Monday, December 4, 2023

Household savings reflect confidence, says Finance Ministry


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Shillong, September 21: The Finance Ministry addressed concerns regarding declining household savings in the country, emphasizing that this trend does not indicate economic distress but rather reflects confidence in future prospects.

In a statement issued on Thursday, the ministry explained that households are diverting funds from financial assets to real assets like homes and vehicles by taking loans. This shift, they emphasized, signifies confidence in their employment and income outlook, not financial distress.

As per IANS, these remarks from the Finance Ministry follow recent data from the RBI, indicating that household net financial savings had dropped to a historic low of 5.1% of GDP. For the fiscal year 2021-22, the savings rate was revised down to 7.2% of GDP from the initial estimate of 7.6%.

Concerns arose over declining incomes and increased borrowing amid high inflation, but the ministry countered this by highlighting a consistent double-digit growth in housing loans since May 2021 and robust growth in vehicle loans since April 2022.

The ministry further asserted that the changing consumer preferences for financial products were the primary reason for the decrease in household savings, pointing to a 37.6% increase in Household Gross Financial Assets and a 42.6% rise in Household Gross Financial Liabilities between June 2020 and March 2023.

Despite lower fresh inflows, the net financial assets continued to grow, with households adding substantial amounts in recent fiscal years. The Finance Ministry stressed that this shift in asset composition is a strategic choice rather than a sign of economic distress.

Furthermore, the ministry highlighted that the ratio of household savings to nominal GDP has remained relatively constant, indicating stability.

In closing, the ministry noted that a significant portion of loans had been spent on purchasing vehicles, citing surveys that support the notion that this spending reflects confidence in future employment and income prospects rather than financial hardship.


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