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Post at: Aug 13 2021

Impact of Pandemic on Households savings

Recent Context

  • On June 23, 2021, the Reserve Bank of India has released the preliminary estimates of Household Financial Savings for Q3: 2020-21 and household Debt-GDP Ratio at end December 2020.
  • The RBI estimated an increase in debt of around 20 crore households, which contribute around 60% of gross savings in the economy and financial savings showed a decline of over 45% from June to December 2020.

Key findings

  • According to RBI’s preliminary estimate, household financial savings were at 8.2% of GDP in Q3 FY21.
  • The financial savings were recorded at 10.4% in the second quarter (Q2) and 21% in the first quarter (Q1).
  • The ratio of household (bank) deposits to GDP declined to 3.0% in the December quarter (Q3) of 2020-21 from 7.7 percent in the previous quarter (Q2).
  • According to the RBI data, a households net financial saving to GDP ratio rose to at least a 20 year high of 12.5 percent during the first nine month (9m) of FY21.
  • The ratio was 8% in 2019-20 (FY 20) and at a two-decade low of 7.1 in 2018-19.
  • Household net savings were up 58.4% year on year in 9m FY 21 to Rs. 17.52 trillion – up from Rs. 11.06 trillion a year ago.
  • At the end of Q3, the currency with the public also grew sharply at 22.7 percent.
  • The household debt to GDP ratio, which is based on select financial instruments has been increasing steadily since end- March 2019.
  • It rose sharply to 37.9 at end- December 2020 from 37.1% at end-September 2020.

Important of Pandemic on Households savings

Conclusion

  • The pandemic has affected each and every sector of economy and people. Pandemic has disrupted investment, financial savings and business closure.
  • Pandemic has caused direct impacts on income due to premature deaths, workplace abrentecism and reduction in productivity.
  • Consumes typically changed their spending behavior, mainly due to decreased income & household finances.

@  Yogesh Pratap Singh

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