News: Recent data from the Reserve Bank of India reveals that India’s net household savings are at a 47-year low, standing at 5.3% of the GDP in the fiscal year 2023, down from 7.3% in 2022.
This decline is accompanied by a sharp increase in household debt (at 5.8% of GDP) reaching the second-highest level since the 1970s.
What is Household Saving Rate?
The Household Saving Rate refers to the percentage of disposable income that households save instead of spending on consumption. It is a key economic indicator that reflects the propensity of households to save for the future.
Components of Household savings:
Financial assets: This includes cash, bank deposits, retirement funds, insurance policies, stocks, and other investments.
Physical assets: These are investments in tangible assets like real estate, land, and property.
Gold and silver ornaments: Savings in the form of precious metals like gold and silver jewellery or bullion.
Government efforts to increase household savings:
Tax incentives or deductions for savings instruments such as retirement accounts, fixed deposits, and insurance policies.
Government Savings Schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and Sukanya Samriddhi Yojana (SSY) to attract households to invest in safe and secure avenues.
Encourage employers to contribute to their employees’ retirement savings through schemes like the Employees’ Provident Fund (EPF) and the National Pension System (NPS).
Understanding the relationship between price rise and saving decline:
According to a research article published in Indian Express by Udit Mishra, at a 4% annual inflation rate — the general price level in the economy will double in around 18 years. At 6% inflation rate, the price level becomes twice as high in just around 12 years. In other words, if the income or salary hasn’t grown by 22% in the five years, then a person will find himself economically weaker in “real” terms. That’s because your current day salary is not good enough to buy the same basket of goods it bought five years ago.
During Modi’s full 10-year period (2014-204), the general price level has risen by 64%. So, a person salary must have increased by more than 32% since 2019 or more than 64% since 2014.
However, according to PIB per capita income report (02nd Aug 2023), since 2014, India’s per capita Net National Income (NNI) has increased by roughly 35%, with the per capita income rising from Rs. 72,805 in 2014-15 to Rs. 98,374 in 2022-23, indicating a significant income rise in the country over the past decade.
The status of Inequality in India:
According to World Inequality Database Report (18th March 2024) between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world.
Understanding the relation between Income rise and expenditure rise:
According to proff. Ashok Mody, the estimates of income and expenditure differ in national accounts everywhere, because they are based on imperfect data. However, have similar trends. But every now and then, the two series follow very different paths, with hugely consequential implications for evaluating economic performance.
Indian National Statistical Office’s (NSO) latest report shows that while income from production increased at an annual 7.8% rate, expenditure rose by only 1.4%. The NSO nonetheless treats income as the right one and assumes (as implied by its “discrepancy” note) that expenditure must be identical to income earned. According to mody, it is dangerous because NSO is covering up the reality of anaemic expenditure at a time when many Indians are hurting, and when foreigners are showing a limited appetite for Indian goods.
The proper approach is to recognize both income and expenditure as imperfect macroeconomic aggregates, and then to combine them to assess the state of the economy. For example, Australian, German, and UK governments adjust their reported GDP using information from both the income and expenditure sides.
When we apply the BEA (US Bureau of Economic Analysis) method to Indian data, the most recent growth rate falls from the headline 7.8% to 4.5% – a marked decline from 13.1% in April-June 2022. The latest data not only confirm slowing growth, but also alert us to the underlying causes: rising inequalities and job scarcity.
