Household savings data misses new investment patterns today

Source: The post Household savings data misses new investment patterns today has been created, based on the article “How households are driving growth” published in “Businessline” on 12th June 2025

UPSC Syllabus Topic: GS Paper3- Indian Economy

Context: The sharp fall in net household financial savings—from 7.8% in 2018–19 to 5.1% in 2023–24—has raised concern. While reasons like rising debt and purchase of physical assets are suggested, the accuracy of RBI’s household savings data is under question due to possible gaps in capturing newer investment patterns.

For detailed information on Issue with Indian household savings read this article here

Revisiting Household Bank Deposits

1. Stable Long-Term Deposit Growth: Despite reports of falling savings, household bank deposits grew at a 14.5% CAGR from 2005 to 2024, outpacing nominal GDP. This shows households continue to generate surpluses and save significantly.
2. Major Contributors to Credit Flow: Indian families hold over 60% of bank deposits—55% of term and 81% of savings deposits. These deposits drive credit growth and support banks’ interest margins.
3. Surplus Financing by Households: According to former RBI Deputy Governor Michael Patra, household savings typically exceed investments and fund other sectors. Domestic savings mainly support India’s growth needs, reducing reliance on external funds.

Changing Ownership in Bank Deposits

1. Household Share Remains Strong: In 2005, households held ₹10.8 lakh crore or 60.7% of total deposits. Despite some fluctuations, the share rose to 61.08% in 2024, reaching ₹132 lakh crore.
2. Government Deposit Trends: The Centre’s share in bank deposits declined from 2.4% to 1.74%, showing fiscal prudence. In contrast, states increased their share from 2.5% to 5.34%.
3. Corporate Sector’s Growing Share: Non-financial corporates expanded their share from 8.7% in 2005 to 17.52% in 2024. This rise reflects higher profits and gains from corporate tax cuts.
4. Deposit Growth Slowdown: From 2007–2012, household deposits grew 24% annually, driven by high repo rates and economic stress. Between 2020–2024, the growth slowed to 10.3%, below the 11.4% overall deposit growth.

Shift Towards New Investment Avenues

1. Rise in Market Participation: Post-pandemic, individuals increased investments in equities, mutual funds, and insurance. These offer better returns than traditional deposits.
2. Omissions in RBI Data: RBI does not include direct equity holdings worth ₹42.8 lakh crore, or ₹18.8 lakh crore in AIFs and PMS. Assets like REITs, InvITs, crypto, and NFTs are also excluded.
3. Need for Comprehensive Data: RBI includes only traditional assets in household savings. A SEBI paper pointed out that several market-linked products are not covered in the current data method.

Understanding the Real Household Surplus

1. Broader Impact of Household Investments: Households support economic growth not only through deposits but also via investments in equity, debt, mutual funds, and pensions.
2. True Size of Financial Assets: RBI estimates household financial assets at ₹254 lakh crore in 2024. Including excluded assets would significantly raise this number.
3. Sources of Resilient Income: While salary growth is slow, business and farm incomes—especially among affluent households—remain strong.
4. Policy Support and Cultural Frugality: Tax cuts and pay revisions are boosting incomes. Household frugality and the habit of saving before spending further support savings growth.

Question for practice:

Examine how changing investment patterns are affecting the measurement of household financial savings in India.