India has historically been a high-saving economy with its conservative and security-conscious households. The country’s gross domestic savings rate fell from 34.6 per cent of GDP in 2011-12 to 29.7 per cent in 2022-23 — the lowest in four decades — owing to increased consumption, rising inflation, and financialisation of savings. Household net savings, which historically constituted 60 per cent of aggregate gross domestic savings, fell secularly. These savings were mainly in physical assets such as gold and real estate, driven by cultural preferences, lack of financial literacy, and limited access to financial products.
The decline in household savings has been extensively debated. “Fisher dynamics” reveal an increase in interest rates and a reduction in the nominal income growth rate of households. The transforming economic landscape necessitated a recourse to riskier investment avenues like equities and mutual funds. This changing asset mix, favouring financial assets, potentially hampers domestic capital formation and overall economic growth, and, therefore, needs a tweaked policy response.
* Household financial savings as a percentage of GDP fell from 11.5 per cent in 2020-21 to 5.1 per cent in 2022-23 (RBI).
* Concurrently, household liabilities rose, primarily due to increased borrowing for consumption, education, and housing.
* Equity is an increasingly important asset class, as reflected in a marked shift towards mutual funds, insurance, equities, and pensions, supported by digitisation and financial inclusion. The contribution to systematic investment plans (SIP) zoomed 8.5-fold, from ₹3,122 crore in April 2016 to ₹26,632 crore in April 2025. The capital market does not progress linearly.
Nobel laureate Paul Samuelson rightly stressed patience — “investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”.
* The Covid-19 pandemic led to a temporary spike in savings due to forced reductions in consumption during lockdowns, but this reversed as economic activity resumed.
Net household financial savings sharply rebounded to 7.3 per cent of GDP in the first half of FY25, as against 3.7 per cent last year, as household liabilities like personal loans fell to 4.7 per cent of GDP from 6.9 per cent. The RBI tightened the lending norms for personal loans, gold loans, and loans to non-banking financial companies (NBFCs) to maintain financial stability and protect both the banking sector and consumers from the risks stemming from high levels of unsecured debt.
Household liabilities had reached a 17-year high of 6.4 per cent of GDP in FY24, just below the 6.6 per cent record in FY07, due to shifting consumption patterns, changing investment preferences for higher-risk, higher-return equities and mutual funds, the Covid-19 impact on savings behaviour, and altered spending habits.
Household investments in equities and mutual funds nearly doubled from ₹1.02 lakh crore to ₹2.02 lakh crore between FY21 and FY23. While wealth creation is welcome, concerns emerge, as low-income households are more vulnerable to financial shocks and the risk-reward trade-off. Fostering financial resilience requires micro-savings initiatives, customised micro-savings products for rural and urban needs, providing tax benefits or government-backed guarantees, and revamping post-office savings schemes and initiatives like the Kisan Vikas Patra (KVP) or Public Provident Fund (PPF).
While the share of financial savings in total savings declined from 40.3 per cent in 2019-20 to 28.5 per cent in 2023-24, the share of physical savings rose from 59.7 per cent to 71.5 per cent during this period. Deposits, which accounted for 58 per cent of savings in FY12, shrank to 37 per cent in FY23. The share of household savings in provident and pension funds rose significantly from 10 per cent in FY12 to 23 per cent in FY24.
Urban households generally have higher financial literacy and better access to banking, resulting in increased savings through financial instruments. Rural households, however, still primarily depend on cash and physical savings. Factors such as gender, income level, and educational background significantly impact saving behaviour. Household savings declined due to India’s shift towards a consumption-driven economic growth, erosion of disposable incomes caused by persistent inflation, increased borrowing and consumer credit, low or even negative real interest rates (adjusted for inflation) on fixed deposits and savings accounts, and the surge in real estate and stock markets after the pandemic.
A comprehensive approach to household savings is necessary, addressing economic, behavioural, and structural issues — namely enhancing financial literacy, improving access to financial services, offering higher real returns on small savings schemes, inflation-indexed bonds, or incentivised savings accounts, controlling inflation, promoting social security and formal employment, establishing minimum wages, and providing social benefits to stabilise incomes and increase the savings propensity.
With a young population, rising incomes, and increasing digital penetration, India can channelise household savings into productive avenues.
This calls for policy reforms, including simplifying tax structures by rationalising capital gains and savings-related tax policies to encourage participation in financial markets; strengthening regulatory oversight to ensure that mutual funds, insurance, and digital lending platforms operate transparently and are investor-friendly; and expanding the coverage of formal retirement schemes by making the National Pension Scheme (NPS) universal, auto-enrolling informal workers, and incentivising employers to contribute to boost retirement savings.
A further boost can come from fintech startups that offer user-friendly savings tools, AI-based financial advice, and micro-investing platforms for small savers. Blockchain and smart contracts can be used to enhance the transparency and efficiency of saving products such as recurring deposits and peer-to-peer lending.
The country should explore developing a national strategy on household savings with clear targets and a coordinated approach across ministries. To bridge the urban-rural gap, programmes should be tailored to address the unique savings challenges of rural India, including seasonal income, low literacy, and social norms.
Behavioural economics suggests that people are more likely to save if the savings options are made default (for example, opt-out pension schemes).
The use of gamification — such as apps that gamify saving behaviour — can encourage regular, small savings, especially among the youth.
Given the macroeconomic challenges, there is a strong need for a careful mix of financial literacy, access to diverse savings options, promotion of digital savings platforms, social safety nets, and macroeconomic stability to boost household savings. In the short term (2025-27), we should focus on promoting financial literacy programmes to educate households about savings and investment options, tax benefits, and the higher interest rates for savings. Over the medium term (2027-30), digital savings platforms must be developed to improve accessibility and convenience, while diversifying investment options to reduce reliance on traditional savings instruments. Over the long term, policies should foster economic growth, raise household income levels, and develop a comprehensive, supportive framework. Execution is crucial.
