There was a tendency for households to increase precautionary or forced savings as people were forced to stay indoors for most of the year due to nationwide lockdowns imposed to curb the spread of Covid-19.
Uncertainty about future earnings, the risk of unemployment caused by the sudden onset of the pandemic has prevented people from spending much of their normal spending basket.
In the previous financial year 2019-20, household savings only increased by Rs 1.35 lakh crore. However, financial liabilities had jumped by Rs 15,374 crore.
For the year 2020-2021, total financial liabilities only increased by Rs 18,669 crore to Rs 8.05 lakh crore.
Over the past 2 years, the cumulative gross financial savings have increased by Rs 8.5 lakh crore, while the financial liabilities have only increased by Rs 34,000 crore.
Where is the money spent
The data analyzed by the SBI report clearly shows that gold and silver ornaments as a savings instrument have become less popular among people. Cash parked in these assets increased from Rs 46,469 crore in 2015-2016 to Rs 38,444 crore in FY21.
Physical assets have become less popular ways to save and invest money. This indicates a change in behavior among those opting for savings.
Financial assets have been the preferred and trusted choice for people to invest their money.
The 2021 economic survey, released by the government on January 31, also showed that people are putting more money into capital markets.
As equity markets continue their upward trend, individual investor participation in the equity cash segment has increased. The share of individual investors in total NSE revenue increased from 38.8% in 2019-2020 to 44.7% in April-October 2021.
The substantial increase in the share of individual investors in 2020-21 and 2021-22 can in part be attributed to the increase in new investor registrations seen since February 2020, according to the survey.
In April-November 2021, nearly 221 lakh individual demat accounts were added.
Markets also saw a boom in fundraising through initial public offerings (IPOs) as many new-era companies listed. The majority of these IPOs have garnered an outstanding response from investors.
In April-November 2021, Rs 89,066 crore was raised through 75 IPO issuances, far more than any year in the past decade.
Both Sensex and Nifty have posted dramatic gains since the pandemic-induced plunge in March 2020. The markets have outperformed their global peers.
Sensex has jumped over 120% since its low point on March 23, 2020. Since then, the 30-stock index has hit multiple highs and also breached the 62,000 mark (intraday). Right now, sensex is hovering above 59,000 points.
Similarly, the broader NSE Nifty also jumped more than 130% from pandemic lows.
Investors have made dramatic gains since. The market capitalization of BSE-listed companies had plunged to Rs 101 lakh crore on March 23, 2020 when the markets crashed. In comparison, BSE mcap today stands at over Rs 268 lakh crore. That’s a nearly 164% jump in investor wealth.
Now, if we look at the returns generated by gold, silver, it will be understood why people have turned to the capital markets.
At Rs 47,895 per 10 grams as of December 30, the price of gold fell by 4.2% over the calendar year. A year ago, on December 30, 2020, 10 g of gold cost Rs 50,005.
The price of the yellow metal has increased by almost 30% in 2020, but prices have fallen in 2021, mainly due to the strengthening of the US dollar. Silver was also impacted by increased volatility in industrial metals.
Household debt ratio to GDP lower than others
To calculate household debt as a percentage of GDP, the SBI report considered personal loans, crop loans and business loans from financial institutions, namely commercial banks, finance companies, NBFCs , HFCs, etc.
Estimated debt rose sharply from 32.5% in 2019-20 to 37.3% in 2020-21 (BIS estimates are 37.7% as of December 20), but fell to 34% in first quarter of FY22 (BIS: 35.8% in June ’21) with the increase in GDP.
With the ease of Covid-induced shutdowns and the gradual resumption of business activities since India launched its mega vaccination campaign, the economy has seen steady growth.
The economy recorded its record GDP of 20.1% in the first quarter of FY21, mainly due to a weak base effect.
The steady recovery in GDP has lowered the level of household debt.
The SBI report noted that in absolute figures, household debt was estimated at Rs 75 lakh crore in FY22 compared to Rs 73.6 lakh crore in FY21.
In fact, India’s household debt-to-GDP ratio is still lower than other countries, although we need to supplement wage income, the report says.