Savings go down...while consumption goes up

With private consumption slowing down, an important pillar of India’s growth story has been under stress. Research by Kotak Institutional Equities points to why the Indian consumer may have to remain tightfisted for a while.

Starting 2014, consumption and savings rates diverged with increased consumer spending financed through debt. While consumption spending as a percentage of GDP rose from 58 percent to 59 percent between 2014 and 2019, household savings as a percentage of GDP fell from 20 percent to 17 percent.

According to Kotak, this is on account of low job creation in the formal economy, job losses in the informal economy and stagnant farm incomes. The last time consumption spends were at 58 percent in 2005, savings rates were 24 percent. In the decade since, Indians preferred to sacrifice consumption and save more, leaving enough for the governments and corporates to borrow to fund private and government investments. That is no longer the case.