Household Savings

The sharp fall in household savings to 10.9% of Gross Domestic Product (GDP) in 2011-12 and to    around 8 % in 2012-13 from 17.8% of GDP in 2004-05 is really worrisome phenomenon. Obviously, inflation is the main cause of such a deep fall in domestic household savings. But there other reasons too. There is enormous change the consumption pattern leading to increase in consumerism. In fact, there is a kind of craving among the people for the possession of various modern gadgets and equipments which have been exposed due to globalisation and liberalisation. In fact, there is an insatiable desire to possess them. Many households resort to borrowing indiscriminately in their attempt to possess more and modern items such as television, stereo, video, grinder, fridge, microwave owen, mixie, washing machine, cleaning machine, air conditioner, cell phone, and other such electronic items, besides rise in demand motor cycle, car and so on. Many people in order to meet their cravings resort to borrowings at exorbitantly high rates of interest. More and more households are falling into debt trap. Moreover, in past decade or so after liberalisation millions of people all over the country have lost their savings by investing in fraudulent schemes, which offer exceedingly abnormal return on investment. Therefore, the there is decline in the propensity to save, whereas the propensity to consume has gone up due to rise in consumerism. Moreover, may households seem to have abandoned risky and low return financial instruments in favour of stable instruments with assured returns. Despite low returns the people have turned to bank deposits as the most preferred financial saving instrument in recent years. Nevertheless as consumerism is sweeping in the minds of the people due to globalisation and liberalisation, which may be strong constraint to increase the savings level of the people, i.e. household savings.
One of the  reasons for the fall in the net financial savings of households from 10.9 per cent in years prior to 2011-12 to a mere 8 per cent in 2012-13  is an outcome of the deployment of financial savings into investment in gold. This reduces the domestic financial resources available for supporting capital formation at home, while at the same time increasing the merchandise trade and current account deficits.