Union Finance Minister Nirmala Sitharaman on August 8 said the Indian middle class is smartly utilising their savings. Speaking in the Rajya Sabha, she pointed that the middle class is investing in instruments that yield higher returns.
FM Nirmala Sitharaman highlights the changing pattern of household savings and lauded the government’s effort to reduce tax burden in comparison to developed economies
Union Finance Minister Nirmala Sitharaman on August 8 said the Indian middle class is smartly utilising their savings. Speaking in the Rajya Sabha, she pointed that the middle class is investing in instruments that yield higher returns.
“People are looking at turning their savings into investments in properties as well as in portfolios with better returns,” said FM Sitharaman.
While talking about the shift that is happening in middle class households, she said people are moving away from traditional savings instruments in search of better returns. Traditionally, bank deposits have been the preferred choice of households. However, in a new trend, they are moving towards capital markets and other financial instruments.
She mentioned that the recent steps taken by the central government help in reducing the “tax burden on middle class substantially”. This is currently not the case with the developed nations where increased tax rates are levied, she added.
In Budget 2024-25, the Centre announced changes to the income tax regime to benefit salaried employees and pensioners. According to the government, these changes will help taxpayers save up to Rs 17,500 annually.
What is the Shift in Household Saving Pattern?
Household savings have witnessed a declining trend since the Covid-19 period. According to a data released by the Ministry of Statistics and Programme Implementation (MoSPI), household savings touched a high of Rs 23.29 lakh crore in 2020-21. Following this, there was a sharp decrease in savings to Rs 17.12 lakh crore in 2021-22, followed by a further drop to Rs 14.16 lakh crore in 2022-23.
Experts have noted that subdued rural demand and surging inflation which could have resulted in decreased household savings. But the shift in investment towards high returns instruments like equity also took place in the same period.
Domestic brokerage firm Motilal Oswal said in a report that the new demat account addition surged by 16.2 crore in June 2024 compared to 4.8 crore at the end of 2020.
The same shift was highlighted by the Reserve Bank of India (RBI) governor Shaktikanta Das at a recent event. He said, “Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to the capital markets and other financial intermediaries.”