Page 12 - CII Artha Magazine 2022
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Domestic Trends

        India’s                                                                                                                      Proportional Share of Household of Savings Components (%)  and pension funds. Rising retail  “International experi-
                                                                                                                                                                                        participation in the markets is
                                                                                                                                                                                                                  ence, especially from
                                                                                                                                                                                        another encouraging sign.
                                                                                                                                                                                                                  high-growth East Asian
        Savings Rate:                                                                                                            100.0  67.3    65.5    62.0    62.0    53.2    57.2    59.0    60.1    57.9    46.7    Conclusion  economies, suggests that
                                                                                                                                                                                                                  such growth can only be
                                                                                                                                                                                                                  sustained by a ‘virtuous
                                                                                                                                                                                                                  cycle’ of savings, invest-
                                                                                                                                                                                        India has grown fastest when
        An Analysis                                                                                                              20.0  2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21  its economy has entered the   ment and exports
                                                                                                                                                                                                                  catalysed and supported
                                                                                                                                                                                        virtuous cycle of savings and
                                                                                                                                                                                        investment. The periods of
                                                                                                                                                                                                                  by a favourable demo-
                                                                                                                                                                                        falling savings and investment,
                                                                                                                                                                                                                  graphic phase,”
                                                                                                                                                                                        and corresponding
                                                                                                                                             Net financial saving
                                                                                                                                                         Physical assets
                                                                                                                                                                                        have not yielded similar
                                                                                                                                                 Source: MOSPI and CII Research  Valuables  consumption driven growth   Economic Survey 2018-19
                                                                                                                                                                                        results in terms of growth as   Going forward, structural
                                                                                                                                                                                        is evident from the below   transformation away from
                                                                                                                                                            financial savings. Share of   graph.                  agriculture, rising urbanisa-
        Trajectory of              2017-18 when the Indian    Disaggregated              Similarly, there has been a           The rise of Gross household   Investments into small     Decline in domestic       tion, digitalisation, invest-
                                                                                                                                                                                                                  ment education and a large
                                                                                                                                                            savings etc. has risen too.
                                                                                                                               financial savings  is a positive
                                   economy grew at 7.6 per
                                                                                         decline in the share of savings
                                                                                                                                                                                        household savings rate has
        India’s Gross              cent, the savings rate had   Household                into valuables. On the other          sign, showing increasing     This is promising as it     come through falling savings   working age population
                                                                                                                                                                                                                  preferring fast moving assets,
                                                                                                                                                            provides more funds to the
                                                                                                                               financialization of the
                                   risen to a peak of 32.1 per
                                                                                         hand, the share of net financial
                                                                                                                                                                                        particularly into physical
                                                                                                                                                                                                                  are expected to further
                                                                                                                                                            government to finance its
                                                                                                                               economy. However, it is
        Savings Rate               cent. The subsequent decline   Savings                savings rose from 31.1 per            important to look at each of   fiscal deficit.           assets. This has been driven by   push up savings rate. Further,
                                   in savings rate to 28.2 per
                                                                                         cent to 41 per cent over the
                                                                                                                                                                                        falling growth in disposable
                                                                                                                                                                                                                  there is a need to push for
                                                                                                                               these components to
                                   cent is thus a matter of
                                                                                         same period. The pandemic
                                                                                                                                                                                        incomes, increased bank
                                                                                                                                                                                                                  financialization and diversifi-
                                                                                                                                                            Further, provident and
        T   he savings rate is an   concern. The contraction in   Within the household sector,   has only pushed this change in   understand the exact place   pension funds’ share have   borrowings & running down   cation of household savings
                                                                                                                               where funds are going/are
                                   GDP and rise in
                                                                                         the profile of Indian
                                                                                                                                                                                        of savings to meet existential
                                                                                                                                                                                                                  into rural India. Support to
                                                              the largest component has
                                                                                                                                                            risen. This has been driven by
                                                                                                                               being saved.
            important variable for
                                   precautionary household
        economic development,      savings in the pandemic year   been savings into physical   household’s financial savings.                               government’s measures to     and consumption needs.   MSMEs reeling under the
        particularly for developing   of 2020-21 did not help   assets like house, land and   This reversal in the pattern of   The below graph represents   enhance pension coverage   However, a fall in share of   impact of the pandemic, is
        countries like India. Savings   either, as gross savings rate as   farm implements. However,   household financial savings is   the share of various financial   like opening of NPS   savings into valuables like gold   essential to bring up savings
        (household, corporate, and   a per cent of GDP continued   savings into physical assets (as   welcome. While savings in   instruments in Indian     (National Pension Scheme)   and silver, and a rise in   in both physical and financial
        government) are needed to   their declining trend.    a % of GDP) has seen a     physical assets are relatively        household’s portfolio. It is   to general public, as well as   financial savings represents a   assets. To achieve the
        finance private investments/                          significant decline from 15.9   less efficient and not easily    evident that the Indian      the introduction of the Atal   positive trend towards   ambitious 2047 Vision, the
        capital formation and public                          per cent in 2011-12 to 10.3   available to the banking           household has been           Pension Yojana for the      financialization of the   Indian elephant must start
        sector borrowing                                      per cent in 2020-21.       system, financial savings are         diversifying its portfolio away   unorganised sector. However,   economy and diversification of   running now and the
        requirements.  And thus, are   SAVINGS RATE HAS                                  more productive and critical          from low yielding bank       the share of life insurance   Indian household’s financial   domestic savings can be its
        important to sustain growth   MODERATED SHARPLY       The share of the physical   for the economy.                     deposits to other financial   funds has declined before   portfolio into more      mahout which puts India
        over the medium to long     FROM A HIGH OF            assets in total household                                        instruments. There has been a   rising marginally in the Covid   productive assets. This trend   into the virtuous cycle of
        term.  The idea is to kickstart   37.8% OF GDP IN     savings has also declined from   Key policy reforms like         growing interest in the share   year. For a broad-based   will help India generate funds   savings, investment and
        a virtuous cycle of saving,   FY08 TO 28.2% OF        67.3 per cent in 2011-12 to   demonetisation, GST, RERA,         market as seen from the rise   social security to its citizens,   within the country to invest in   growth.
        investing, and growing, both at   GDP IN FY21         57.9 per cent in 2019-20.   bank consolidation and the           in the share of equity and   life insurance needs to be   the economy.
        the micro or household level                                                     JAM trinity together with             mutual funds in household    expanded just like provident
        and at the macro level.                                                          falling interest rate scenario
                                                                                         since the adoption of the
        Notably, expansion of the                 Gross Savings (as a % of GDP)          inflation targeting regime –
        Indian economy in the first                                                      have contributed to the shift               Share of the Components of Total Gross Financial Savings (%)  Savings/Investment vs Consumption Driven Growth
        decade of the 21  century     37                                                 in focus from investments in             55.0                                                                                              62.0
        coincided with a significant                                                     physical assets to financial                                                                    39.0
        upswing in both savings and   32                                                 assets. Further, post Covid                                                                     36.0                          Growth Period  60.0
                                                   Boom Period
                                                                                                                                                                                                Boom Period
                                                                       Growth Period
        investments. However, from a            (Avg GDP growth 7.9%)    (Avg GDP growth 7.6%)   changes in trends like the       35.0                                                        (Avg GDP growth 7.9%)  (Avg GDP growth 7.6%)  58.0

