Net Financial Savings of Indian Households at an All-Time Low: Concerning Analysis

Net financial savings (NFS) of households in India have hit a worrying low, signaling potential implications for the economy. In this analysis, we delve into the data that highlights a significant decline in NFS as a percentage of GDP. We explore the factors behind this downward trend, such as the impact of the COVID-19 pandemic, inflation, and interest rates. Join us as we examine the consequences of reduced financial savings and investigate potential solutions to incentivize households to save more.

Sharp Decline in Household Net Financial Savings: A Disturbing Trend

Unveiling the noteworthy drop in net financial savings (NFS)

The analysis reveals a significant downturn in the net financial savings (NFS) of Indian households, sounding alarm bells for the economy. From being relatively stable at around 11.5% of GDP in the previous fiscal year (FY21), the NFS plummeted to a shocking low point of merely 5.1% in FY23, marking the lowest it has been in almost five decades.

This downward trend in net financial savings is propelled mainly by a surge in households' financial liabilities. While household financial assets held steady as a percentage of GDP, there has been a considerable spike of approximately 53% in their financial liabilities, rising from 3.8% in FY22 to 5.8% in FY23. As a result, it becomes imperative to understand the factors driving the increase in liabilities while exploring the potential consequences for economic stability.

An Assortment of Factors Fueling Rising Household Financial Liabilities

Unraveling the reasons behind the stark surge in financial liabilities

Rising household financial liabilities can be attributed to multiple factors that persistently affect income stability and borrowing needs in the nation.

Economic Woes Triggered by COVID-19

The turbulent waters stirred by the COVID-19 pandemic were one of the primary catalysts prompting households to resort to borrowed funds. Job losses, salary reductions, and diminished economic conditions coerced individuals to rely on loans for upkeeping their living standards amidst the challenging times.

Inflationary Pressure Exerting Strain on Households

The persistence of high inflation levels has exacerbated the financial burden for Indian households. Coupled with dwindling disposable income, the surging prices of goods and services limit the ability to save, subsequently driving up the percentage of financial liabilities.

Effect of Negative Real Interest Rates

Loose monetary policies initiated by the Reserve Bank of India (RBI) to combat the adverse ramifications of the pandemic have resulted in negative real interest rates. With rates of borrowing more inviting and bank lending expanding disproportionately to retail borrowers, households experienced enhanced accessibility to loans and debt.

Despite responsibly repaying these retail loans displaying commendable financial behavior, the observed lower delinquency rates have incentivized banks to allocate more credit to individuals, emphasizing the potential drawbacks of prioritizing loan accessibility over increasing savings.

The Shift in Asset Preference: From Bank Deposits to Capital Market Investments

Analyzing the underlying dynamics of shifting asset preferences

A noteworthy shift has occurred in households' asset allocation, potentially contributing to the decline in net financial savings. While there has been a notable surge in stock market investments, led by the increasing popularity of systematic investment plans (SIPs), other forms of financial assets, especially bank deposits, have witnessed a decline.

Bank deposits in India experienced a slump, with the total value falling from 12.4 trillion to 11 trillion. Concurrently, capital market investments from households saw a substantial upturn, accumulating to a valuation of 2.14 trillion in FY23, compared to 1.24 trillion in FY21.

This gradual shift is predominantly fueled by favorable returns and investment preferences. However, it raises the concern that an inordinate flow of savings toward the stock market may occur at the expense of other, more diversified financial assets like bank deposits.

The Persisting Influence of Physical Assets: Gold Continues to Shine

Examining the dominion of physical assets amidst changing financial landscapes

Despite attempts by the government to provide alternatives, physical assets, including the unwavering affinity towards gold, have steadfastly maintained their stronghold in Indian households' total savings. These physical assets collectively comprise approximately 61% of overall savings, signaling a prevailing societal preference.

This inclination towards physical assets, particularly gold jewelry, is not unique to India. Many parties turn to physical savings during volatile economic conditions as a means of security. Admittedly, it is disheartening that the extensive array of financial products offered by the government, such as the Sovereign Gold Bond scheme, have had limited success in diverting the population's gold-feted investments, hindering greater asset diversification.

Unlocking the Importance of Incentivizing Financial Savings

Highlighting the significance of motivating households to save more

The lessening share of gross financial assets in GDP alongside the mounting financial liabilities necessitates urgent action for incentivizing financial savings. As the bedrock of investment and economic growth, boosting household savings becomes essential for supporting vital economic ventures and infrastructure projects both in public and private sectors.

Moreover, individual financial savings play a substantial role in securing a prosperous future, particularly in the absence of robust social safety nets and widespread pensions. The relatively higher liquidity offered by financial assets provides invaluable support during periods of ill health and retirement.

Recognizing the significance of financial savings at both micro and macro levels, governmental measures aimed at incentivizing following up through innovative approaches will be crucial for the socio-economic progress of the nation as a whole and the welfare of its people.


In summary, the sharp decline in household net financial savings (NFS) as a percentage of GDP raises concerns about the economic stability and individual financial security in India. The increase in financial liabilities alongside the shift from bank deposits to capital market investments signifies the need for urgent action to incentivize financial savings.

Implementing measures that bolster household savings not only supports economic growth but also provides a safety net for individuals during unforeseen circumstances. It is crucial for individuals and the government alike to recognize the importance of financial savings as a fundamental pillar of economic prosperity.


Why is there a decline in net financial savings of households?

The decline in net financial savings of households can be attributed to factors such as the impact of the COVID-19 pandemic, high inflation, and negative real interest rates. These factors have led families to borrow more to maintain their standard of living amidst economic uncertainties.

What are the consequences of the shift from bank deposits to capital market investments?

The shift from bank deposits to capital market investments raises concerns about the lack of diversification in financial assets. While investments in the stock market may offer favorable returns, it comes at the expense of other forms of financial assets. This poses risks should the market become more volatile.

Why do Indian households continue to hold physical assets, especially gold, despite efforts to promote financial assets?

Indian households have a longstanding preference for physical assets like gold jewelry, primarily due to culturally ingrained beliefs and historical practices. Despite the availability of alternative financial products, the allure of physical assets persists as a sense of stability and security, especially during challenging economic times.

What can be done to incentivize financial savings among households?

To incentivize financial savings, the government should consider measures such as introducing schemes that offer attractive returns on financial savings, enhancing financial literacy programs, and reinforcing the importance of saving for future security. Encouraging a savings-oriented culture can contribute to economic growth and individual financial well-being.

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