Falling households savings rate to hit investments

Stock of financial assets much higher than pre-Covid level

- PRIYANSH VERMA

STRUCTURAL SHIFT UNDERWAY

THE BIG DECLINE in household savings rate after the pandemic it came in at a near five-decade low at the end of FY23 reflects income constraints but also an ongoing structural shift favouring the financial markets, analysts say. There has been a shift away from conventional savings instruments in recent years, partly because the government has chosen to curtail incentives for savings, they reckon.

At the end of FY23, the stock of household financial assets stood at 103.1% of the GDP, down from a peak of 115.4% at FY21-end, but still a considerable 18.6 percentage points higher than 84.5% reported by the end of the FY19.

On the other hand, the stock of household financial liabilities too have gone up. In the year ending-March 2023, stock of financial liabilities was at 37.6%, up from 33.5% in March 2019.

A falling savings rate, coupled with steeper accumulation of financial assets indicates that households have become more risk-prone and been aggressively shifting to financial instruments, which yield higher returns.

The total number of active demat accounts in August were 33.1 million, 14.5% higher on year, data from the National Securities Depository showed. In August 2019, the number was just 18.09 million.