New Delhi: India’s household net financial savings in fiscal year 2023, as a percentage of gross domestic product (GDP), was at 5.3% – the lowest in around five decades.
Between FY12 and FY22 (excluding the COVID-19 year FY21), the net financial savings hovered between 7-8%, the Financial Express reported.
This is not a new revelation as these numbers were released by the Reserve Bank of India in September last year. However, the finance ministry, at the time, had said that “changing consumer preference for different financial products” was the real cause for decline in net financial savings of households. And therefore, these numbers are not a sign of rural distress.
Meanwhile, access to credit has surged.
“Bank advances”, or short-term credit, which come under financial liabilities, usually availed through credit cards jumped 54% on year in FY23. This was the fastest growth recorded since at least FY12, the business daily reported.
In a scenario of weak wage growth and leveraged consumption, consumption growth is likely to be hit, economists told FE.
In FY23, the growth in private final consumption expenditure had come in at 6.8%, and in FY24, at 3% (as per NSO’s second advance estimates).
The issue of rural distress has been echoed by big FMCG firms. Rural wage rates have been consistently lower over the last decade. High inflation and a poor monsoon season have added to the stress. In addition, demand for work under the rural employment programme MGNREGA has increased.
Meanwhile, rising food prices have hit the financially underprivileged sections. A lack of quality jobs and stagnant income growth are adding to these troubles. However, the chief economic advisor (CEA) clarified that the government cannot solve all social and economic problems such as unemployment.
Interestingly, 2022-23 saw the highest number of government investment projects being dropped in the last few decades. Over 1,100 projects were dropped in that year. This is significant as more investments by the government and private sector lead to demand for more labour, and hence, more jobs. In fact, the CEA said that growing investments are going to create more job opportunities during the decade.
But even private investments have been consistently dropping over the last few decades.
Separately, The Wire’s M.K. Venu wrote in March: “There is a clear mismatch between GDP growth and private consumption. For 2023-24, GDP growth is officially projected at 7.6% but consumption growth is just about 3%.”
“Well-known economist and former Chief Statistician of India Pronab Sen told me that normally consumption growth numbers correlate very closely with the GDP growth figure. He says if GDP growth is X percent then consumption growth can at most be 0.5 to 1 percentage points less than X,” he said.
“This means if GDP growth is 8.4 % for the third quarter of 2022-24, then consumption growth should be at least 7.4 %. But official data shows trend consumption growth only at about 3%. This major contradiction remains unexplained. Experts say the private sector will not start investing in fresh capacity if consumption growth is so tepid.”
However, in an interview to the Times of India on February 4, 2024, finance minister Nirmala Sitharaman expressed confidence that the Indian economy is set to maintain its growth trajectory, and the government is poised to effectively control inflation.
