Gross savings rate-Trends

Subject : Economy

Section: Monetary Policy

Context: In the last 30 years, savings and investment opportunities have grown by leaps and bounds.

Trends:

India’s gross savings rate –increased from 9 percent of GDP in the 1950s to over 30 percent of GDP in recent years.
- Savings represent sums put away by both individuals and institutions (public and private sectors).
  - While savings by the public sector have been declining in recent years.
  - Both households and the private corporate sector have raised their contributions.
As per the Indian Household Finance Report 2017-

1950s-Five Year Plan

1990s-LPG

Post-Covid

Earlier Indian retail savers invested in hard assets

77 per cent of the average household’s assets- in real estate (mainly a self-occupied home or farm land)
11 per cent– gold,
5 percent- allocation to financial assets

Shift to investment in financial assets
This shift has put a significant savings pool at the disposal of Indian financial sector players- be it banks, insurance companies, mutual funds, the behemoth LIC, corporate issuers of bonds and equities or new-fangled fintech platforms.
Investments in unregulated entities—unregistered NBFCs, chit fund and orchard, teak and emu-rearing schemes backed by promotional blitzes and celebrity endorsements.

The last five years have seen a material shift in preferences towards financial assets, with Covid giving financial assets a particularly big lift.
Individuals shifted to ‘paper’ assets such as stocks and mutual funds from precious metals and real estate as being transmitted and liquidated at short notice.
Surge in stocks, mutual funds, SIPs, curated portfolios such as small cases and even derivatives trading for their vastly better returns.
The number of demat accounts opened in the Indian markets has trebled in the last three years, crossing the 10 crore mark providing protection from large scale capital outflows.
Increase in insurance and health insurance providers.
Increase internet penetration led surge in unregulated assets -cryptocurrencies, Non-Fungible Tokens, DeFi token

Concept:

Gross Domestic Saving is GDP minus final consumption expenditure.
It is expressed as a percentage of GDP.
Gross Domestic Saving consists of savings of the household sector, private corporate sector and public sector.
Gross domestic savings had followed a downward trajectory after 2008.
The more concerning issue is the perceptible shift of investors’ preference towards physical assets as compared to financial assets. This can be attributable to a rise in inflationary pressures.
Gross capital formation is a function of gross domestic savings.