2024-05-02 21:49:02
Do you want to live for the day?
According to the latest data from the Reserve Bank of India, the net savings of Indian households is at a 47-year low. This includes money and investments held by families, reports the BBC.
Savings are estimated to have fallen to 5.3 percent in the 2023 financial year. of gross domestic product (GDP), compared to 7.3 percent in 2022.
Household debt also increased sharply. Annual borrowing amounted to 5.8 percent. GDP is the second highest level since the 1970s.
“As households increasingly rely on debt to fuel consumption, their savings inevitably decline. The more they borrow, the more of their income they allocate to debt repayment, and the less they have left for savings,” the publication writes.
Nikhil Gupta, an economist at Motilal Oswal Financial Services, says that a large part of India’s rising household debt comes from non-mortgage loans. More than half of these loans consist of loans for farms and businesses.
It found that consumer and emergency borrowing accounted for just a fourth of household debt, the fastest-growing segment.
What does this trend of low savings and high debt say about India’s economy, the fifth largest in the world? The interviewed economist sees high consumer confidence here – Indians expect their incomes to grow rapidly in the future. It is not yet clear what causes this.
On the other hand, it is considered that maybe people want to live for this day.
There is no danger to the economy
The main problem, according to economist N. Gupta, is that the official data on borrowers lacks detailed information about the place of work, the history of borrowing and repayment.
He and fellow economist Tanisha Ladha found that the rise in household debt over the past decade has been largely driven by “credit boom,” that is, an increase in the number of borrowers. It is explained that it is better when more people borrow than when each borrower takes out larger loans.
India’s household debt service ratio, the proportion of income used to service loans, is estimated to be around 12 percent. This percentage is similar to that of the Šiauliai countries, but higher than China, France, the United Kingdom and the United States.
The BBC recalls that in September, India’s finance ministry dismissed fears of shrinking savings and rising borrowing, saying people had taken advantage of low interest rates to buy cars, school loans and homes after the pandemic. She also said more people are borrowing to buy assets such as homes and vehicles, which “indicates confidence in future employment and income prospects rather than hardship.”
Falling savings combined with rising debt have raised concerns about “debt defaults and financial instability,” economists warned in an interview with The Hindu newspaper.
There are also concerns about increasing reliance on borrowing and sustainability, but this is not seen as a threat to India’s financial or macroeconomic stability.
“Consumer consumption in India is caught at a crossroads between a strong desire for a better life, woefully poor quality and quantity of public goods and amenities, and modest incomes that are also unstable,” writes business consultant Rama Bijapurkar in the book The Land of the Lilliputians.
Prepared according to information from the BBC.
2024-05-02 21:49:02