The savings of Indian households fell to the lowest level in last five years in the year ending March 31, 2022. As the inflation eroded the purchasing power, people dug into their savings to spend after the pandemic, a report by Mint stated.
Compared with 15.9 per cent in FY21, the gross financial savings of households stood at 10.8 per cent in FY22. In the three previous fiscal years, it was 12 per cent.
According to Mint, people had saved money during the early days of the pandemic as a protection for their health and jobs. However, as the economy started to open up, they went on ‘revenge spending’, depleting their savings.
“The pent-up demand scenario has ensured that people are spending. However, a situation where people are still spending despite not enough income being generated and not enough jobs being created indicates that they are dipping into their savings,” said Madan Sabnavis, chief economist of Bank of Baroda told Mint.
The report also added that the household savings figures are also down to 2.5 per cent of the GDP, a multi-year low. The share of insurance, provident, and pension funds in savings rose to 40 per cent of gross financial savings.
The share of shares and debentures was at a five-year high of 8.9 per cent, and the share of small savings is estimated to have hit a 16-year high of 13.3 per cent.
Motilal Oswal, a consultancy firm, said that the primary cause of the dip in savings is high inflation. To increase the investments without impacting the current account deficit, savings need to be revived.
The Reserve Bank of India (RBI) will announce its monetary policy to control inflation on Friday.