'Trust in financial system must to get youth to save'

Last Updated 24 December 2019, 19:29 IST

For India's woefully low household savings, the International Monetary Fund (IMF) has a unique but practical prescription. It has suggested the government work towards instilling confidence of people in the financial system, especially that of India's youth population, which is the highest in the world, but less prone to save.

The country's household financial savings have nearly halved in the past eight years, falling from 12% of the gross domestic product (GDP) in 2010 to 6.6% in 2018.

While the largest decline came following demonetisation of November 2016 after which it fell to the tune of 3.6% of GDP, the second reduction came from declining of households' savings in insurance funds

“To some extent, these developments (fall in household savings) can be driven by demographics, with younger persons less prone to save... it also suggests that steps need to be taken to improve the confidence in the financial system so that more of the national savings can be intermediated into productive investment,” the IMF said in a staff report released late Monday night.

The prescription comes at a time when India's private investment in the economy has come down to meagre 1% in the September quarter from over 11% in the same period last year, according to the government data.

The second-largest decline in the household financial savings came from the 1.4% of GDP reduction in savings in insurance funds. Savings in shares, deposits, and claims on government dropped by 0.5, 0.4, and 0.3 percent of GDP, respectively in the past few years.

The report has also suggested that though India's economic growth has been strong in recent years, it has not been associated with broad-based formal job gains. And, relatively low food prices have contributed to rural distress.

India has been among the fastest-growing economies in the world over the past few years, lifting millions out of poverty. However, recent labour market data suggests that unemployment is high while labour force participation has decreased, particularly for females.

“Without more inclusive and sustainable growth, India’s potential demographic dividend over the next few decades, from its young and rapidly-growing labour force, could be wasted,” the Washington-based Fund said.

(Published 24 December 2019, 18:12 IST)

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