SME Times News Bureau | 22 May, 2019
task for the next government will be to boost household savings in the country,
savings rate of the household sector declined from 23.6 per cent of GDP in
2011-12 to 17.2 per cent in 2017-18, according to data from the Reserve Bank of
the lowest rate since 1997-98. Household savings were at their peak in 2009-10
at 25.2 per cent.
While the private corporate sector finances its investment predominantly
through its own savings, the public sector continues to rely heavily on
households for resources.
According to N.R. Bhanumurthy, professor at the capital's National Institute of
Public Finance and Policy, household savings are a major factor of economic
growth and lead to higher investment.
If household savings go down, this would either pull investments down or
increase the current account deficit, said India's former Chief Statistician
decline in investment in line with household savings is apparent. Investment
rate came down from its peak of 41.5 per cent in 2011-12 to a little above 31
per cent in 2017-18.
The RBI's biannual monetary policy report, released in April, said:
"Notwithstanding recent improvements, the investment rate has declined
significantly since 2012-13, mirroring the decline in the saving rate over
A Kotak report in March observed that India's net household financial savings
rate has stagnated over the past few years despite high real interest rates in
the economy which "quite puzzling and poses large challenges to India's
policymakers already besieged with the problem of high credit-deposit ratio in
the banking system".
Emphasising on the need for higher household savings, Bhanumurthy said,
"The high growth that India achieved during 2003-2008 was largely due to
increase in the household savings, added to that of public sector savings. It
was a savings-led growth rather than investment-led growth."
In order to strengthen the household savings scenario, he said that the
upcoming government would have to ensure increase in public sector savings as
it aids household savings and also not go ahead with interest rate cuts.
government comes in, it needs to be seen that there are no more public
dissavings. If we see the government savings during the pre-crisis period,
there was actually positive savings. During 2005-2008 there, there was positive
saving but after that there is only negative public sector saving," he
"Second, there is a need to look at the overall interest rate, investment
and savings relationship. I have always opposed interest rate cut. Any cut in
interest rate will actually discourage savings, more than it encourages
He noted that savings should be key factor when the government and the central
bank talk about interest rate in policy matters. Bhanumurthy observed that
whenever there is an interest rate cut, the transmission is firstly felt on
deposit rates, rather than lending rates.
Further, going by the incumbent government and Finance Minister Arun Jaitley's
repeated emphasis on rate cuts shows that if the Modi government returns, the
push might continue, leaving little room for increase in household savings.
"My guess is that NDA may not be in favour of all this," Bhanumurthy