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India’s household savings increase in CY20…

…but rise the slowest vis-à-vis other nations

* A serious economic repercussion of COVID has been forced consumer savings due to physical lockdowns. According to the Reserve Bank of India (RBI), household net financial savings (NFS) stood at 21.4% of GDP in 1QFY21 and 10.4% of GDP in 2QFY21, compared with 7–8% of GDP in the pre-COVID period. When we replicated the RBI’s methodology (as far as possible with information publicly available), we found household NFS had fallen to 8.4% of GDP in 3QFY21.

* Nevertheless, financial savings account for just 35–40% of household (HH) savings in India. Therefore, we estimate physical savings (= household investments) using stamp and registration charges (S&RCs) collected by the state governments. Our calculations suggest physical savings fell to 5.8% of GDP in 1QFY21, almost half that of pre-COVID levels. However, physical savings recovered strongly to reach a multi-year high of 13.7% of GDP in 3QFY21.

* Accordingly, as per our estimates, HH (gross) savings in India eased to 22.1% of GDP in 3QFY21 from the peak of 28.1% of GDP in 1QFY21. In other words, HH savings rose to 22.5% of GDP in CY20 from 19.8% of GDP in CY19.

* A comparison with other large nations reveals HH savings (as % of GDP) have increased across countries. However, the rise in HH savings in India in CY20 (=1.1x of CY19 levels) was the slowest vis-à-vis other nations (savings were as high as 5.4x in Japan). Interestingly, the slower growth in HH savings in India appears to be linked with weaker income growth – as decline of 6% YoY in India’s private consumption was similar to or lower than that of other nations (except the US).

* Also, while HH savings have increased across countries, gross domestic savings (GDS) have declined, including in India. This is primarily attributable to government savings having decreased so sharply that they have almost entirely offset higher private (household + corporate) savings across nations.

* What does this mean for economic growth? A slower rise in HH savings, coupled with similar or slower decline in consumption, confirms with weak income growth in India. If so, then the contribution of pent-up demand in growth recovery would also be limited in India (compared with other nations).

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