Household savings not falling, middle class diversifying investments: FM Sitharaman

Finance Minister Nirmala Sitharaman on Saturday dismissed concerns surrounding falling household savings. Speaking at an event in Delhi, she said that India’s middle class is saving in new ways and traditional indicators do not reflect the changing scenario.

“In terms of where savings are getting parked, they are growing, though not as much in small savings in banks or post offices. But when you look at money going through retail investors into markets and mutual funds, savings today are also investments, and taken together across categories, overall savings are not going down….,” she said at the Hindustan Times Leadership Summit.

She explained that households are also building assets. More people are taking home loans, expanding homes or buying second houses. These assets add to household wealth even if loans need to be repaid, she said.
“So, savings today is finding various ways of being parked and earning some interest out of it. So, I don’t think we should narrow the debate down to only look at what is going into the post offices or public sector banks or public sector banks in terms of savings in fixed deposits,” she added, emphasising that savings today often flow directly into investment channels.

In a separate note, Sitharaman also commented on the politics of freebies among state governments. While politics may make freebies seem like a compulsion, she warned against creating intergenerational financial burdens.

“Their budget cannot afford it…I’m more looking at it from the point of view that… they borrow…some of them borrow to do this (freebies)or borrow for something, but this continues to be a heavy baggage which pulls them down in terms of them not being in a position to service the high-cost loans which have been taken a few years..,” she said.

Sitharaman added that she has been speaking to state Finance Ministers individually on this issue, offering guidance on debt restructuring.

“I don’t want to say advising them, but I’ve been having conversations to make sure that if they need some help from the Centre…. not in terms of money but in terms of sitting and sharing some thoughts on how to restructure their debt… We are trying to suggest that they may look into restructuring their loans even if it means that they have to pay back some of those very expensive loans taken earlier with some penalty….they should do so because some of the states are not able to service their loans and borrowing to service the loan is very bad quality borrowing…,” he explained.

She emphasised that states need to focus on sustainable finances and reduced borrowing. “No government can run with zero borrowing, but revenue and capital expenditure should not rely excessively on debt,” she said.