India's average household savings rate (HHSR) has been on a continuous decline from 22.9% of the GDP during 2000-2011 to 18.4% of the GDP during 2012-23. 

During the same period, the private corporate savings grew from 7.6% of the GDP to 11.2% of GDP. These are the findings of a recent study done by experts at the Madras School of Economics.

Furthermore, the overall average total savings rate during the period declined from 32.4% in 2011 to 31.1% in 2023.

According to the report, “Household savings in the Indian Economy”, the decline in household savings is due to multiple factors including low income growth rate and the rise in private corporate savings. The report is authored by C. Rangarajan, Chairman of the Madras School of Economics and former Reserve Bank of India Governor and Priya Benny, research assistant to Rangarajan.

“When income growth rate went up, savings rate went up, and when income growth slowed down, savings rate declined. This variable thus explains the shift in marginal propensity to save,” reads the report.

However, this trend is a concern, according to the authors of the report, as a reduction in savings can constrain the availability of resources for investment.

“The current decline in the savings rate in the Indian economy is a matter of concern. This situation creates a conflict between the need to boost consumption to drive economic growth and the necessity to maintain adequate savings to support investment,” report said.

Household savings trend (2021-23) 

The decline has been steeper in the recent years. Household savings have been falling between 2021-2023. They were 22.7% in 2021 and dropped to 18.4% in 2023. 

The main reason for this fall is the drop in financial savings, which went down from 7.4% in 2012 to 5% in 2023. According to the latest data, financial savings slightly improved to 5.3% in 2024.

Savings trend post 1951

Figure 1 shows that household savings have been rising steadily since 1951. Until the late 1980s, private companies saved very little, with their savings rate staying below 2%. In 1991, for the first time, private corporate savings went above public savings. 

This was also the period when major economic reforms and liberalisation took place in India, which affected how people and companies saved money. After that, private corporate savings continued to grow, touching a peak of 12.2% in 2008, and standing at 11.2% in 2023.

Savings paramount for growth

In their report, researchers highlighted that high savings are essential for long-term growth and stability of an economy. “The importance of savings in an economy cannot be overstated, as it plays a crucial role in fostering economic stability and growth. Savings, particularly household savings, serve as a buffer against economic uncertainties and provide the necessary resources for investment in various sectors,” reads the report.

According to the study, savings are important for financial security. They help people and businesses handle tough times without needing to borrow too much. A fall in the savings rate is worrying because it can reduce the money available for future investment.

This study uses yearly data from 1951 to 2023, taken from the RBI’s Database on Indian Economy (DBIE) and the National Statistical Office. In the model, real household savings is the main variable being studied, and it is explained using real Gross National Disposable Income (GNDI) and the 5-year average growth rate of disposable income.