        peak of 37.8 per cent of GDP   27                     Slowdown period            culture of adopting rental                                                                      33.0                 Slowdown period

        in 2007-08 (when India                                  (Avg GDP growth 5.7%)     services through technology                                                                    30.0                 (Avg GDP growth 5.7%)   56.0

        seemed to have entered a      22               Global financial crisis            and digitalization have                  15.0                                                   27.0      Global financial crisis           54.0
        virtuous cycle of investment     2000-01  2001-02  2002-03  2003-04  2004-05  2005-06  2006-07  2007-08  2008-09  2009-10  2010-11  2011-12  2012-13  2013-14  2014-15  2015-16  2016-17  2017-18  2018-19  2019-20  2020-21  changed the mindset of   2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
        and growth), in 2020-21 the                                                      investors. The new generation            -5.0  currency  deposits  equity  mutual  investment  life  provident and
                                                                                                                                                                in small
        savings rate has fallen to 28.2                                                  prefers liquid and fast-moving                                   funds  savings etc.  insurance  pension funds  I/Y   S/Y       C/Y (rhs)
        per cent of GDP.                   Gross savings rate (2004-05 series)  Gross savings rate (2011-12 series)  financial assets rather than
                                           Gross savings rate (2011-12 Back-series)                                              -25.0              2011-12  2020-21 (3Q AVG)
                                                                                         buying physical assets like                                                                              Note: I/Y is investment to output, S/Y is saving to output and
                                                                                                                                                                                                     C/Y is consumption to output (on right hand side)
        Even in the second decade                    Source: MOSPI and CII Research      property or bullion.                              Note: 2020-21 data is the average of the first three quarters  Source: MOSPI and CII Research
                                                                                                                                                  Source: RBI and CII Research
        between 2014-15 and
                                                                                                                               1  Household financial savings refer to currency, bank deposits, equity, debt securities, mutual funds, provident & pension funds, insurance, and investments in small savings schemes.
                                                                                                                                 The total of these savings is referred to as gross household financial savings.
        12   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  13
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