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Financial security and saving in India
Savings are indicative of how much the people of a country are likely to invest.
More savings led to more investment in the economy.
Recently, the RBI restriction on Punjab & Maharashtra Co-operative Bank Limited (PMC) has opened a debate on the safety of co-operative banks and deposit insurance.
Status of savings rate
India’s overall savings rate has declined to 30% from 34.6% over five years, ending FY 2016-17.
The worst dip was seen in the household sector.
The household sector is the largest contributor to savings in the economy.
According to the report of Arth Samvaad by India Ratings and Research the household has dropped to 16.3% from 23.6% over the period.
What is household savings rate
The household savings rate is the difference between a household’s disposable income and expenditure.
The overall savings rate is the amount an organisation or a person places in the savings account.
Average Indian earning
The average Indian earned a per capita income of ₹1.26 lakh in FY19.
A Global Wealth report from Credit Suisse (October 2019) found that the median wealth of an Indian adult was $3,042 (₹2.1 lakh).
Reasons for low savings
The report says one of the key reasons for low saving is tighter financial conditions.
The impact of Demonetisation and GST was also one of the important factors.
Nearly three-fourths of household savings is into real estate. In the last few years, returns from real estate investments have suffered, affecting household disposable income.
Consequences
If household savings continue to decline, it may pose a serious challenge to
GDP growth of the economy
Macroeconomic stability.
How to boost saving
To boost savings, there needs to be an improvement in access to finance for households across the country.
The Government should ensure that Indian savers have access to simple fixed return products.
Promoting financial literacy in the country.
Reviving the popularity of the post office schemes.
Re-introducing National Savings Certificates in the 10, 15 and 20-year tenors
The banking sector needs to promote better customer service.
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