5 Things To Make Of Household Savings

Experts often consider household savings as an important macroeconomic indicator. Here are five things to know about household savings in India:

5 important takeaways:

Household Savings On The Rise

The Gross Financial Savings (GFS) increased for the first time in six years in India, according to Reserve Bank of India (RBI) data. Statistics reveal that Indians saved about 10.9% of the total Gross Domestic Product in FY16. GDP is a measure of the economy. This is a rise from the 10.1% last year. However, this is still lower than the average GFS rate of 14.4% in the decade ending FY11.

How Households Saved

They saved in three ways. People invested more in the capital markets, specifically shares and debentures. They also preferred to invest in government deposits—there has been an increase in investments in government schemes over the past year. But the most common method of saving was holding cash. In fact, 13.5% of the total savings is in the form of cash and currency. This is the highest since 1990.

Liabilities Increase Too

Yes, savings increased in FY16. However, when you net that with the change in liabilities, you will find that the Net Financial Savings did not see much change. NFS, thus, increased only marginally to 7.8% of the GDP from 7.6% in FY15. This is mainly because people also borrowed more money. Liabilities for the period jumped to 3.1% of the GDP from 2.6% earlier. The good news is that the net increase in savings is still the highest in the past 5 years.

More Savings In Future

Yes, savings is at a high point in the past few years, but it’s not the end. It’s likely to increase further going on. Reports suggest that there has been a considerable increase in bank deposits in the first five months of the current financial year. Likewise, exposure to the capital markets also seems to be stronger. All this reflects a positive trend for Indian household savings.

What This Means For The Economy

How much you save matters to the economy and its growth. This is because, your savings—and those of other individuals—are a good source of capital for companies and institutions. This money is often reused to create additional investments, plan new projects, expanding businesses, and so on. And this investment can happen only if people have savings to begin with. The new investments, then, help the economy grow. So, an increase in household savings and investments is considered a positive sign for the economy.

Also Read

• You can read the RBI annual report on household financial savings here: Read more

• Indians are increasingly preferring mutual funds over conventional savings options: Read more