Changing Financial Landscape of Indian Households: A Decade in Review
Introduction
In the past decade leading up to 2023-24, the financial structure of Indian households has undergone significant transformations. While bank deposits continue to dominate, investments in stocks, small savings, government bonds, provident funds, and pension funds have gained traction. These shifts highlight new patterns in saving and borrowing behaviors among Indian families.
Current Financial Overview
As of March 2024, Indian households boasted financial assets totaling approximately ₹320 trillion ($3.7 trillion), against liabilities amounting to ₹121 trillion ($1.4 trillion). This indicates a robust financial presence, although recent trends show an increasing reliance on debt among lower-income families.
Changing Saving Patterns Among Households
Deposits vs. Diverse Investments
Despite remaining the preferred choice for savings, the share of deposits in the total financial assets of households has decreased from 56% in 2013-14 to 41% in 2023-24. This decline is paralleled by a rise in other financial instruments:
- Stocks and Debentures: Increased from 2% to 9%
- Claims on Government (Small Savings Schemes and Bonds): Increased from 2% to 9%
- Provident and Pension Funds: Increased from 15% to 21%
Average Net Savings
The latest data from India’s Ministry of Statistics and Programme Implementation (MoSPI) reveals that in 2022-23, households added finances totaling ₹29.7 trillion ($340 billion) while accruing liabilities of ₹15.6 trillion ($180 billion). On average, each household increased its financial assets by ₹1 lakh and liabilities by ₹53,000.
Rise in Borrowing: The Non-Banking Financial Sector
While traditional banks continue to hold the majority share of lending to Indian households, the role of non-banking financial companies (NBFCs) has surged. Between 2012 and 2023, bank loans decreased from 92% to 76% of total liabilities, while NBFC loans climbed from 2% to 21%. This shift indicates a growing reliance on alternative credit sources.
The Debt Dilemma
As of June 2024, household debt was reported at 42.9% of GDP, a figure seen as relatively low compared to other emerging economies. However, this increase in debt is driven mostly by a rise in the number of borrowers rather than escalating average debt amounts. Notably, the Reserve Bank of India’s Financial Stability Report suggests a concerning trend where borrowing appears detached from various economic indicators.
Net Financial Savings Decline
Households in India are saving at a diminishing rate, with net financial savings dropping 33% from ₹23.3 trillion to ₹15.5 trillion since the onset of the COVID-19 pandemic. This decline has led to the lowest levels of net financial savings observed in five decades, now standing at 5.3% of GDP.
Investing in Physical Assets
While financial savings have dropped, investments in physical assets have seen an uptick. Since 2012-13, savings in physical assets rose from ₹1.5 trillion to ₹3.5 trillion in 2022-23. Real estate has become a primary focus—many households are focusing less on traditional savings and more on physical investments.
The Role of Precious Metals
Gold and silver maintain their traditional status among Indian households as consistent savings options. In 2022-23 alone, households added ₹63,397 crore in gold and silver ornaments, with the value significantly impacted by rising prices—gold prices surged 95% while silver saw a 21% rise.
Wealth Distribution in Assets
Research indicates that the average Indian household allocates 84% of its wealth to physical assets, with 11% in gold bullion and 5% in financial assets. Interestingly, poorer households hold a greater proportion of their wealth in gold compared to wealthier households, necessitating targeted financial strategies to bridge this divide.
Conclusion
As we look ahead, the future of household finance in India lies in striking a balance between savings and debt management. Diverse investment strategies and a growing acceptance of various financial instruments can offer robust pathways for improving the financial health of households, particularly for those in lower-income brackets. Understanding these trends is essential, and further initiatives are needed to facilitate equitable access to financial resources for all Indians.
Call to Action
For households to enhance their financial standing, it’s crucial to focus on both saving and responsibly managing debt. As the financial landscape evolves, staying informed and adapting to these changes will be key to long-term financial stability.
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