Indian household savings fell to a five-year low in the year ending March 31, 2022. As inflation eroded purchasing power, people dipped into their savings to spending after the pandemic, according to a Mint report.
Compared to 15.9% in FY21, household gross financial savings stood at 10.8% in FY22. In the previous three FY22s, it was 12% .
According to Mint, people had been saving money at the start of the pandemic to protect their health and jobs. However, as the economy began to open up, they began “revenge spending,” depleting their savings.
“The pent-up demand scenario made people spend. However, a situation where people continue to spend despite the lack of income being generated and insufficient number of jobs being created indicates that they are dipping into their savings,” Madan Sabnavis, chief economist at Bank of Baroda, told Mint.
The report also adds that household savings figures are also down to 2.5% of GDP, a multi-year low. The share of insurance, provident funds and pension funds in savings has risen to 40 per cent of gross financial savings.
The share of stocks and debentures reached a five-year high of 8.9%, and the share of small savings would have reached a 16-year high of 13.3%.
Motilal Oswal, a consulting firm, said the main cause of the drop in savings is high inflation. To increase investment without impacting the current account deficit, savings must be revived.
The Reserve Bank of India (RBI) will announce its monetary policy to control inflation on Friday.