New Delhi, September 19
Behind the veneer of the highest growth in GDP among major countries, ordinary households in India are hurting. The net financial savings of households have crashed to a nearly five-decade low of 5.1 per cent of GDP in fiscal 2022-23 from 7.2 per cent in the previous financial year, according to the Reserve Bank of India (RBI).
Households were also being burdened with more financial liabilities indicating a severe income crunch and post-pandemic rise in consumption due to pent-up demand. Financial liabilities of households shot up by 5.8 per cent of GDP in 2022-23 as compared with 3.8 per cent in 2021-22 which also indicated that part of the consumption was being financed by loans.
The RBI said the rate of increase in financial liabilities in 2022-23 was the second highest since Independence. The only time the flow was sharper was during 2006-07 when it was 6.7 per cent.
In absolute terms, net household assets plummeted from Rs 22.8 trillion during the height of the pandemic in 2020-21 to Rs 16.96 trillion in 2021-22, and then to Rs 13.76 trillion in 2022-23. Household debt, in terms of the stock of financial liabilities, also was high at 37.6 per cent of the GDP in 2022-23, as against 36.9 in the previous financial year. The reason could be erosion of stagnant incomes due to the high inflation rates leading to lower savings and higher debt.
The figures in the RBI data on household assets and liabilities also indicate that despite the government’s frequent exhortations, it is the public spending from the revenue earned by taxes that is holding up the GDP growth rate and not private consumption and private capital expenditure.
“We believe that consumption growth is unsustainable. Whether it will be substituted by investments is not our base case, though the jury is still out,” said Nikhil Gupta of Motilal Oswal.
However, in the first quarter of 2023-24 (April to June), private consumption final expenditure (PCFE) rose to six per cent as compared to the same period last year. The PCFI was 2.8 per cent in the fourth quarter of 2022-23 and 2.2 per cent in the third quarter of the last fiscal.
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