Copyright © HT Digital Streams Limit all rights reserved. India’s shiny GDP -data masks an important weakness in growth of growth: Household savings Ajit Ranade 4 min Read 06 Oct 2025, 12:30 hours IST If our savings pool starts to dry up, both fiscal sustainability and growth will come under pressure. A summary of India’s economy is argued for its rapid growth in a slow world, but among the head numbers lies a worrying story. The collapse of domestic savings, disappearing foreign inflow and prolonged wage stagnation can quietly erode the basis of this growth miracle. India still holds the fastest GDP growth among the most important economies, and draws headlines that indicate resilience and dynamics. Yet the financial foundations of Indian households, which are the backbone of consumption and investment, show signs of stress. Diminishing financial savings, increasing dependence on gold loans as well as overall debt and a collapse of net foreign direct investment (FDI) are not a strong basis for growth. One of India’s structural determinants of sustained, high and inclusive growth was the resilience of domestic savings. It provides the decisive financial capital to finance growth and serves as a stable domestic basis to finance fiscal deficits. The net influx of foreign investment also serves as a supplementary saving for investment capital. India was a unique Asian country to attract healthy net foreign capital flow despite a constant shortage of external trade. If our spare pool starts to dry up, both fiscal sustainability and growth will come under pressure. India’s macroeconomic saving rate has dropped from a peak of 36-38% of GDP to about 30% in the past two decades. In this, the net financial saving of households saw the steepest decline, from a pandemic peak of 11% to about 5% in 2023-24, a multi-decadal low. It is not a statistical curiosity. High and sustained growth, the kind that generates work for youth, requires a correspondingly high savings rate. East Asian economies that have grown at double digits constantly had a saving rate of 35-40% of GDP. As a result, a low household saving rate will have a structural restriction on the growth of 8%plus GDP in the medium term. It is even more remarkable that households now park more than 70% of their savings in non-financial assets, mostly real estate and gold. Bank deposits, insurance and investment fund investments are responsible for a much smaller share. The Securities and Exchange Board of India’s Investor Survey 2025 reveals that only 9.5% of Indian households invest in capital markets, indicating risk -turning or lack of confidence, or both. The large part of the non-financial savings offers poor deposit mobilization by banks, making it difficult to meet the credit question and government’s loan needs. The conversion of saving to growth is also much weaker and capital formation suffers if financial saving is a smaller fraction of total saving. As deposit growth delays the credit growth, the liquidity is relieved. The transfer of lower interest rates is also injured. Although the government has begun fiscal consolidation, the tax collection of direct tax and GST is not strong enough to compensate the country’s decline in financial savings in the home. Just an important supplement to domestic saving was net direct direct investment (FDI). During the boom years two decades ago, it was constantly above 2% of GDP. This peaked at 2.6% in 2008-09, even during the global financial crisis. In the past few years, the net FDI has fallen to almost zero in 2024-25. It can get negative soon. While the gross FDI jumped by 14% to a healthy $ 81 billion in 2024-25, the outflow grew stronger, making the net FDI a small $ 0.3 billion. It can be a reflection of economic maturity that outgoing FDI and profit repetition are non-trivial, and that net and gross FDI do not move together. While private equity is going out through IPOs, corporate overseas investments have also contributed to the outward FDI. We need to investigate whether this capital flight reflects global ambition or lack of confidence in the domestic economy. After all, where else would Global Capital want to invest if not in the fastest growing economy? Foreign portfolio flows into our stock and bond markets, is also weakened by high stock valuations and rates. Another indication of emergency in household finances is the boom in gold support loans. Their year-on-year growth in July was 122%. Bank loans against gold as collateral increased by more than 70%. Most of these loans are of ticket sizes of less than £ 2.5 Lakh, for which the Reserve Bank of India (RBI) regulatory limits. For small loans, the loan-to-value ratio can be as high as 85%, even if the judgments remain light. Meanwhile, outstanding loans have dropped by microfinance institutions (MFIs) 16.5%, suggesting that some of the increase in gold loans is a replacement. This means that households with lower and middle income that were once from MFIs or unsecured credit to gold loans, which were also fueled by rising gold prices. Gold loans are seen growing rapidly. This revival is not a sign of financial deepening, but from households that eradicate their savings in the last to finance consumption or finance other debt. And the regulatory compromise of RBI-what MFI extraction forms makes it disappear, but golden loans with small tickets loosen-again mirror an uncomfortable reality: the golden loan boom is a safety valve and a red flag. Household tension is exacerbated by a long stagnation in rural real wages. For agricultural workers and informal rural workers, this makes it harm the purchasing power and saving. Combined with rising food and fuel costs and limited access to formal credit, households fall in savings or promise gold to cover routine expenses. Small businesses have similar problems. The erosion of financial security also harms the formation of human capital, as spending on health and education is tackled. No wonder then that we see direct cash transfers to women as the preferred political response to financial distress. The author is a senior fellow at Pune International Center, captures all the business news, market news, news events and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Savings #indian Economy Read the following story
India’s growth story faces a hidden threat: shrinking household savings
