Due to pandemic restrictions imposed last year, household savings rose almost around the world. As people were forced to remain indoors due to the stringent lockdown, there was an unlikely winner in the pandemic-ravaged year, household savings, which, according to a report, rose to 22.5 per cent of GDP from 19.8 per cent in 2019.
But it is to be noted, that households’ physical savings fell to 5.8 per cent of GDP in the April-June period. This is the period when the whole nation was under a strict lockdown. However, according to an analysis by brokerage Motilal Oswal Financial Services, households’ physical savings recovered strongly to reach a multi-year high of 13.7 per cent of GDP by the December quarter.
Additionally, according to the latest data released by the RBI, household non- financial savings stood at 21.4 per cent of GDP in the June quarter of 2020. Subsequently, Non-financial savings had stood at 10.4 per cent in the September quarter, against 7-8 per cent of GDP in the pre-pandemic period. However, this had fallen to 8.4 per cent in the December quarter.
The RBI data also shows that the gross financial savings fell to 13.2 per cent of GDP, while, during the December quarter, financial liabilities amounted to a significant 4.8 per cent of GDP. Compared with past decade’s numbers, gross savings still were higher at 13.25 as during the past decade, gross financial savings had stood at 10-12 per cent of GDP in the December quarter.
It has been reported that savings in currency deposits, pensions and small savings fell emphatically during the September quarter but households increased their savings in currency and investments. As it is widely known that pandemic woes of households propelled them to borrow incessantly from the banks in order to sustain themselves during a pandemic, but interestingly their liabilities with non-banks and housing finance companies declined in the December quarter.
Compared to most of the developed nations, household savings in India are estimated indirectly and are calculated on the basis of the ”flow of funds” for financial savings and ”commodity” or ”residual” approach for physical savings in the country. However, in advanced economies, this is defined and calculated by a simpler approach of calculating the difference between the income of a household and their consumption.
As aforementioned, due to physical restrictions, household savings rose almost around the world last year. According to reports, in 2020, the rise in household savings in the country, which was equal to 1.1 times of the 2019 level, was the slowest when compared to the other nations like Japan, where household savings rose as high as 5.4 times.
The rate of slower growth was linked to weaker income growth. This could be deciphered from the fact that private final consumption declined by 6 per cent, which was similar to or lower than that of most other nations. US presented itself as an exception where consumption fell only by 2.7 per cent in 2020 from 2019 level.