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Falling household savings a risk to India’s world-beating growth.

Date: 26-09-2023
Subject: Falling household savings a risk to India’s world-beating growth
A dip in Indian households’ net financial savings due to elevated debt threatens to choke a major source of funds for the government’s capital investments — key for the nation to retain its mantle of the fastest-growing major economy.

Household financial assets, including bank deposits, cash and equity investments, after deducting debt servicing and consumption, eased to 5.1% of gross domestic product in the fiscal year ended March from 7.2% in the previous year, according to latest data from the Reserve Bank of India.

That level, according to calculations by IndusInd Bank Ltd.’s Chief Economist Gaurav Kapur, is the lowest since the fiscal year ended March 2007, and will crimp resources for the rest of the economy. India’s government depends on this savings to finance its capital investments on physical assets such as infrastructure, machinery and equipment.

“Household financial savings not keeping pace with growth is a matter of concern”, said Saugata Bhattacharya economist at Axis Bank Ltd. “Without adequate domestic savings, funding the needed investment will require large foreign capital, which is often volatile.”

For now, India’s GDP is projected to grow 6.1% in the current fiscal year ending March, making it the quickest pace among major economies. To keep that world-beating title, India needs to sustain investment spending, and not just rely on debt-fueled private consumption as an engine of growth.

More than 300 million Indian households have seen debt levels increase following aggressive lending tactics by banks after the pandemic. Record low rates offered to meet pent-up demand doubled banks’ retail loan portfolio between 2019 and now, building up some distress in the process. Credit card spent hit a record high of 1.47 trillion in May.

The rise in financial liabilities with falling assets levels could be a sign of rising inequality.

Source Name : Economic Times

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