2024-09-03 09:13:05
Patra shared these insights during his keynote address at the ‘Financing 3.0 Summit: Preparing for Viksit Bharat’ organised by the Confederation of Indian Industry (CII) in Mumbai.
The discussion focused on the continued importance of household savings in financing India’s economic growth, the changing financial landscape, and the respective roles of the private corporate sector and the public sector in this dynamic. The discussion also touched on the importance of external financing while maintaining a strong policy focus on debt sustainability and leveraging India’s demographic dividend to drive future growth.
Patra explained that household net financial savings have fallen sharply compared to 2020-21 levels. This change is attributed to behavioral shifts, including a reduction in prudent savings accumulated during the COVID-19 pandemic, and a shift away from financial assets and toward real assets such as housing. Despite the decline, he noted that the trend is beginning to reverse.
“Going forward, households are likely to rebuild financial assets, driven by rising incomes… This process has already begun. Household financial assets as a share of GDP increased from 10.6% in 2011-17 to 11.5% in 2017-23 (excluding the pandemic years),” Patra observed.
Behavioral changes after the epidemic
Patra stressed that households’ physical savings have also surged in the post-pandemic years, exceeding 12% of GDP and are likely to increase further. He observed that physical savings reached 16% of GDP in 2010-11. “Hence, households will remain the largest net lenders to the rest of the economy in the coming decades,” he said. Patra pointed out that net borrowing from the private corporate sector to the economy has declined significantly due to higher internal accruals and slower capacity creation. However, he predicted that the sector’s borrowing needs are likely to intensify as the capital expenditure (capex) cycle recovers.
“These financing needs will be met primarily by households and external resources,” he noted.
On the financial behaviour of the public sector, Patra noted that, although uneven, net negative saving has moderated. He stressed that the public sector will continue to be a net borrower, given the key role of fiscal policy in shaping India’s future economic landscape.
“If the country as a whole runs a deficit, it borrows from the rest of the world, and the inflow of foreign savings helps meet its investment needs,” he explained.
Major sources of investment in India
Patra maintained that domestic savings played an important role in financing India’s investment growth, with external financing being a complementary source, as evidenced by the modest overall current account deficit.
“As the economy’s productive capacity improves and its ability to absorb foreign capital expands, the size and composition of external financing may change fundamentally, but based on past experience, external debt sustainability will remain a policy priority,” Patra said.
Patra also highlighted India’s demographic advantages in his speech. He stressed the importance of productive labor for value creation and acknowledged the supporting role of capital.
Chandrajit Banerjee, Director General of the Confederation of Indian Industry, praised the performance of India’s external sector. He stressed the role of the Reserve Bank of India in ensuring that financial flows are stable, sustainable and coordinated with the country’s economic policies.
“Increased investment will help secure more financing for physical infrastructure, components of the digital economy, and emerging sectors such as renewable energy, warehousing, the semiconductor ecosystem and data centers,” Banerjee said.
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