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Household Borrowings Reach Record Levels
Household Borrowings Spike, Savings Hit Historic Lows
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Household financial borrowings in FY23 have risen sharply, reaching 5.8% of GDP, marking the second-highest level in the post-independence period according to a report by Motilal Oswal Financial Services. This surge is reflective of increased financial stress among households, with the previous peak observed in FY07 at 6.7% of GDP.
Household savings at 50-year low: Rising Debts and Plunging Savings
The Reserve Bank of India (RBI) reveals that household net financial savings (HHNFS) plummeted to 5.1% of GDP in FY23, the lowest level seen in 47 years since FY77. Additionally, a downward revision was observed for FY22 as well, diminishing to 7.2% of GDP from previously higher estimates.
This decline in HHNFS in FY23 primarily stems from a significant jump in household borrowings as the gross financial savings (GFS) remained largely stable at around 11% of GDP between FY22 and FY23. The GFS, composed majorly of deposits, also included currency, insurance, pension and provident funds, capital market investments, and small savings. Notably, the share of capital market investments has seen a fourfold increase to an average of 0.8% of GDP in the last seven years from FY17-FY23, reflecting a shift in investment preferences among households since demonetization.
In the upcoming financial year, with nominal GDP growth predicted to be around 8%, it is anticipated that household income growth will mirror this trend. This could potentially lead to weaker consumption growth or substantial weakening in household investments, given that a further fall in HHNFS appears unlikely.
HHNFS is integral as it serves as the main vehicle for financing the fiscal deficit. If the HHNFS continues to remain low, it poses significant challenges in funding the narrowing fiscal deficit. The report concludes that a rise in savings is paramount for increasing investments, especially in the face of unanimous expectations of a narrowing current account deficit (CAD).
Important Points:
1. Drastic Fall in NFS: The Net Financial Savings (NFS) of households in India has experienced a significant decrease, reaching a nearly five-decade low, moving from 11.5% of GDP in FY21 to 5.1% in FY23, according to the Reserve Bank of India (RBI).
2. Increase in Financial Liabilities: The sharp fall in household NFS is mainly attributed to a surge in financial liabilities, with households' financial liabilities experiencing a 53% increase from 3.8% of GDP in FY22 to 5.8% in FY23.
3. Stable Financial Assets: The share of household financial assets in GDP has remained relatively stable, varying between 10.9% to 12.0% over the past years.
4. Drivers of Increased Liabilities: Several factors have contributed to the increase in household financial liabilities, including stress on household incomes due to the Covid-19 pandemic, high inflation rates, and a negative real rate of interest stemming from RBI’s monetary policy.
5. Access to Loans: A negative interest rate and the banking sector's willingness to lend have led to easier access to loans for households. This increase in retail loans is due to lower delinquency levels, making it more attractive to banks, with retail loans growing at a compound annual growth rate of 24.8% from March 2021 to March 2023.
6. Impact on Asset Allocation: While there has been an impressive increase in household investments in the stock market, it has not resulted in a corresponding increase in the share of gross financial assets in GDP.
7. Financial Savings and Economic Growth: The stability in the share of gross household financial assets in GDP is a matter of concern, particularly given the increasing financial liabilities.
8. Government Intervention: The government should consider implementing measures to incentivize financial savings, as they play a crucial role in financing growth, either through government borrowings for capital expenditure or by debt raised for investment projects by the private sector.
Important News of the Day
1. EAM Jaishankar may respond to Canada's Trudeau allegations at UNGA
India's External Affairs Minister S Jaishankar is expected to respond to Canadian Prime Minister Justin Trudeau's "credible allegations" over Indian involvement in the killing of Khalistani terrorist Hardeep Nijjar in June at the UN General Assembly in New York Canada had informed India well in advance about the updated travel advisory which was based on certain videos targeting Canadians on the net.The diplomatic dispute between India and Canada escalated after Trudeau's allegations, which India rejected as absurd.
All eyes are towards EAM @DrSJaishankar's address to #UNGA in New York where he is expected to respond to Canadian PM #JustinTrudeau’s “allegations” over Indian involvement in the killing of Hardeep Nijjar in June.
(Shishir Gupta reports)
— Hindustan Times (@htTweets)
3:42 AM • Sep 26, 2023
2. Bank staff’s first duty to meet needs of customers, not targets: RBI deputy gov
Swaminathan J, deputy governor of the Reserve Bank of India (RBI), has stated that banks must prioritize customer needs and product suitability to reduce mis-selling, and ensure that their employees understand that their primary responsibility is to serve customers' financial needs, while maintaining a focus on targets.
