India was once known as a country of savers. People in this region save or set aside a large portion of their income for future security; for that, if necessary, they do not hesitate to cut consumption.
But according to BBC News, there has been a change in this custom among Indians. Something happened. According to the latest statistics of the country’s central bank, the Reserve Bank of India, the household savings of people in the country are now the lowest in 47 years.
In the fiscal year 2022–23, Indian savings fell to 5.3 percent of the gross domestic product (GDP). But even in 2022, the saving rate of Indians was 7.3 percent of GDP. Many economists say this drop in savings is dramatic.
At the same time, the household debt of people in India has increased significantly. Indian debt growth rose to 5.8 percent of GDP in the 2022–23 fiscal year—the second highest since 1970.
Indians are now increasingly dependent on loans to meet consumption expenditures. Their savings are unavoidably diminished in this reality. They must pay back their debts with more money the more they borrow. As a result, there is nothing special to save.
Nikhil Gupta, an economist at Motilal Oswal Financial Services, told the BBC that a large portion of India’s growing household debt is unmortgaged. More than half of these loans are commercial. In 2022, India’s unsecured debt was on par with Australia and Japan, although there were more than China and the US.
Nikhil Gupta also said that loans taken by Indians for consumption purposes—such as credit cards, consumer durables, marriages, and health emergencies—account for less than 20 percent of the country’s total household debt, although this sector has the highest growth rate.
Analysts say the fact that Indians are borrowing or spending more while saving less suggests that some confidence has built up among consumers. A class of Indians has the hope that their income will increase in the future. It may be that they are worried about the present. Also, they are not worried about what may or may not happen in the future.
In response to the question of whether there has been a change in the mindset of Indians about spending money, Nikhil Gupta said that it is still not clear what exactly is the reason for the increase in Indian debt. He also said that the problem is that the government statistics are not enough to explain why people in India are in debt. That is, what kind of work they are doing, how many people have taken loans, how much they have borrowed, for what purpose they are using this money, and how they are repaying this loan—these details are important, he opined.
However, Nikhil Gupta thinks that some hints can be found in these. Tanisha Ladha, another economist at Motilal Oswal, said it is not that the debt burden of Indian households is increasing. Rather, the reality is that many families in India have started entering the world of debt.This is good; the effect on society is felt if many people borrow less than if one person borrows more.
Meanwhile, last September, India’s Ministry of Finance said that there is nothing to panic about about people’s savings and borrowing. According to the ministry, people are mainly taking advantage of low interest rates—they are taking these loans to buy houses, cars, and education at low interest rates after the pandemic.
The Finance Ministry also said that the fact that many people are buying houses and cars is not a sign of economic stress but a sign of consumer confidence.
India is now the fastest-growing major economy in the world. Also, as the West has announced plans to reduce its dependence on China, it is believed that India has the potential to benefit. As a result, it is natural to create optimism in the minds of Indians. Analysts feel that it is somewhat clear that some kind of change is coming among Indians.
