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Will the savings rate continue to fall in 2020?

It is unlikely that household savings will dramatically rise

Salil Panchal
Published: Jan 2, 2020 10:21:51 AM IST
Updated: Jan 2, 2020 11:33:40 AM IST

Will the savings rate continue to fall in 2020?Image: Shutterstock

With India’s economy and consumption demand failing to gather pace, one could assume that household savings rate will pick up as people choose to save more. But a consumption slowdown is often led or coupled by an income slowdown, with job losses or salary cuts, and leads to a problem of meeting expenses. In that scenario, household savings would remain low.

India’s households sector accounts for the largest share (over 50 percent) of overall savings (which includes corporates and public). But the households sector’s saving rate has fallen to 17.2 percent in 2017-18 from 23.6 percent of GDP in 2011- 12. This is largely due to a decline in savings in physical assets from 15.9 percent of GDP in 2011-12 to 10.3 percent in 2017-18. FY19 data is unavailable.

Will the savings rate continue to fall in 2020?

The share of household savings—a critical source of funds for investment in the economy—rose to 6.6 percent in 2017-18 from 6.3 percent of GDP in 2016-17. It was 8.1 percent in 2015-16 .

Investments in small savings, based on falling interest rates for PPF, pension schemes and post office deposits, are expected to be sluggish. Investments in gold and silver have fallen in the past four to five years.

It appears, then, that the savings rate, at least for households, will continue to slip in 2020.

(This story appears in the 17 January, 2020 issue of Forbes India. To visit our Archives, click here.)

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