Households Face Declining Earnings, Savings, And A Financial Squeeze: Hopes On Budget 2024 To Bring Some Respite

Faced with a declining earnings and savings scenario, many Indian households are hoping that Budget 2024-25, to be presented by Finance Minister Nirmala Sitharaman will bring some respite, according to a recent research report by LocalCircles. Around seven per cent of households are projecting an over 25 per cent drop in household earnings this year. 15 per cent of households surveyed are projecting an over 25 per cent drop in savings this year. Many households are dipping into savings to make ends meet as earnings are not increasing in proportion to their expenses.

“A lot of people have been complaining about the rising costs related to food, school education, rent, transportation, cost of electricity, etc., the basic expenses incurred by a middle-class family. The big concern remains a declining earnings scenario for many and the need to dip into savings, ancestral property/land, or take loans, just to make ends meet,” says the LocalCircles report.

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Net household savings in India declined sharply by Rs 9 trillion to Rs 14.16 trillion in the three years to 2022- 23 (FY23). Overall, India’s household savings rate has fallen from 22.7 per cent of gross domestic product (GDP) in FY21 to 18.4 per cent in FY23, as per the National Account Statistics 2024 data released by the Ministry of Statistics and Programme Implementation (MoSPI). Household savings had touched a peak of Rs 23.29 lakh crore in 2020-21, the year which saw the second wave of the Covid pandemic. Following that it has been on the decline. It then fell to Rs 17.12 lakh crore in 2021-22 and further to Rs 14.16 lakh crore in 2022-23.

In the last decade, the growth rate of financial liabilities, at 16.1 per cent year-on-year (YoY), has exceeded that of gross financial assets, which averaged 10.8 per cent YoY. Notably, in FY2022-23, there was a significant surge in financial liabilities, rising by 76 per cent YoY, leading to a considerable decline in net financial assets.

Taking note of the concerns cited by household consumers on its platform and the fact that Budget 2024-25 will be presented next week, LocalCircles conducted a national survey to find out what households are projecting on the earnings and savings front. The survey received over 21,000 responses from household consumers located in 327 districts of India. 67 per cent of respondents were men while 33 per cent of respondents were women. 44 per cent of respondents were from tier 1, 32 per cent from tier 2 and 24 per cent respondents were from tier 3, 4, and rural districts. 48 per cent of consumers surveyed believe their annual household earnings will reduce in FY2024-25 in comparison to FY2023-24.

Sustainable employment or livelihood being a major concern for many households, the survey first asked them, “Where do you believe your household income will be in the current 12 months (April 2024-March 2025) in comparison to the previous 12 months (April 2023-March 2024)?” The question received 10,977 responses with seven per cent projecting that their household income “will reduce by 25 per cent or more;” 30 per cent projected that it “will reduce by 10- 25 per cent” and 11 per cent projected that it “will reduce but can’t say how much right now.”

However, 26 per cent of respondents expect “no impact;” 15 per cent of respondents are optimistic the household income will increase by 0-25 per cent,” and 11 per cent indicated that they are hopeful it will increase but can’t say how much.” To sum up, 48 per cent of consumers surveyed believe their annual household earnings will reduce in FY 2024-25 in comparison to FY 2023-24.

As income and expenditure have a direct impact on household savings, the survey next asked respondents, “Where do you believe your household savings will be in the current 12 months (April 2024-March 2025) in comparison to the previous 12 months (April 2023-March 2024)?” The question received 10,820 responses with 10 per cent indicating that it will “likely increase by 25 per cent or more;” 10 per cent indicated that it will “likely increase by 0-25 per cent;” 10 per cent indicated that it is “likely to increase but can’t say how much;” and 18 per cent stated that it is “likely to stay the same.” Of the remaining respondents 28 per cent indicated that the savings are “likely to decrease by 0-25 per cent;” 15 per cent indicated that it is “likely to decrease by over 25 per cent;” and five per cent indicated that the household savings are “likely to decrease but can’t say how much.”

In addition, four per cent of respondents did not give a clear response. To sum up, 48 per cent of household consumers surveyed believe their average household savings will reduce in FY 2024-25 in comparison to FY 2023-24. Such a large percentage of households indicating that savings will decline is an extremely concerning situation and points to the fact that costs of living and expenses are growing at a much faster pace than earnings, leading to many households to dip into their savings. In some other cases, families are taking out a mortgage against their assets, liquidating them, or taking a personal loan just to make ends meet or to pay for a college education for a child.

The survey received over 21,000 responses from household consumers located in 327 districts of India. 67 per cent of respondents were men while 33 per cent of respondents were women. 44 per cent of respondents were from tier 1; 32 per cent from tier 2 and 24 per cent respondents were from tier 3, 4, and rural districts. The survey was conducted via the LocalCircles platform, and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.