Page 13 - 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    0.9      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
                                                                virtuous cycle of savings and
                                                                                           catalysed and supported
                                                                investment. The periods of
                                                                                           by a favourable demo-
                                                                falling savings and investment,
                                                                                           graphic phase,”
                                                                and corresponding
                                  Physical assets
                      Net financial saving
                                                                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
                                     risen. This has been driven by
 the largest component has
        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.
                                                                                           QUARTERLY JOURNAL OF ECONOMICS
 MAY 2022                                                                                               MAY 2022
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