A Closer Look: How India’s Households Are Managing Money Differently

Image Source : The Hindu

The Reserve Bank of India's latest numbers on household assets and liabilities paint a complex picture of economic activity in the country. As the economy has improved, net financial savings as a proportion of GDP decline, and questions are raised regarding Indian families' financial management.

Key Highlights

Net financial saving reduced from 11.5% of GDP in 2020–21 to just 5.3% in 2023–24
The fiscal liabilities rose from 3.9% of GDP during 2020–21 to 6.4% in 2023–24
Nonresidential retail loans are at 54.9% of household debt, with the majority of them being consumed rather than invested to generate assets

What's Driving the Change

As economic optimism grows, consumers are taking on more to improve lifestyles—cars, electronics, holidays—instead of investing in assets that gain value
Direct investment in mutual funds has been rising steadily, with domestic investment rising from ₹17.3 lakh crore as of 2021 to ₹33.9 lakh crore as of 2024
The share of mutual fund involvement in financial asset flows increased from 2.1% in 2020–21 to 7% in 2023–24

How It Works

The fall in net savings reflects rising reliance on borrowing, as long as profits are stable
Financial planners recommend avoiding overleveraging, especially for consumption of lifestyle
Families must have emergency funds, EMIs must be limited to 40% of income, and growth products must take precedence over fixedreturn schemes

The data reflects a shift in attitude—prudent saving to optimistic spending—but also a requirement for close financial planning.

Sources: The Hindu BusinessLine, The Hindu, Reserve Bank of India, Ministry of Statistics and Programme Implementation