|Bye gold, hello equity|
|Thursday, 01 September 2016 00:00|
Welcome change in household savings pattern
Though CSO data on overall FY16 savings are not out, RBI data on household financial savings are encouraging. Compared to FY12, gross financial savings of households are up from 10.4% of gross national disposable income to 10.8% in FY16, and the jump is quite substantial compared to FY15’s 10%. The biggest shift is in the ‘shares and debentures’ segment where the jump is from 0.2% in FY12 to 0.4% in FY14 and FY15 and as much as 0.7% in FY16. This can also be seen from the assets under management of equity mutual funds, up from 1.7% of GDP in FY14 to 2.8% in FY16—while the bulk comes from the corporate sector, there is a significant increase in that invested by households.
While RBI has no data on physical savings, data from the World Gold Council shows a dramatic fall in the household purchase of gold, primarily due to the collapse in gold prices as the global economy has started looking a bit better. Gold demand fell from 857.4 tonnes in FY14 to 853.5 in FY15 and 788.9 in FY16. That meant a reduction from Rs 224,084 crore in FY14 to Rs 207,870 crore in FY15 and Rs 184,516 crore—or from 2% of GDP in FY14 to 1.7% in FY15 and 1.4% in FY16. In terms of gold jewellery, roughly a proxy for household demand for gold, this fell from 1.3% of GDP in FY14 and FY15 to 1% in FY16. In other words, even if overall household savings have remained flat—when the FY16 data is out—this is compatible with a rise in financial savings that RBI data shows; since it is this saving that is available for productive investment, that’s good news.
It is difficult to make any firm statements about bank deposits—as a proportion of gross national disposable income, these fell from 5.8% in FY14 to 4.9% in FY15 and 4.7% in FY16. Given that inflation fell, these should have risen—at least in FY15 when the real rate of interest on bank deposits rose to 3% from minus 0.5% in FY14—but the fact that they fell proves that household savings are more a function of income levels than of interest rates; RBI’s inflation-targeting plan, it should be kept in mind, began from the premise that households needed a positive rate of interest in order to save.