Household savings have dropped to 18.2% of GDP in FY19 from 19.2% in FY18, clearly reflecting the substantial decline in both urban and rural wage growth and low job creation. In fact, household savings have dropped from 23.6% of GDP in FY12 to 18% in FY16 and the decline in wages has hit private consumption, which has stagnated at 59% of GDP since FY16. The drop in savings in FY19 comes at a time when retail-based inflation was at a multi-year low of 3.4% and real interest remained high.
While net financial savings of households remain low at 6.5% of GDP in FY19, physical savings have have moved up to 11.5% of GDP in FY19. In fact, net financial savings of household grew from 7.4% in FY12 to 8.1% in FY16 and dropped to 7.4% of GDP in FY17 as financial liabilities of households grew to support short-term consumption. In fact, financial liabilities of household have grown from 3.3% of GDP in FY12 to 4.3% in FY18 and 4% in FY19.
Overall domestic savings relative to the GDP dropped to 30.1% in FY19, the lowest level for the new series since FY12, when it had hit a high of 34.6%. While the decline in savings rate is largely led by household, corporate savings, too have fallen to 10.4% of GDP in FY19 from 11.9% in FY16. However, government savings have remained constant at around 1.5% of GDP since FY12.