Households put two-thirds of their savings in houses, gold

June 1, 2014

Mumbai-India (June 1) Household savings in financial assets continue to make way for higher allocation to physical assets like property and gold.

In 2012-13, financial assets, including banks deposits, mutual funds, equity, bonds, and pension and insurance funds, accounted for only a third of all household savings, down from nearly half in 2006-07. The rest was absorbed by physical assets, choking the funds’ flow into the financial market. Such a low ratio for financial to physical savings was last seen in the late 1960s, in the run-up to bank nationalisation, when it had hovered in the 27-30 per cent range from 1966-67 to 1971-72.

The impact is felt in the capital expenditure by the corporate sector. Capital formation by private-sector companies has declined 14 per cent at constant prices in the past five years, despite a 66 per cent rise in household savings and a 40 per cent rise in overall capital formation during the period. By comparison, capital formation by households more than doubled during the period. This has drastically changed the composition of investments in the economy.

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