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Household financial savings at pre-COVID levels in 2QFY22…

…but likely picked up in 3QFY22

* To improve our understanding of India’s household (HH) financial position, it is important to know HH savings, which have two components: net financial savings (NFS) and physical savings. RBI’s recent data on HH NFS is available only up to 3QFY21. In this note, we share our own quarterly estimates of HH NFS up to 2QFY22, using RBI’s methodology. Our calculations suggest HH NFS fell to 7.6% of GDP in 2QFY22 and stood at 9.2% of GDP in 1HFY22, down from 12% of GDP in FY21 and ~8% of GDP in the pre-COVID period (FY18-20).

* NFS accounts for only a third of HH total savings. An estimate of HH physical savings suggests that it was 12.9%/10.7% of GDP in 2Q/1HFY22, similar to 10.8% of GDP in FY21 but lower than 11-12% of GDP in the pre-COVID period. As per our estimates, HH total savings have eased to 20.5%/19.9% of GDP in 2Q/1HFY22 from 22.8% in FY21, only marginally higher than 19.5% of GDP in the pre-COVID period.

* We have already noted earlier that there were no excess HH savings in India in CY20/FY21, which is in stark contrast to most advanced economies. Although HH financial savings saw a boost during the COVID-19 outbreak, it was more than offset by lower physical savings. A quarterly estimate of excess HH savings reveals that for the first time, post-lifting of COVID-related restrictions, HH NFS in 2QFY22 was lower than pre-COVID trends in India. Physical savings, however, remained slightly weaker than pre-COVID trends. Limited data suggest that NFS picked up towards 9% of GDP in 3QFY22 and physical savings continued to rise further.

* Such differences in excess HH savings (owing to the lack of direct fiscal support) will lead to divergent macroeconomic outcomes in India vis-à-vis advanced economies. Overall, the worsening financial position of the HH sector in India raises more doubts over GDP growth rather than high inflation.

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