Mumbai (BW): India’s households are facing mounting financial strain as debt levels soar to unprecedented heights, reaching 40 per cent of Gross Domestic Product (GDP) by December 2023, while net financial savings plummet to a historic low of around 5 per cent of GDP, according to a recent research report from leading financial services firm Motilal Oswal.
The Reserve Bank of India (RBI) had earlier estimated that households’ net financial savings dropped to 5.1 per cent of GDP in 2022-23, marking a 47-year low, which sparked criticism refuted by the Finance Ministry.
The Ministry argued that the decline in financial savings was due to households opting for loans to invest in tangible assets like homes and vehicles, signalling confidence in their future employment and income prospects.
Despite the first revised estimates for 2022-23 raising net financial savings to 5.3 per cent of GDP, still the lowest in 47 years, and revising household debt levels to 38 per cent of GDP, the second-highest since the pandemic-hit year of 2020-21, the latest report indicates a further downturn.
“Our estimates suggest that household debt has risen to approximately 40 per cent of GDP as of December 2023, reaching a new high,” stated Motilal Oswal research analysts Nikhil Gupta and Tanisha Ladha. They highlighted unsecured personal loans as the fastest-growing segment within household debt, followed by secured debt, agricultural loans, and business loans.
The report attributes the dismal 2022-23 net financial savings figures to weak income growth and robust consumption, alongside growth in physical savings. It predicts a continued weak trend in income growth, likely leading to household net financial savings remaining stagnant at around 5 per cent of GDP in the first nine months of 2023-24, with the full-year savings expected to range between 5 per cent and 5.5 per cent of GDP.
Households’ gross financial savings saw a slight increase to 10.8 per cent of GDP over the first nine months of the previous year, while financial liabilities also rose to 5.8 per cent of GDP. Annual household borrowings surged to 5.8 per cent of GDP in 2022-23, marking the second-highest level in the post-Independence period.
Despite physical savings reaching a decade-high in 2022-23, total savings hit a six-year low of 18.4 per cent of GDP. India’s Gross Domestic Savings (GDS) decreased to 30.2 per cent of GDP, lower than the 31-32 per cent range observed between 2013-14 and 2018-19, according to the report, which characterised the decline in households’ net financial savings as ‘dramatic’.
