Rebound in Household Savings Signals Economic Optimism

Net household financial savings, which saw a modest increase to 5.3% of GDP in FY24 from a 47-year low of 5% in FY23, are projected to experience a significant rebound in the first half of FY25. This uptick is a positive indicator for the economy, suggesting that both government and businesses may increasingly rely on domestic sources for investment funding.

Impact of Reduced Household Liabilities

The improvement in net household financial savings is largely attributed to a decrease in household liabilities, particularly in the form of personal loans. The Reserve Bank of India's (RBI) stringent measures against unsecured personal loans, gold loans, and lending to Non-Banking Financial Companies (NBFCs) have contributed to a slower growth in these sectors.

Looking Ahead: FY25 Projections

According to a report by Motilal Oswal Financial Services, net household financial savings are estimated to have grown to 7.3% of GDP in the first half of FY25, nearly doubling from the first half of FY24. This growth is primarily due to a reduction in liabilities, which decreased to 4.7% of GDP from 6.9% in H1 FY24, alongside an increase in gross financial savings.

Despite the rise in gross financial savings to 11.6% of GDP in FY24, higher liabilities have slightly offset these gains, leading to a modest increase in net household financial savings to 5.3%. With household debt reaching 41% of GDP in FY24, the report estimates a slight increase to 43.5% of GDP in the first half of FY25.