Household Savings Dropped to a 22-Year Low Rate

India seems to lose its status as a country of big savers. According to RBI’s latest annual report, the household financial savings in India dropped to 7.8% in 2012 from 9.3% in 2011 and 12.2% in 2010. This is the lowest since 1989-90, more than a two-decade low savings rate.

The preliminary estimates released by RBI reveals that, high-inflation coupled with slower urban job creation and income growth, has attributed to decline in savings of households. Net financial savings comprises to cash investments, deposits with banks, investments in small savings, stocks, mutual funds, debentures, life insurance, provident and pension funds.

The drop in net financial savings could be due to high-inflation of 9% during 2011-12, that affected real consumption. Lower poor returns earned by savers after adjusting inflation also made them to put-off traditional financial products.

It is expected that the rate of inflation may come down in 2013, that may lead to improvement in real rates, which in turn could result in better household financial savings during the current year.