Indians still prefer FDs over stocks

Mumbai, Aug. 31: Household financial savings rates continued to remain low, inching up a paltry 10 basis points to 7.2 per cent of GDP in 2013- 14 amid sticky inflation.

Savings in deposits by the households rose, however, to ` 1 trillion ( 17 per cent) in the year to ` 6.91 trillion in financial year 2013- 14 as against ` 5.91 trillion in 2012- 13.

They constituted about 59 per cent of the gross financial savings, of which about 53 per cent constituted bank deposits. Savings in shares and debentures dropped 22 per cent to ` 33,700 crore in FY14, from ` 43,000 in the previous fiscal, according to a RBI report.

Savings by individuals in mutual funds ( through shares and debentures) saw a 40 per cent drop to ` 21,000 crore in the reporting year from ` 35,000 crore, while savings in currency declined 9 per cent to ` 1.02 trillion from ` 1.12 trillion.

Net financial savings of households, which is the gross financial saving minus financial liabili- ties, rose 13 per cent to ` 8.19 trillion from ` 7.22 trillion in 2012- 13.

The RBI report said, “The gross domestic savings rate as per central statistics office’s ( CSO) estimates declined to 30.1 per cent in FY13 from 31.3 per cent in FY12, mainly on account of a decline in the rate of household physical savings.”

The savings rate dipped to the lowest in the past nine years and has accentuated the macro- economic imbalances.

The household savings rate have generally hovered around 23 per cent since FY04.

However, looking ahead, the Reserve Bank of India expressed the hope that the measures announced in the Budget 2015 will help improve both investment and sav- ings.

The Budget has raised the personal income tax limit to ` 2.5 lakh, which will increase disposable income and lead to a rise in investment limit under section 80C of the IncomeTax Act.

It also raised annual ceiling limit in public provident fund ( PPF) to ` 1.5 lakh, which will also encourage savings and improve financing of investment, the RBI said.

The proposal is also expected to increase households’ physical savings.