Indian Household Savings Fall to 5.8 Percent of GNDI, Chennai Expert Warns
Net household financial savings in India have declined from 7.9 percent of Gross National Disposable Income (GNDI) in FY16 to 5.8 percent in FY24, raising concerns over the sustainability of the country's economic growth model. Speaking in Chennai, Sachin Sawrikar, Managing Partner at Artha Bharat Investment Managers, highlighted that changes in the new tax regime have shifted consumer behavior away from long-term savings and toward consumption despite a major boom in equity markets.
According to Sawrikar, the decline was largely driven by the removal of Section 80C tax incentives for instruments such as the Public Provident Fund (PPF) and National Savings Certificate (NSC) under the new tax regime. While the new tax structure simplified taxation and boosted consumption, it weakened the culture of compulsory savings that tax deductions once encouraged.
This shift has occurred despite a surge in retail participation in equities and systematic investment plans (SIPs) over the last decade. Although SIP collections continue to touch record levels, Sawrikar cautioned that many investors discontinue their SIPs after a short period, noting that sustained investing over many years is what ultimately creates wealth.
Concurrently, household debt has increased significantly, with the household debt-to-GDP ratio rising from around 20 percent to nearly 45 percent over the past decade. Sawrikar warned that the economy is increasingly driven by credit-fuelled consumption rather than income-led savings.
The changing savings pattern has also impacted banks, with bank deposits declining from nearly 50 percent of GNDI to around 35 percent as households allocate money to market-linked investments. Sawrikar stated that banks will have to innovate through more attractive deposit products as the era of abundant low-cost deposits changes.
To sustain a 7-8 percent GDP growth, India requires stronger domestic savings. Currently, the overall savings rate has fallen to around 30 percent of GDP, which is below the level needed to finance long-term investment.
