Households liabilities at ₹8.2­lakh crore in FY23

Households liabilities at ₹8.2­lakh crore in FY23

Subject: Economy

Section: National Income

In News: Household financial savings at 5 decade low as household liability rises.

Key Points:

• Net financial savings of households fell to a nearly five-decade low of 5.1% of GDP in FY23, down from 7.2% in FY22.
• In addition, annual financial liabilities of households rose sharply by 5.8% of GDP compared with 3.8% in FY22.
• Meanwhile, household debt has increased. In terms of the stock of financial liabilities, household debt consequently remained sharply elevated at 37.6% of GDP in FY23, as against 36.9% in FY22.
•  What explains this trend?
  • This indicates that households have been largely borrowing to fulfil their consumption needs.
  • Adding to these pressures, wages have not risen amid high inflation Falling or stagnant wages coupled with high inflation.
  • At a time of high inflation, there has been no significant growth in real wages at the all-India level over the past eight years.
  • The cost of healthcare and education is rising, most of which has to be borne privately.
  • In 2021, India’s medical inflation was at 12% – the highest among all Asian countries. The cost of treatment has doubled in five years.
  • In addition, the rate of education inflation has also been significantly high at 11-12%.
• What is impact of low savings?
  • The latest RBI data on household assets and liabilities also raises converns about the immediate growth potential of the economy.
  • The support to growth from private consumption may turn out to be weaker than anticipated, even as a private capex cycle appears to be delayed.
  • combination of weak income growth and falling financial savings, led by borrowings, is unsustainable.
  • This consumption led growth may not be unsustainable.