New Delhi: Net financial savings of households fell to a nearly five-decade low of 5.1% of GDP in FY23, down from 7.2% in FY22, the Financial Express has reported, citing Reserve Bank of India data.In addition, annual financial liabilities of households rose sharply by 5.8% of GDP compared with 3.8% in FY22.This indicates that households have been largely borrowing to fulfil their consumption needs.The rate of increase in financial liabilities last fiscal (FY23) was the second highest since Independence, the newspaper noted. In FY07, the rate of increase was sharper 6.7%.In absolute terms, net household assets in FY21 stood at Rs 22.8 trillion. In FY22, it dropped to Rs 16.96 trillion. It further fell to Rs 13.76 trillion in FY23.Meanwhile, household debt has increased. FE reported that in terms of the stock of financial liabilities, household debt consequently remained sharply elevated at 37.6% of GDP in FY23, as against 36.9% in FY22.Adding to these pressures, wages have not risen amid high inflation.Falling or stagnant wages coupled with high inflationAt a time of high inflation, there has been no significant growth in real wages at the all-India level over the past eight years.The cost of healthcare and education is rising, most of which has to be borne privately. In 2021, India’s medical inflation was at 12% – the highest among all Asian countries. The cost of treatment has doubled in five years.In addition, the rate of education inflation has also been significantly high at 11-12%.In such a scenario, it appears that falling or stagnant household incomes, amid high inflation, is probably the main reason for the subdued savings and higher borrowings.The latest RBI data on household assets and liabilities also raise worries about the immediate growth potential of the economy. The support to growth from private consumption may turn out to be weaker than anticipated, even as a private capex cycle appears to be delayed.Nikhil Gupta, economist at Motilal Oswal, told FE that the combination of weak income growth and falling financial savings, led by borrowings, is unsustainable. “We believe that consumption growth is unsustainable. Whether it will be substituted by investments is not our base case, though the jury is still out,” he said.
