Foreign brokerage Goldman Sachs sees net financial savings of Indian households to have increased to 6 per cent of GDP in 2023-24, significantly higher than the 18-year low of 5.1 per cent of GDP in 2022-23.

This stance has been mainly driven by its estimate of higher gross financial savings of 12.5 per cent of GDP (vs 11 per cent of GDP in FY23) owing to higher bank deposit growth (11 per cent y-o-y in FY24 vs 9.4 per cent y-o-y in FY23).

Goldman Sachs estimates an increase in household liabilities to 6.6 per cent of GDP (vs 5.9 per cent of GDP in FY23). It may be recalled that the net financial savings of Indian households had declined to an 18-year low of 5.1 per cent of GDP in FY23, due to an increase in household liabilities

“With an increase in household deposit growth partly offsetting the increase in liabilities, we estimate net financial savings to have increased to around 6 per cent of GDP in FY24”, Santanu Sengupta, Chief Economist, Goldman Sachs India said in a research note on Tuesday.

Sengupta highlighted that there is an ongoing trend of financialisation of household savings, where within financial savings, allocations shifted from banks towards non-banks, especially into retirement savings. 

The overall assets under management (AUM) of retirement savings, insurance and mutual funds grew at a 15 per cent CAGR, outpacing bank deposit CAGR of 9 per cent over the last ten years, he noted.

However, Indian household savings allocation towards non-bank assets is well below the developed markets and emerging markets like Korea and Taiwan, and Goldman Sachs sees this trend continuing in the coming years, Sengupta added.

“We see three main implications of this. Firstly, boosting domestic financial savings will help fund the capex cycle without widening the current account deficit materially or increasing external vulnerability.

Secondly, pension funds and insurance companies are buying long-duration government bonds given their long-term investment horizon. These investors are less susceptible to immediate withdrawals which helps manage volatility. This has resulted in a flat government bond yield curve in India, which we expect to persist”, he said.

Finally, as the government consolidates its fiscal position, Goldman Sachs Research feels that it is important that the quasi-government / corporate bond market is incentivised to move towards long-dated issuance, to channel the long-term savings towards infrastructure asset creation.

Savings rate

India has a healthy gross savings rate at 31 per cent of GDP (last 10-year average), which is higher than the global average of around 26.5 per cent, but lags Asia EMs like China, Taiwan and Korea. 

While households in India remain the primary savers in the economy, private corporate savings have increased post-pandemic, driven by balance sheet deleveraging and increased profits.

Indian households traditionally saved in physical assets like real estate. Over 2010-2020, savings in physical assets were on average 12.8 percent of GDP (61 per cent of household savings).

Financial savings jitters

Concerns were expressed in several quarters after RBI and MoSPI data showed that the household sector’s net financial savings dropped to a five-year low of ₹14.16 lakh crore in 2022-23. 

This was fuelled by Indian households’ increased borrowing from banks and non-banks to boost investments in physical assets. This trend was coupled with increased allocations to mutual funds, direct equities, bank deposits and life insurance products, according to the latest MoSPI data.

Chief Economic Advisor to the Finance Ministry V Anantha Nageswaran had recently assuaged such concerns, noting that the slowdown in net financial assets accretion in 2022-23 was primarily due to portfolio shift towards real estate accumulation at the expense of financial asset accumulation. 

In 2022-23, the pace of accretion to net financial assets slowed compared to previous fiscal, not because Indians are consuming more, but they were acquiring real assets reflected by the pick up in residential loans, the CEA had said.