Household savings have again started building up, which sharply declined from the level in 2020-21, and will remain top net lenders to the economy in coming decades, Reserve Bank Deputy Governor Michael Debabrata Patra said on Tuesday.
In India, the household sector typically generates surplus savings relative to its investment, which it lends to other sectors.
Recently, the net financial savings of households have almost halved from their level in 2020-21 due to behavioural changes underway in the form of unwinding of prudential savings accumulated during the pandemic and shifts from financial assets to physical assets like housing, Patra said.
“Going forward, boosted by rising incomes, households will likely build back their financial assets…This process has already begun – households’ financial assets have increased from 10.6 per cent of GDP during 2011-17 to 11.5 per cent during 2017-23 (excluding the pandemic year),” he noted.
Their physical savings have also risen in the post-pandemic years to over 12 per cent of GDP and could rise further. They had reached 16 per cent of GDP in 2010-11, he said in a keynote address at the Financing 3.0 Summit: Preparing for Viksit Bharat organised by the Confederation of Indian Industries (CII).
“Accordingly, households will remain the top net lenders to the rest of the economy in the coming decades,” the senior RBI official said.
He further said the private corporate sector has drastically reduced its net borrowings from the rest of the economy, reflecting a combination of rising internal accruals and subdued capacity creation.
Looking ahead, its net borrowing requirement is likely to rise on the back of a revival in the capex cycle, he added.
“These financing requirements will largely be met by households and external resources. Net dissaving of the public sector has been moderating albeit unevenly; this sector will remain a net borrower in the economy in view of the critical role envisaged for fiscal policy in shaping India’s future,” the deputy governor said.
Patra stressed that India will need a transformation in its institutional architecture for intermediating the needs of finance of its aspirational trajectory.
The emphasis, he said, would be on financing physical, social and digital infrastructure, skilling, green energy, innovative manufacturing and MSMEs.
At its core, there has to be a robust corporate bond market with adequate secondary market trading liquidity and breadth, he said.
External financing will play an increasingly vibrant role in propelling investment and bringing in new technologies, provided the absorptive capacity in respect of external funding expands with the pursuit of reforms that enhance export potential and attract FDI, he added.
“In India’s quest for higher levels of development, financing should be seen as a facilitator, not an obstructer,” he said.
During his address, Patra also delved into India’s growth story and the fact that the country is riding on the cusp of a distinct demographic advantage.
He said a productive workforce is critical for value creation in an economy, while capital would play an important supportive role.
CII Director General Chandrajit Banerjee, in his welcome address, lauded the performance of India’s external sector and underscored the role of the RBI in ensuring that its financing is stable, sustainable, and aligned with the country’s economic policies.
He said greater investment can be useful to garner more financing in physical infrastructure, components for the digital economy, and emerging sectors like renewable energy, warehousing, semiconductor ecosystem, and data centres.
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