The report ascribed the dismal 2022-23 net financial savings numbers to weak income growth, coupled with robust consumption and growth in physical savings. Image for representation.
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In what may be construed as a sign of rising financial distress, India’s household debt levels are reckoned to have touched an all-time high of 40% of Gross Domestic Product (GDP) by December 2023, while net financial savings had likely dropped to their lowest level at around 5% of GDP, as per a research report from leading financial services firm Motilal Oswal.

In September 2023, the Reserve Bank of India (RBI) had estimated that households’ net financial savings had dropped to 5.1% of GDP in 2022-23, a 47-year low, triggering a flurry of criticism that the Finance Ministry had refuted sharply. It had argued that households are adding fewer financial assets than in the past because they were taking loans to buy real assets such as homes and vehicles which is “not a sign of distress but of confidence in their future employment and income prospects”.

The first revised estimates of national income for 2022-23 published this February, raised the estimated net financial savings in households to 5.3% of GDP, which is still the lowest in 47 years, and weaker than the average of 7.6% of GDP recorded between 2011-12 and 2019-20. The revised estimates also scaled up household debt levels to 38% of GDP in 2022-23, second only to the 39.1% of GDP recorded in the pandemic-hit year of 2020-21.

Unsecured personal loans

“Our estimates suggest that household debt has risen to approximately 40% of GDP as of December 2023, reaching a new high. Based on banks’ data, it is clear that unsecured personal loans continue to grow at the fastest pace within household debt, followed by secured debt, agricultural loans, and business loans,” Motilal Oswal research analysts Nikhil Gupta and Tanisha Ladha said.

The report ascribed the dismal 2022-23 net financial savings numbers to weak income growth, coupled with robust consumption and growth in physical savings. With income growth remaining weak and household net financial savings likely at its lowest at around 5% of GDP, it is not surprising that both private consumption and household investment growth have weakened considerably in 2023-24, it postulated.

“Were the falling net financial savings and lower savings in 2022-23 an exception? We do not think so,” the analysts concluded, estimating households’ net financial savings were broadly unchanged at around 5% of GDP in the first nine months of 2023-24. For the full year gone by, these savings could very likely end up between 5% and 5.5% of GDP, they noted.

Over the first nine months of last year, households’ gross financial savings rose a tad to 10.8% of GDP, from 10.5% in the corresponding period of 2022-23, but financial liabilities also rose by a similar extent to 5.8% of GDP from 5.5% of GDP, the report said. Households’ annual borrowings had surged to 5.8% of GDP in 2022-23, the second-highest in the post-Independence period.

While households’ physical savings stood at a decade-high in 2022-23, their total savings were at a six-year low level of 18.4% of GDP. India’s Gross Domestic Savings (GDS) eased to 30.2% of GDP, lower than the 31-32% range seen between 2013-14 and 2018-19, the report noted, terming the fall in net financial savings of households as ‘dramatic’.