How Indian Household Savings Are Shifting After COVID

How Indian Household Savings Are Shifting After COVID

National savings are a crucial and often overlooked factor that underpins India's amazing economic growth. Household savings in India have historically supported domestic capital formation. These savings have provided liquidity for productive investments.

However, the recent data has recognized a concerning shift in Indian households' financial habits. Finance experts claim that understanding the impact features can help improve India's future economic standpoint.

How India’s Saving Habits Are Changing

The saving rate in India has been impressive for years. The credit goes to the future-oriented mindset of its citizens. This helped Indian to largely self-finance its investment needs. Also, it has helped India insulate itself from external vulnerabilities. However, the narrative is now shifting.

CareEdge Ratings indicates that household savings in India are having a downward trajectory in June 2025. That too, for the third consecutive year. It dropped to 18.1% of GDP in 2024. Also, the gross domestic savings came down to 30.7%.

CareEdge Ratings shows that household financial liabilities rose to 6.2% of GDP in FY24. It suggests that rising financial liabilities is a major cause behind the decline in household savings. This increase reflects a growing dependence on credit to meet the normal consumption needs.

Here’s a representation of India's aggregate savings to illustrate this trend:

The Shifting Sands of Household Investment

Traditional Preferences and Pandemic Responses

Household investment has always been too much dependent upon physical assets like gold and real estate. This reflects less allocation to financial instruments. In fact, physical savings rose to 71.5% in 2022-23 from 59.7% in 2019-20, while financial savings declined (PNB, June 2024). The uncertainty of the COVID-19 pandemic is the biggest factor that pushed this shift.

The Accelerated Digital Shift Dynamics

India noticed a huge shift in household investment patterns Post-COVID-19. The pandemic pushed more people to go digital and become more aware of their finances.

Indian households are increasingly diversifying into financial assets because of a stronger focus on retirement planning due to health and economic uncertainties. Increasing financial literacy, and easier digital access to products have also acted as supportive factors in the same trend.

Savings in provident and pension funds also jumped from 10% in 2011-12 to 21% in 2022-23 (PNB, June 2024), which reflects long-term financial planning.

Emerging Risks and Credit

The diversification discussed above signals financial maturity, but at the very same time, it highlights risks.

More and more Indian households are shifting from systematic savings (like FDs) to more volatile equities. This is exposing households, especially those with lower incomes.

COVID-19's economic disruptions and easy access to personal loans and consumer credit also have unintentionally made people less likely to save. Mostly people have started using loans for immediate consumption or to bridge income gaps rather than for productive investments.

Many now use loans for immediate consumption or to bridge income gaps rather than for productive investments. The RBI raised risk weights to control credit growth and ensure financial stability.

Factors Influencing Household Savings

Macroeconomic Environment:

Strong GDP growth correlates with higher incomes, which also increases the potential for savings. But, high inflation can erode purchasing power. This also forces Indian households to spend more on essentials and focus less on saving.

Because of continuous inflation, households start using more income to meet daily expenditures. Also, lower interest rates on traditional savings instruments like Fixed Deposits (FDs) make them less attractive. Hence, households are more attracted towards other riskier options.

Socio-economic Dynamics:

Increasing dependency ratio (the proportion of non-working to working population) puts pressure on household finances.

This reduces the capacity for savings. Urbanization and changing consumption patterns also heavily impact households’ saving behavior. Households increased spending on consumer durables and lifestyle after COVID-19 (CivilsDaily, July 2025).

Lifestyle Shifts:

A consumer culture values quick spending instead of saving for the future. Therefore, people are buying household items on credit more, which leads to savings cut-off. The International Journal of Commerce and Economics highlighted that in February 2025.

Implications and the Path Forward

There is a solution to every problem, and India has already dealt with some huge problems in the past. The declining saving rate in India is definitely a concern. But, if it is overlooked, it's going to impact the nation's economic stability.

If the domestic capital pool decreases, it will lead to increased dependence on external borrowings, which will lead to National Finance Volatility.

Thus, the availability of funds for vital infrastructure projects will decrease, and we will also see a blow to the productive capacity of the economy. That all sounds pretty troublesome, right?

So, let's understand how to deal with the potential lower liquidity problems and how we can reverse this problem.

Sustaining Financial Inclusion Efforts:

The government has worked hard on spreading awareness and increasing the number of bank account holders. However, merely opening bank accounts is not even half the work done. The government will have to bring reforms and schemes to increase the engagement of these new bank accounts. Modernizing postal savings with better accessibility may prove to be a smart step.

Promoting Micro-Savings Initiatives:

Financial products and awareness campaigns can encourage small and regular savings. Targeting rural and semi-urban areas will open the gates for convenient saving options. Schemes like the PM Jan Dhan Yojana are a great example.

Encouraging Traditional Savings:

Bank FDs are a traditional saving method, but they still hold importance for safe savings. Bringing policies to ensure healthy returns on these types of investments could encourage more people to choose these options over anything risky.

Enhancing Financial Literacy & Debt Management:

The government can take steps on helping Indian households become aware of debt management. Just educating the households about the difference between good and bad debt can make great differences. RBI is also taking steps demoting people from taking unsecured loans on heavy debts, as in most of the cases they end up increasing the financial burden on the borrower.

Conclusion

The ongoing situation of household savings in India is challenging India’s economic goals. The shift in household investment towards financial assets surely reflects financial smartness. But, the overall decline in the saving rate in India and the increasing household financial liabilities are concerning.

India will have to reignite the savings impulse within its households if it really wants to maintain its strong growth trajectory.

India can ensure that its households remain the primary engine of its economic powerhouse by offering attractive investment plans. This will highly contribute to the nation's gross domestic savings.