In the midst of all the chatter about the Coronavirus, the impending Trump visit, and rising inflation; most readers missed out on an extremely important data point. India’s savings rate has fallen to a 15-year low and is down nearly 600 bps from the peak of 2007. Why is the savings rate so critical and what are the implications of dwindling savings?
Look at the savings numbers
There have been some disconcerting statistics pertaining to savings. Here we are referring to overall savings and also to household savings. In India, the household savings account for over 60% of all the savings. While private business accounts for the balance, PSUs are actually dis-saving. Some numbers are really startling. The savings rate had touched a peak of 36.4% in 2007 at the peak of the bull rally. However, between 2007 and 2012, the savings rate fell to 34% and since then it has fallen further to just above 30%. This is marginally above the savings rate of 29% recorded in the year 2003. It is not only overall savings, but even household savings are sharply down. For example, household savings accounted for 23% of the GDP in the year 2012 but now accounts for just about 18%. That clearly implies that Indian households are saving much lower than they used to save 10 years ago. This is partly due to a greater propensity among Indians to spend and partly due to the sharp increase in the cost of most goods and services.