Savings rate in India dropped to a 15-year low on the back of persistent economic slowdown. Dip in domestic savings could force Indian companies to borrow more from foreign markets, which could increase India's external debt.
India's gross savings fell to 30.1 per cent of gross domestic product (GDP) in FY19 from 34.6 per cent of GDP in FY12, according to a report by Investment banking company UBS. The previous low was seen in financial year 2003-04, when gross savings was pegged at 29 per cent.
Household savings dominated overall savings in India with a contribution of 60 per cent in gross savings during the fiscal 2019. It has also been the biggest drag, the report said, even as it has stabilised since FY16.
"Lower savings is not good for India's mid-term growth outlook, as it increases reliance on foreign savings (equivalent to the current account deficit) to fund investment needs and widens external stability risks. Improved households' saving behaviour, together with higher retained profit by corporates, bodes well for the overall saving outlook in India. However, this needs to be complemented by continued structural reform focusing on boosting job creation and, hence, income levels in the economy," the UBS report said.
The report said about 70 per cent of respondents felt their current level of savings has increased compared to the previous year. However, 58 per cent respondents still believe that they need to save more.
The report stated that nearly two-thirds of household physical savings were invested in dwellings, other buildings and structures, which slowed sharply from 12.8 per cent of GDP in FY12 to 7.3 per cent of GDP in FY16 before gradually picking up to 7.8 per cent of GDP in FY19.