There’s good news for the Indian economy! After a sharp decline in recent years, household savings in India seem to be making a comeback. A report by Crisil, a leading rating agency, suggests that FY24 (financial year 2024) witnessed a potential revival in household savings. This is significant because household savings play a crucial role in driving economic growth.
What Led to the Decline in Savings?
The COVID-19 pandemic significantly impacted household savings in India. With job losses, income uncertainties, and rising medical expenses, many families had to dip into their savings or take on debt to make ends meet. Additionally, factors like increased spending due to pent-up demand after lockdowns and rising inflation further squeezed savings.
Signs of a Rebound
Crisil points to several indicators suggesting a potential rise in household savings during FY24. Here’s a breakdown of these positive signs:
- Growth in Bank Deposits: Bank deposit growth witnessed a significant jump to 13.5% in FY24 compared to 9.6% in the previous year. This indicates that people are putting more money aside in traditional savings instruments like bank accounts.
- Increased Investment Activity: There’s been a rise in investments in mutual funds, signifying a growing appetite for wealth creation. Additionally, the real estate sector continued to see investments from Indian households.
- Slower Consumption Growth: Despite healthy economic growth, private consumption seems to have been subdued in FY24. This suggests that people might be prioritizing saving over spending.
Benefits of Rising Household Savings
A rise in household savings can have a positive cascading effect on the Indian economy. Here’s how:
- Fueling Investments: Increased domestic savings provide a pool of funds for businesses to invest in expansion projects, innovation, and job creation. This can lead to a stronger and more dynamic economy.
- Lower Current Account Deficit: When domestic savings rise, the need to borrow from foreign sources reduces. This helps in narrowing the current account deficit (CAD), a key macroeconomic indicator.
- Financial Stability: Increased savings improve financial security at the household level. This prepares families for emergencies and unforeseen circumstances.
Looking Forward
The potential rise in household savings is a welcome sign for the Indian economy. However, it’s important to acknowledge that this data is based on estimates and awaits official confirmation. Going forward, factors like job security, inflation control, and investment opportunities will play a key role in sustaining this positive trend.