Households ramping up savings as spending habits return to normal: RBI official
Deputy Governor of the Reserve Bank of India, Michael Patra, stated that Indian households have started rebuilding their financial savings as spending patterns revert to pre-pandemic levels.
In a typical economy, households generate excess savings that are lent to other sectors like businesses for investment purposes. However, due to behavioral changes caused by the Covid-19 pandemic, household savings declined significantly over the past couple of years as money was withdrawn from financial assets and diverted towards physical items.
According to Patra, there are early signs that this trend is now reversing. Data shows that household financial assets rebounded from 10.6% of GDP in 2017 to 11.5% currently. Physical savings have also grown post-pandemic to exceed 12% of the nation's output.
The RBI Deputy Governor predicts savings will continue climbing higher in the coming years as incomes expand. Households traditionally provide the most lending to other parts of the economy like corporations and the public sector. This key role is expected to intensify going forward as households rebuild financial cushions eroded during the health crisis period.
On the borrowing side, companies have reduced dependence on external financing thanks to strong profits and muted investment activity. However, a pickup in capital spending will drive greater corporate loans needs in the future. The public segment will stay a net borrower due to the government's important economic stewardship function.
To summarize, as the household sector amasses additional savings through increased earnings, it is set to act as the predominant domestic source of finances to fuel India's developmental aspirations. The savings pool accumulated by this segment will get recycled into productive investments and government initiatives across all corners of the country.
