Declining Indian Household Savings is Good for Economy & Stock Market

The GST number of India speaks loudly  – circulation of money within the economy, consumption boom, and change of spending habits, Tier 2 and Tier 3 cities growth and maturity of the consumers, growth of e-commerce industry, and every ancillary sector mapped with the key sectors of the Indian economy. One of the biggest questions we face today is whether the will Recession in the US will play foul for the consumption market in India. Will the Indian economy face a slowdown as we witnessed during the European crisis? Who is backing the Indian economy and sector growth?

Consumption Growth from Household (Domestic) The Real Back Bone.

•            Only during the festive season of 2023 India witnessed a huge inflow of consumption from the e-commerce segment. It was found that e-commerce Major Amazon recorded over 110 crore customer visits during its Great Indian Festival, with 80% from Tier 2 and Tier 3 towns.

•            The platform saw a 35% increase in small and medium businesses’ sales on a YoY basis.

•            On the other hand if we look at the other segment of consumption we find that dining-out experiences witnessed a 40% jump followed by substantial increases in sales for jewelry, fashion, lifestyle brands, and women’s clothing. 

•            Today’s consumers are more focused on a healthy lifestyle and hence significant spending happened on that side too where a 137% rise in dietician consultancy services and a 42% jump in sales of fitness equipment was found.

•            Well the economic growth of every sector is getting inflows and witnessing sharp growth which historically was never expected.  Diverse consumption patterns are good for the economy giving a balanced opportunity for growth across all sectors in India.

•            Spending capacities will grow as the per capita income of India rises to the level of $4000 from the current level of $2500 by 2030.  Further, it is expected that as the segment of middle class and upper middle class swells up we will find huge consumption growth. This will be at least 85% of the e-retail spending by 2028.

Household Savings Channelized into Economic Profit for India

The savings pattern for Indians has changed dramatically. Well if we are looking ahead for a progressive economy where income inequality needs to be bridged up and living standards will go up consumption will play a big role. Every person will have different savings patterns which is needless to say but what we observe is that the pattern is moving way ahead with the historical pattern and hence we need to understand that the savings patterns are being rewritten. -Overall household savings (current prices), which include financial, physical, and jewelry, have grown at a CAGR of 9.2 percent between 2013-14 and 2021-22 (eight years). Nominal GDP has grown at a CAGR of 9.65 percent during the same period.

•            Recently the data of RBI came up with data related to where the net household savings came down to a 47-year low of 5.21% compared to 7.2% in 2021-22.

•            For the 1st time India is witnessing fruitful use of household savings getting deployed into economic profit.

•            In 1977-78 the household savings was 5.23%, between 1990 to 2010 the average stood at 10.4%, between 2011-2013 the average was 7.7%.

•            Many people worried about the falling household savings but that savings was deployed to other sectors and primarily to the consumption sector.

•            The Gross Fixed capital Formation (GFCF) by household went 100% up from Rs.13.8lakh cr in 2011-12 to Rs.27.5lakh cr in 2021-22. Further, most of the savings went into the real estate sector and automobile and other consumption items.

•            Banks credit to household sector went up from Rs0.6lakh cr in 2007  to 5 lakh cr in 2023

•            Unsecured personal loans jumped more than four-fold to Rs 13.32 lakh crore as of March 2023 from Rs 4.26 lakh crore in March 2017.

•            Priority sector housing loans grew by Rs. 2.3 lakh cr to Rs 19.5 lakh cr

•            Most of the investments went into long-term assets like real estate and automobiles which comprised 62% of the total personal loan.

•            Tier 2 and Tier 3 cities witnessed a whopping 17% growth in Educational Loans to the tune of

 Rs 14000cr within a single year.

•            More aspiration towards improved lifestyle and hunt for better living standards leads to more fruitful use of household savings for India.

We need to understand and observe that there is change coming to the chronology of savings generation and investments:

Old form of savings                                           New Form of Savings

•            Household                                              1) Public

•            Corporate                                               2) Corporate

•            Public sector                                          3) Household

 

Investments Pattern                                            New Form of Investment

•            Corporate                                                1) Household

•            Household                                               2)Public Sector

•            Public sector                                           3)Corporate

The pattern of investments and consumption change is very ideal for the Indian GDP to climb and cross the levels of the 5 trillion mark.  We need to change our thought process so that only the public and corporations will make investments and drive the economic growth of India. Indian households are the biggest strength as the population mark is more than 140cr.

Savings and investment patterns have changed dramatically and the same will continue and grow in the coming years. Real estate consumption went up by 33% in CY-2023, the residential sales went up by 1.96 lakh housing units in Q3 FY24 which is 91% of the total sales of 2022. The 7 metros witnessed 31% growth in sales till Q3 FY24. Further, once the ROI comes down from the central banks we will witness more real estate sales and more automobile and loan-related products.  This will lead to a further fall in household savings.

Financial savings breakup reflects:

• •            FY-20  -  8.1%
• •                     FY-21- 11.5%
• •                     FY-22 – 7.2%
• ·               FY-23-5.1%

 

Net Financial Assets Added to the economy we find

• •            FY-21- Rs22.8 lakhs cr
• •            FY-22- 17.8 lakhs cr
• •            Fy-23- 13.8lakh cr.

If we look at the real estate consumption pattern we find that in the 9 months of FY-24.

•            The Mid Segment –Rs 50 lakhs to 75lakhs witnesses growth of 35%

•            Ticket size above Rs.1.5cr witnesses growth of 22% v/s 18% in FY-23.

•            This indicates where the household savings are moving out and where the economic benefit of the same is being deployed for Indian GDP growth.

 Conclusion:

Well, household savings coming down is a good sign as long as it is not leveraged under the unsecured loans category. If the household savings keep increasing then it will not have much impact or contribution towards Indian GDP growth that is completely detrimental to the economy. In 6 years the retail credit segment went up from 35% of Rs.107lakh cr to 43% of Rs.164 lakh cr in 2023. If the household savings is coming down and being deployed for creating long-term assets then the real benefit goes to the broader economy. NBFC retail loans outstanding were Rs. 8.12 lakh crore in FY22, and it went up to Rs. 10.5 lakh crore in FY23, a growth of only 29.6%. 

Household savings are moving away from financial assets to long-term assets creating long-term economic profits and also long-term GDP growth. India's Private Consumption accounted for 59.7 % of its Nominal GDP in Jun 2023.  Exports of goods and services (% of GDP) in India were reported at 22.79 % in 2022. Hence this means that domestic consumption is the real growth engine for the Indian economy. The maturity of Tier 2 and Tier 3 are the key contributors to Indian consumption and GDP growth. We will witness more unwinding of household savings into long-term physical assets.