Household financial borrowings in FY23 surged to 5.8% of GDP, the second-highest in the post-independence period; it was 6.7% of GDP in FY07 at the highest, according to a report by a private finance firm.

Personal loans increased, savings on low

The chief economist at the firm, Nikhil Gupta, said that the blend of sluggish income growth and declining financial savings driven by borrowings did not seem sustainable.

As per the RBI, in July 2022, personal loans or retail loans were worth ₹35.94 lakh cr, which increased to ₹47.31 lakh cr.

The household net financial savings (HHNFS) collapsed to just 5.1%  of GDP in FY23, marking the lowest level in 47 years since FY77, the report said.

Family property numbers decreased

The volume of family properties in FY 2020-21 was ₹22.8 lakh cr which decreased to ₹16.96 amid the pandemic in FY 2021-22. It has further decreased to ₹13.76 lakh cr in FY 2022-23.

The downward revision in FY22 is in line with our calculations and the deterioration in FY23 is worse than the estimates. HHNFS is a function of gross financial savings (GFS) and financial liabilities (FL).

In GFS, the share of currency and small savings declined in FY23 (vs FY22), while the share of deposits increased, the share of capital market investments (called shares & debentures, S&D) has quadrupled to an average of 0.8%  of GDP in the past seven years (FY17-FY23) from just 0.2%  of GDP in the years prior to demonetization.

Notably, household GFS was largely stable at 11%  of GDP in FY23 vs. FY22, which means that lower HHNFS was a clear result of a sharp jump in household borrowings last year. GFS has six major components: deposits, currency, insurance, pension and provident funds (P&PFs), capital market investments, and small savings. Deposits are, by far, the largest components of household GFS.

In the current financial year, as nominal GDP growth is likely to be only 8%, household income growth is also likely to be similar. If so, either consumption growth will be very weak or household investments will weaken substantially, since a further fall in HHNFS looks very difficult, the report said.

Further, with a unanimous expectation of narrowing the current account deficit (CAD), investments can increase only if savings rise faster.

Not only this, HHNFS play a crucial role as they are the principal means for financing the fiscal deficit. If HHNFS fails to pick up, it will become increasingly challenging to fund a narrowing fiscal deficit (difference between total revenue and total expenditure), the report said.

(With inputs from IANS)

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