Inflation Balancing
India's retail inflation remained under the crucial 4 per cent threshold for the second consecutive month in August, marking a positive turn for the country’s economic stability.
Deputy Governor of the Reserve Bank of India, Debabrata Patra, said that with the rising incomes, households are expected to rebuild their financial assets.
The rebuilding process has already begun, with household savings increasing from an average of 10.6 per cent between 2011 and 2017 to 11.5 per cent during 2017-2023, excluding the pandemic year, he said.
While speaking at the CII Financing Summit, the RBI DG said, “Going forward, boosted by rising incomes, households will likely build back their financial assets. Financial assets held by households peaked at 15 per cent of GDP in the early 2000s, right up to the financial crisis of 2008.”
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“The process has already begun, and household savings have increased from an average of 10.6 per cent during 2011 to 2017 to 11.5 per cent during 2017-2023, excluding the pandemic year,” he added.
He said in India, domestic savings have primarily financed the economy’s investment needs, with external financing playing a supplementary role.
“As the economy’s productive capacity grows and its ability to absorb foreign capital increases, the volume and composition of external financing may undergo significant shifts.”
“For India, domestic savings have largely financed the investment needs of the economy, with external financing playing a supplementary role. As the productive capacity of the economy rises and its ability to absorb foreign sources expands, the volume and composition of external financing may undergo fundamental shifts,” he added.
Net household savings as a proportion of GDP have nearly halved, driven by behavioural changes such as the unwinding of prudential savings accumulated during the pandemic and a shift from financial assets to physical assets like housing, he highlighted.
Physical savings increased during the pandemic years, reaching a peak of 16 per cent of GDP in 2010-11. Accordingly, households are expected to remain the top net lenders to the economy in the coming decades, he said.
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