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Household Savings Rise As Discretionary Spending Slumps

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Preliminary estimates of household financial savings show a jump of 21.4 per cent of GDP in Q1: 2020-21, up from 7.9 per cent in Q1 and 10.0 per cent in Q4: 2019-20, the RBI monthly bulletin reveals.

"The sharp increase is counter-seasonal and may be attributed to the COVID 19-led reduction in discretionary expenditure or the associated forced saving and the surge in precautionary saving despite stagnant/reduced income.

Household Savings Rise As Discretionary Spending Slumps
 

The yawning gap between credit extended and deposits mobilised during the Q1: 2020-21 contributed to the spike in household financial savings as the financial instruments relating to banks continue to dominate the household financial assets and liabilities," the bulletin states.

According to the RBI, the increased flows to mutual funds seems to have been driven by the relative returns on bank deposits, particularly when the stock markets rebounded after an initial volatility in the wake of COVID-19.

"The rise in subscription to insurance products reflects the pandemic-led increased awareness of life insurance amongst the households faced with a health crisis.

The estimated increase in financial savings looks consistent with other macroeconomic statistics, in particular, the decline in private final consumption expenditure and the surplus position in the external current account," the RBI has stated.

Read more about: savings rbi
Story first published: Thursday, November 12, 2020, 10:26 [IST]
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