Household financial liabilities fell in FY20 even before the pandemic

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Indian household financial liabilities fell in the past year in another indicator of weak demand even before the pandemic disrupted economic activity.

Household net financial savings are expected to improve to 7.6% of gross national disposable income in fiscal year 2019-2020, according to preliminary estimates released by the Reserve Bank of India in its annual report. This is a return to trend after the indicator fell to 6.4%, the lowest in the current GDP series, in 2018-19.

However, the improvement is explained by a stronger moderation of household financial liabilities than financial assets, according to central bank estimates. Financial liabilities fell to 2.9% of GNDI in 2019-2020, from 4% a year earlier. Gross household financial savings remained stable at 10.5% against 10.4% in 2018-19.

Falling household debt suggests people were borrowing less as India’s economy slowed even before the pandemic. Things have only gotten worse since then, as the disruption of Covid-19 has stalled economic activity, leading to job losses and wage cuts. Consumer confidence is at an all time high and the RBI says the severe shock to private consumption will take time to heal.

Household debt may have slowed further in 2020-2021 with perhaps negative growth in disposable income, said Soumya Kanti Ghosh, the group’s chief economic adviser at the State Bank of India. But that still may not lead to a decline in household net financial savings, as people have accumulated currencies, deposits and even stocks in large numbers, he said. Consumer demand, he said, is expected to remain weak even in 2020-2021.

The National Statistics Office will publish data on household financial savings in January.

According to SBI estimates, net financial savings increased by Rs 3.4 lakh crore compared to the previous year to reach 15.7 lakh crore in 2019-2020. Financial liabilities increased 0.8 times, while disposable income increased 1.1 times, indicating consumer deleveraging in 2020-2021, Ghosh estimated.

Sandeep Narang, chief economist for India at the Bank of Baroda, said although incomes have been affected, consumers should cut back on consumption to balance their economies. A recent RBI survey showed consumer confidence hit an all-time high in July, indicating a lack of consumer appetite, he said. On the other hand, bank credit for personal loans has not picked up either, implying weak demand as consumers continue to deleverage, Narang said.


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