Household Savings More Than Double in Q1: RBI

Restricted consumption during the Covid-19 lockdown and uncertainty about the future drove Indian households to save more in Q1, with savings more than doubling in the three months to June.

Preliminary estimates by RBI indicate that household financial savings jumped to 21.4% of GDP in the first quarter (April-June) of 2020-21, up from 7.9% in the same period a year ago and 10% in the previous quarter (January-March) of 2019-20.

The uncertainty regarding future income and in particular the risk of future unemployment caused by the sudden outbreak of the pandemic led to the rise in precautionary savings.

The propensity of households to save may likely have risen markedly during the pandemic on two counts, according to RBI’s analysis.

First, the households would have been forced to save more, being unable to consume up to their normal levels. The household consumption basket would have comprised a limited number of items relative to the pre-Covid period. Second, they may have raised their precautionary savings due to uncertainty about their future incomes, in large part flowing from cautious responses to reports of actual and potential job losses.

The central bank in its assessment in June this year had said: “a spike in net financial assets of households is likely in the first quarter of 2020-21 on account of a sharp drop in lockdown induced consumption”.

The central bank also revised the preliminary estimates of household financial savings for 2019-20 from 7.7% of GDP to 8.3% of GDP.

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