Nonetheless, households’ financial savings rate for Q2FY21 dominated greater than that of 9.8% witnessed in Q2FY20.
The household financial savings rate slide to 10.4% of gross domestic product (GDP) — nearer to pre-pandemic ranges — in Q2FY21 from 21% in Q1 in a counter-seasonal manner, the Reserve Bank of India mentioned in an article in its March bulletin, launched on Friday. The savings rate may have fallen additional in Q3 with a pick-up in consumption and economic activity, the article stated.
“The Covid-19-induced spike in household financial savings rate in Q1:2020-21 waned substantially in Q2 in a counter-seasonal manner. While households’ deposits and borrowings picked up, their holdings of currency and savings in mutual funds moderated,” the RBI mentioned. This reversion is especially pushed by the rise in household borrowings from banks and non-banking financial companies (NBFCs), accompanied by a moderation in family monetary property within the type of mutual funds and foreign money. Nonetheless, households’ financial savings rate for Q2FY21 dominated larger than that of 9.8% witnessed in Q2FY20.
Increased household consumption, significantly its discretionary element, could be attributed to resumption in economic activity following the easing of lockdown. With the gradual reopening/unlocking of the economy, households switched from an ‘essentials only’ spending pattern to discretionary spending, which resulted within the reversal of household financial savings from the height it attained in Q1FY21.
The reversal in household financial savings is corroborated by the decrease surplus within the present account balance. Household debt to GDP ratio rose sharply to 37.1% in Q2FY21 from 35.4% in Q1FY21. Preliminary indications counsel that household financial savings rate could have gone down additional in Q3FY21 with the intensification of consumption and economic activity.
“India appeared to be faster in raising spending probably on account of the approaching festive season demand along with the release of pent up demand, thereby reaching closer to the pre-pandemic levels of household financial savings in Q2:2020-21,” the RBI mentioned.
Though the aggregate savings elevated through the pandemic, it, nevertheless, may conceal the unequal impression by way of household savings and consumption expenditures of non-essential objects as a number of households within the unorganised sector suffered from lack of employment, earnings and borrowing opportunities. Transferring ahead, with the optimism on progress in mass vaccination, household financial savings are anticipated to recede additional to the pre-pandemic ranges in India in addition to in different nations, the article added.
Though the share of various instruments on the asset aspect of the household portfolio has broadly remained unchanged throughout Q1FY19 to Q2FY21, the share of currency holding, which elevated throughout Q1FY21 — reflecting flight to cash under extreme uncertainty — has reversed to its pre-pandemic ranges with the resumption of economic activity in Q2. On the liabilities aspect, the share of household liabilities from the banking and housing finance company (HFC) sector have come down whereas that of NBFCs has elevated from Q1FY21 onwards.
Household investment in mutual fund products is estimated to have declined to 0.3% from 1.7% between Q1FY21 and Q2FY21.
Equally, savings within the type of insurance products moderated to 3% from 3.2% within the earlier quarter. Savings within the type of deposits with banks elevated throughout Q2FY21, reflecting restoration of their secure haven status.