3. ‘India-US are natural partners,’ says JPMorgan Chase CEO Jamie Dimon: Report
According to a report by Livemint, JPMorgan Chase CEO Jamie Dimon said that India and the US are natural partners amid global challenges and should enhance their economic connections. He pointed out that India has a young population and a growing middle class, which makes it an attractive market for US companies. Dimon also said that India and the US should work together to address global challenges such as climate change and cybersecurity. He added that JPMorgan Chase is committed to investing in India and helping the country achieve its economic potential
4. India reaffirms confidence in Aadhaar technology, slams Moody's concerns
India has reaffirmed its confidence in the Aadhaar technology, a biometric identity system with over one billion enrollees, after Moody's raised concerns about its reliability. Moody's had questioned the system's biometric technologies and the establishment of authorization and biometric reliability. India's Supreme Court upheld the validity of Aadhaar in 2018, but flagged privacy concerns and reined in a government push to make it mandatory. Critics have also raised concerns about the system's inability to protect privacy in relation to measures in Europe and the US.
India has reassured confidence in #Aadhaar technology after the US-based rating agency highlighted concerns about it like establishing authorisation and biometric reliability.
— Mint (@livemint)
2:08 AM • Sep 26, 2023
5. Pakistan get visa hours before travelling to India
The Pakistan cricket team's visas for the upcoming ODI World Cup in India were finally approved after delays. The Pakistan Cricket Board (PCB) had expressed concerns over delayed visa processing, saying it hampered the team's preparations for the cross-border event. The visa delay has prompted the two-day Dubai camp to be cancelled, and new flight arrangements have been made for the team. The PCB had written to the governing body complaining about a visa delay which, it said, had caused the team to miss out on a crucial bonding session in Dubai.
6. India's next census must be a digital one
India's next census should be conducted digitally to speed up the enumeration process and provide faster collation and analysis. The Constitution (128th Amendment) Bill, which seeks to reserve one-third of the seats in both Parliament and state legislatures for women, has once again turned the focus on India's much-delayed decennial census. The Reserve Bank of India (RBI) has launched several digital initiatives, including a mobile app to help visually challenged individuals identify currency notes and a next-generation data warehouse for banks
7. Rozgar Mela today; 51,000 people to be recruited for govt jobs
Prime Minister Narendra Modi will distribute about 51,000 appointment letters to newly recruited individuals via video conferencing on September 26, 2023. The recruitment is taking place across central government departments as well as state governments and Union Territories. The government has launched a particular Karmaogi Prarambh module for online orientation courses for all new appointments in January 2023. Since its launch, PM Modi has distributed 75,000 appointment letters on October 22, 71,000 appointment letters on November 22, 71,000 appointment letters on January 20, 71,000 appointment letters on April 11, and 71,000 appointment letters on May 16.
"I congratulate all the newly inducted recruits who have received appointment letters today under Rozgar Mela," says PM Modi addressing new appointees during 'Rozgar Mela' via video conferencing
— ANI (@ANI)
5:21 AM • Sep 26, 2023
8. Food ministry extends time period for stock limits on tur, urad to prevent hoarding
The Indian food and consumer affairs ministry has extended the time period for existing stock limits on tur and urad by two months until December 31, 2023, to prevent hoarding. According to the ministry's notification, the stock limits for wholesalers and big chain retailers at the depot have been reduced from 200 tonnes to 50 tonnes each. The move is aimed at ensuring adequate supply of pulses in the market and keeping prices under control.
9. Aviation leasing watchdog cuts India's rating amid Go First legal tussle
The Aviation Working Group (AWG), a UK-based entity that monitors aviation leasing and financing laws, has downgraded India's compliance rating with international leasing laws amid debt-ridden airline Go First's legal tussle with its lessors. The aviation watchdog has put India on a watchlist with a negative outlook. The AWG has reduced India's score to 2 from 3.5 out of 5. This is the second time that India's compliance rating with international leasing laws has been cut by the AWG. The move comes as Go First is locked in a legal tussle with aircraft lessors
10. Changes to fix crop estimate error soon
The Indian government plans to deploy field verification and remote sensing in the agricultural system across the country to improve crop production estimates after traders spotted a 10 million-tonne hole in wheat projections. The government was criticized for its unrealistic wheat crop production estimates for the 2023-24 (October-March) crop year. Remote sensing techniques are widely used in agriculture and agronomy, and they are necessary as the monitoring of agricultural activities faces special problems not common to other economic sectors.
The govt will deploy field verification & remote sensing in the agricultural system across the country to get better crop production estimates after traders spotted a 10 million-tonne hole in wheat projections.
(@puja_das12 reports)
— Mint (@livemint)
12:32 AM • Sep 26, 2023
World News 🌎
‘India-US are natural partners,’ says JPMorgan Chase CEO Jamie Dimon
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Turkish's Erdogan to meet Azeri President as ethnic Armenians flee Karabakh
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Flooding in the Mexican state of Jalisco leaves 7 people dead and 9 others missing
US aims to create nuclear fusion facility within 10 years, Energy chief Granholm says
UK police open sexual offenses investigation after allegations about Russell Brand
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