The Hindu Business Line : Households giving less importance to financial savings: Study

THE major trend in household savings over the past decade has been a decrease in the relative importance of financial savings as compared to physical savings.

According to data recently released by the CSO, financial savings accounted for around 60 per cent of total household savings from 1993/94 to 1996/97, except for a sharp dip in the year 1995/96, when they were down to less than 50 per cent.

The average for the triennium 1993-1996 was 56.5 per cent. The reasons for the intermediate dip are not clear.

Household savings as a percentage of GDP dropped more between 1995/96 and 1996/97 than between 1994/95 and1995/96. So neither the dip in financial savings in 1995/96 nor the upturn in 1996/97 can be attributed to changes in the ratio of household savings to GDP.

After 1996/97, however, there seems to have been a slow and steady drop in the percentage of household savings each year that was invested in financial instruments.

The average proportion of financial savings to total household savings for the triennium 2001-2004 was 46.9 per cent.

To put it another way, there was a sharp trend increase in the proportion of household savings that went into physical assets each year. This led to a cumulative increase of about ten percentage points over the ten-year period.

Annual savings in physical assets, at current prices, went up from an average of Rs 84,200 crore each year over the triennium 1993 to 1996 to an average of Rs 3,12,300 crore per year over the triennium 2001 to2004.

The increase is of the order of 270 per cent.

A break up for physical assets, giving separate figures for land, housing, gold and so on is not available.

A little more than half the increase can be attributed to an increase in GDP at current prices, which went up by 147 per cent between the first and latest trienniums.

The rest can be credited to the increase in household savings relative to GDP from 20.7 per cent in the first triennium to 25.6 per cent in the latest triennium.

Cumulative financial savings over the ten year period from 1993/94 to 2003/04 added up to Rs 20,35,000 crore, as compared to a total of Rs 19,83,000 crore invested in physical assets over the period.

Neither the CSO nor any other institution has tried to put together a reliable estimate of the total value of household assets at any given point of time, leave alone put together a series relating to any given period.

So there is no way of arriving at an estimate of the appreciation (or depreciation) in household assets over time that could have come about through a rise (or fall) in the value of investments in financial and/or physical assets, measured from the values prevailing at the time the investments were made.

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