The 3 Key Trends Impacting Savings in India

Sep 03, 2018 | 9 months ago | Read Time: 4 minutes | By iKnowledge Team

Trends impact saving in India

India’s economy has performed differently under different central governments, sometimes resembling the oligarchic powers in Latin American countries, while tending towards successful east Asian economies at other times. With fluctuations in domestic savings rates since the nineties, which coincides with the implementation of the LPG economic model, inequality between the economic classes largely reflect on the key trends of saving and investment habits among the country’s population.

The mid 2000’s witnessed a magnificent boom in investment, supported by a sharp rise in the domestic savings rate, leading up to the highest investment rates the country has ever recorded just before the Wall Street crash in 2008. With the global economic crisis, all trends were dismantled, all progress reset to ground zero, as the country experienced a massive investment slowdown. It took two years for the investment activity to revive itself especially as domestic savings took time to catch up in comparison to corporate savings.

Here are the key trends impacting savings in India.

  1. Rising cost of living has severely hampered domestic savings rate in the new decade. Gross domestic savings have fallen due to deterioration in both household savings and government savings. This, further, has an impact on the gross domestic product, the key indicator of a nation’s economic growth. Although reasons for declining domestic savings may be plenty, a primary factor is the cost of living and consumer expectations that rises disproportionately with gross income. It takes a toll on your household savings plan and money savings plan that ideally tries to keep your consumption levels in check, especially when there is no visible growth in your annual gross income.
saving rates

Credit: LiveMint

  1. Financial savings are gaining popularity rather than physical assets. In 2012, physical savings of Rs 13.89 trillion stood tall over financial savings of Rs 9.3 trillion, but the numbers reversed in 2017, and stood at Rs14.83 trillion and Rs15.14 trillion respectively. This stands as a clear indicator that Indian households are putting aside more money (financial assets) rather than investing them in physical assets. This happened last in the fiscal year ended March 2008, when equity prices were soaring. The relative rise in financial savings over the past few years is probably due to real interest rates turning positive following the steep decline in inflation.

The amount of money going into the financial markets is increasing as over ninety per cent of Indian household financial savings continue to be put away in banks. This trend is likely to continue, thanks to the infiltration of saving investment plans and  monthly savings plan even into the lower-income households. But at the same time, financial liabilities of households in the form of consumer loans have been rising steadily and could prove to have disastrous consequences.

Corporate savings show considerably positive trends. Even though large Indian companies are bankrupt, in debt and even committing frauds to save their own skins, the bigger picture tells us that corporate financials seem to be improving, especially private non-financial and non-corporate savings in the national income accounts. This may be because there needs to be an aggressive improvement in the number and quality of new investment projects for the economy to be able to absorb the cash flow.

Gross Income Savings

Credit: Typepad

A quick glance through the graph above will tell you that India is still lagging behind in the savings department. With the economy rearing its head out of a long slump, and the central policies helping combat inflation successfully, the shift towards household financial savings and the increase in corporate savings is, however, expected going to yield positive fruits for capital formation, probably within the next couple of years.

Looking at the economic trends already set in motion by national and global factors, and those to make a grand entry in the following years, it is clear that accelerated growth in a nation’s economy and ability to maintain and sustain a macroeconomic equilibrium, are possible only when the domestic savings rates increase. As more and more urban Indians are adopting saving and investing in cryptocurrencies like Ethereum and Bitcoin, the future of savings trends holds many secrets and surprises.

The best you can do right now is take these trends into account and invest in an insurance plan like Aegon’s iMaximize to secure your finances. To be on top of these trends, formulate the best saving plan that provides you with the benefits you need and chalk out a prudent financial plan for you and your family’s future.

Advt. no.: II/Jul 2018/4241

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