Why are Indians borrowing less and spending less?

Financial liabilities have dropped across Indian households due to the lockdown and net savings have risen to 7.6% of gross national disposable income in 2019-20 according to preliminary estimates published by RBI in its annual report. It might sound like a great thing but it is also a cause of concern for the Indian economy. What happens going forward? BOOM Explains.

Madan Sabnavis, Chief Economist, CARE Ratings says that this trend more or less expected because we're talking of times when there is a lot of uncertainty - this was something which started even before COVID-19. The problem is that jobs were not being created at a commensurate rate with growth, which had already slowed down to 4.2%. In that kind of an environment, what really happens is that people tend to save more than they spend.

Last year, for example, consumer demand didn't pick up in the festival season post harvest season, which means that people were preferring to save the money and reduce spending. It's a good thing because people are saving more in financial instruments rather than putting it in gold. But since the major thing which has been driving the economy down today is low consumption, it is a matter of concern. And that can be addressed only in case we're able to increase income, which can be done in case we create more jobs.

Watch BOOM's Govindraj Ethiraj interview Madan Sabnavis on how good or bad is it for the Indian economy that more people are saving more money instead of spending it.