New Delhi: Net household financial savings in India as a percentage of gross domestic product (GDP) stood at 5.3% in FY2023 – the lowest level in about five decades.

Between FY12 and FY22 (excluding COVID-19 year FY21), net financial savings were between 7 and 8% Financial Express reported.

This is not a new revelation like these numbers were released from the Reserve Bank of India in September last year. However, the Finance Ministry had said at the time that “changing consumer preference for different financial products” was the root cause of the decline in net household savings. And that's why these numbers are not a sign of rural distress.

Meanwhile, access to credit has skyrocketed.

'Bank advances' or short-term loans, which come under financial liabilities and are usually availed through credit cards, rose 54% in FY23 compared to the previous year. This was the fastest growth since at least fiscal 2012, the business newspaper reported.

In a scenario of weak wage growth and leveraged consumption, consumption growth is likely to be hit, economists said FE.

In FY23, private consumption expenditure growth was 6.8% and in FY24 it was 3% (as per NSO's second advance estimate).

The issue of rural distress has been taken up by major FMCG companies. Rural wage rates have been consistently lower over the past decade. High inflation and weak monsoon Seasons have added to the stress. Additionally, the demand for work under the rural employment program MGNREGA has increased.

Meanwhile, rising food prices are hitting financially disadvantaged populations. A lack of quality jobs and stagnant income growth compound these problems. The Chief Economic Advisor (CEA) clarified that the government cannot solve all social and economic problems such as unemployment.

Interestingly, in 2022-23, most of the government investment projects in the last decades were canceled. This year, over 1,100 projects were discontinued. This is important because more government and private sector investment leads to demand for more workers and therefore more jobs. In fact, the CEA said increasing investment will create more job opportunities over the decade.

But also private investments have constantly fallen in the last decades.

Separately, The wires MK Venu wrote in March: “There is a clear mismatch between GDP growth and private consumption. For 2023-2024, GDP growth is officially forecast to be 7.6%, but consumption growth is only around 3%.”

“Well-known economist and former chief statistician of India Pronab Sen told me that consumption growth numbers usually correlate very closely with GDP growth. He says if GDP growth is X percent, consumption growth can be at most 0.5 to 1 percentage point below X,” he said.

“That is, if GDP growth is 8.4% in the third quarter of 2022-24, then consumption growth should be at least 7.4%. However, official data shows that the trend growth in consumption is only about 3%. This great contradiction remains unresolved. Experts say the private sector will not invest in new capacity when consumption growth is so subdued.”

In an interview with the Indian times on February 4, 2024, Finance Minister Nirmala Sitharaman appeared confident that the Indian economy will maintain its growth trajectory and the government is ready to control inflation effectively.