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Indian Households Experience Alarming Decline in Savings, High Debt Levels in 2022-23, Reveals RBI Report

Household Savings Hit 50-Year Low, Debt Burden Rises Sharply

October 03, 2023: In a startling revelation, the Reserve Bank of India (RBI) has unveiled concerning statistics regarding the financial health of Indian households. According to the RBI’s latest report, the financial savings of Indian households have plummeted to a 50-year low, accounting for a mere 5.1 percent of the Gross Domestic Product (GDP) in the fiscal year 2022-23. This translates to a total savings amount of 13.77 lakh crore rupees.

Contrastingly, just a year earlier, in 2021-22, household financial savings stood at a significantly higher 7.2 percent, amounting to Rs 16.96 lakh crore. The impact of the COVID-19 pandemic is evident when comparing these figures, as savings reached a peak of 11.5 percent (22.8 lakh crore) in 2020-21, when people drastically reduced their spending to weather the crisis. In the fiscal year 2019-20, household savings were at 8.1 percent.

What is even more concerning is the sharp rise in the debt burden borne by Indian households. In 2022-23, household debt surged to 5.8 percent of the GDP, up from 3.8 percent in the previous fiscal year (2021-22). This suggests that a significant portion of consumption is now being funded through borrowing.

This increase in debt in 2022-23 is the second-highest since India gained independence, with the highest being recorded in 2006-07 when the loan growth rate reached 6.7 percent. Furthermore, domestic debt is projected to account for 37.6 percent of the GDP in 2022-23, compared to 36.9 percent in the preceding year.

The anomaly of high savings during the pandemic year of 2020-21 can be attributed to reduced spending by individuals during the uncertain times.

Additionally, the RBI report highlights that loans extended by commercial banks are set to witness a staggering 54 percent growth rate on an annual basis in the fiscal year 2022-23. Concurrently, the wealth of the Indian populace has decreased to 10.9 percent of GDP during this period, indicating a significant decline compared to the previous fiscal year when wealth accounted for over 11 percent of the GDP in 2021-22. These findings underscore the financial challenges faced by Indian households as they grapple with dwindling savings and mounting debt burdens.

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