According to Motilal Oswal Financial Services Limited, HH net financial savings have come down to a 30-year low in the first half of FY2023, which is about 4 per cent of GDP.
Indians are looking very upset due to rising prices. This is due to increase in input cost from the companies. The effect of which is clearly visible on the lower to mid income population, who have reduced consumption. Talking about the savings of this population, it has come down to the lowest level in 30 years.
This broad-based moderation in consumption, coupled with a decline in savings in recent quarters, reflects a K-shaped economic recovery in India. Inflation has not come down even after continuous increase in the policy rate by the Reserve Bank of India. Overall, post-Covid, the economic recovery may be strong in pockets, but it remains weak overall, Nuwama Institutional Equities said in a recent report.
Due to this saving is getting affected
Consumer Price Index (CPI) inflation in India reached 6.5 per cent in January, compared to 5.72 per cent in December and 5.88 per cent in November last year. Moreover, India’s inflation is expected to average 7.2 per cent annually in the first half of FY2023, up from 5.8 per cent in the previous two years. To cope with the high input prices and rising production costs, companies across sectors are passing on the prices to the consumers.
Because of which consumption and savings are being affected in the middle and lower middle class across India. A recent report by India Ratings states that industrial growth in India is expected to remain sluggish due to a K-shaped recovery, which is neither boosting consumption demand nor helping wage hikes.
Domestic savings at 30 year low
Due to the increase in the prices of essential goods of various sectors like Telecom, Auto, Fuel and FMCG, the consumer has been burdened, due to which there has been a decrease in savings. According to Motilal Oswal Financial Services Limited, the savings of the people of the country have gone to the lower level of 30 years. The report states that HH net financial savings have come down to a 30-year low in the first half of FY2023, which is about 4 per cent of GDP.
This saving was 7.3 percent of GDP in FY 2022 and about 12 percent of total GDP in FY 2021. In the first half of the current financial year, total household savings declined to just 15.7 per cent of GDP, the lowest in three decades. However, where financial savings have been affected, physical savings like gold and property have remained intact.
slowdown in consumption
India’s economic growth witnessed a decline of 4.4 per cent in the third quarter of the current financial year, down from 6.3 per cent in the second quarter of FY23. Behind which the increase in the RBI repo rate and the weakness of the manufacturing sector is believed to be the reason. In an ET report, Societe Generale’s India Economist Kunal Kundu says that the weakness in domestic consumption that we have been highlighting for a long time is clearly visible in the data. Explaining the reason for this, it is said that almost three years after the onset of the epidemic, there has been no real change in consumption and is barely above the pre-Covid level.
Increase in rural spending Decrease in consumption
According to analysis by Motilal Oswal Financial Services, rural spending grew by 5.3 per cent in the 9th month of the current fiscal, while consumption grew by only 4.6 per cent in the third quarter, the lowest in three quarters. The slowdown, the agency argues, is due to four-quarter low growth in real farm GVA, a sustained decline in non-agriculture wages and a nine-quarter low growth in two-wheeler sales. In addition, farmers saw a decline in the terms of trade and real agricultural exports also declined.
Source: www.tv9hindi.com
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