Centre rebuts RBI report, says no economic distress in households

Sandeep Dikshit

New Delhi, September 21

The Central government on Thursday said there is no distress among common households after a RBI report said the net financial savings of households have crashed to a nearly five-decade low of 5.1% of GDP in fiscal 2022-23.

“Lately, critical voices have been raised with respect to household savings and its overall effect on the economy. However, data indicates that changing consumer preference for different financial products is the real reason for household savings and there is no distress as is being circulated in some circles,” said the Union Finance Ministry.

The RBI had also said financial liabilities of households had shot up by 5.8% of GDP in 2022-23 as compared to 3.8% in 2021-22 which indicated that part of the consumption was being financed by loans.

Putting forward the “correct position with true facts and right inferences with respect to household savings”, the ministry said there was no big difference in financial assets and liabilities of households.

“Between June 2020 and March 2023, the stock of Household Gross Financial Assets went up by 37.6%, and the stock of Household Gross Financial Liabilities went up by 42.6% — no big difference between the two,” it said.

“Households added net financial assets of Rs 22.8 lakh crore in fiscal 2020-21, nearly Rs 17 lakh crore in 2021-22 and Rs 13.8 lakh crore in 2022-23.

“So, they added less financial assets to their portfolio than in the previous year and the year before, but it is important to note that their overall net financial assets are still growing. They added financial assets by a lesser magnitude than in the previous years because they have now started taking loans to buy real assets such as homes,” said a Finance Ministry post on X.

As per RBI data, pointed out North Block, there has been a steady double-digit growth in loans for housing since May 2021. Vehicle loans have also been growing at double digits. “The household sector is not in distress, clearly. They are buying vehicles and homes on mortgages,” it surmised.

Overall household savings (current prices) — which includes financial, physical and jewellery — has grown at a compound annual growth rate (CAGR) of 9.2% between 2013-14 and 2021-22. Nominal GDP has grown at a CAGR of 9.65% during the same period. “Hence, household savings/nominal GDP has remained constant,” it said.

What RBI report had said…

• The net financial savings of households has crashed to a nearly five-decade low of 5.1% of GDP in fiscal 2022-23 from 7.2% in the previous fiscal
• Financial liabilities of households shot up by 5.8% of GDP in 2022-23 as compared to 3.8% in 2021-22
• The rate of increase in financial liabilities in 2022-23 was the second highest since Independence