A Reserve Bank of India (RBI)'s preliminary estimates show a substantial waning of the household financial savings rate to 10.4% of GDP in the second quarter of 2020-21 from a high 21% in the preceding quarter, as households switched from an “essentials only” spending to discretionary with the gradual reopening and unlocking of the economy.
However, the report also asserted that optimism is taking hold among households, businesses, investors and markets, and India is likely to decouple from other emerging economies that face rising financing costs and a debt pile-up. “Households’ financial savings rate might have fallen further in Q3:2020-21 with the intensification of consumption and economic activity,” the report said.
The state of the economy report said that there is an urgency to resume high growth, and incoming data point to even contact-intensive services, such as personal care, recreation and hospitality gathering traction and pace. This, even as agriculture crosses production highs in various crops and in horticulture, and manufacturing stops contracting.
It said the Covid-19-induced spike in household financial savings rate in the first quarter of 2020-21 waned substantially in the second quarter in a counter-seasonal manner. While households’ deposits and borrowings picked up, their holdings of currency and savings in mutual funds moderated.
Increased household consumption, particularly its discretionary component, could be attributed to resumption in economic activity following the easing of lockdown, it said. The report also asserted that optimism is taking hold among households, businesses, investors and markets.
