portfolio into more mahout which puts India
over the medium to long FROM A HIGH OF assets in total household instruments. There has been a rising marginally in the Covid productive assets. This trend into the virtuous cycle of
term. The idea is to kickstart 37.8% OF GDP IN savings has also declined from Key policy reforms like growing interest in the share year. For a broad-based will help India generate funds savings, investment and
a virtuous cycle of saving, FY08 TO 28.2% OF 67.3 per cent in 2011-12 to demonetisation, GST, RERA, market as seen from the rise social security to its citizens, within the country to invest in growth.
investing, and growing, both at GDP IN FY21 57.9 per cent in 2019-20. bank consolidation and the in the share of equity and life insurance needs to be the economy.
the micro or household level JAM trinity together with mutual funds in household expanded just like provident
and at the macro level. falling interest rate scenario
since the adoption of the
Notably, expansion of the Gross Savings (as a % of GDP) inflation targeting regime –
Indian economy in the first have contributed to the shift Share of the Components of Total Gross Financial Savings (%) Savings/Investment vs Consumption Driven Growth
decade of the 21 century 37 in focus from investments in 55.0 62.0
st
coincided with a significant physical assets to financial 39.0
upswing in both savings and 32 assets. Further, post Covid 36.0 Growth Period 60.0
Boom Period
Boom Period
Growth Period

investments. However, from a (Avg GDP growth 7.9%) (Avg GDP growth 7.6%) changes in trends like the 35.0 (Avg GDP growth 7.9%) (Avg GDP growth 7.6%) 58.0

peak of 37.8 per cent of GDP 27 Slowdown period culture of adopting rental 33.0 Slowdown period

in 2007-08 (when India (Avg GDP growth 5.7%) services through technology 30.0 (Avg GDP growth 5.7%) 56.0

seemed to have entered a 22 Global financial crisis and digitalization have 15.0 27.0 Global financial crisis 54.0
virtuous cycle of investment 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 changed the mindset of 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
and growth), in 2020-21 the investors. The new generation -5.0 currency deposits equity mutual investment life provident and
in small
savings rate has fallen to 28.2 prefers liquid and fast-moving funds savings etc. insurance pension funds I/Y S/Y C/Y (rhs)
funds
per cent of GDP. Gross savings rate (2004-05 series) Gross savings rate (2011-12 series) financial assets rather than
Gross savings rate (2011-12 Back-series) -25.0 2011-12 2020-21 (3Q AVG)
buying physical assets like Note: I/Y is investment to output, S/Y is saving to output and
C/Y is consumption to output (on right hand side)
Even in the second decade Source: MOSPI and CII Research property or bullion. Note: 2020-21 data is the average of the first three quarters Source: MOSPI and CII Research
Source: RBI and CII Research
between 2014-15 and
1 Household financial savings refer to currency, bank deposits, equity, debt securities, mutual funds, provident & pension funds, insurance, and investments in small savings schemes.
The total of these savings is referred to as gross household financial savings.
12 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 13
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
MAY 2022 MAY 2022