E-Paper
Depleted household savings to slow down recovery: S&P
The rating agency, which projects the economy to grow at 9.5% in FY22, said a gradual revival is underway after the severe second Covid-19 outbreak in April and May led to lockdowns across much of the country and to a sharp contraction in economic activity.
India’s economic recovery is expected to be “less steep” than the bounceback in late 2020 and early 2021 because households that are eating into their savings could hold back spends on consumption as the economy reopens, S&P Global Ratings said on Thursday.
The rating agency, which projects the economy to grow at 9.5% in FY22, said a gradual revival is underway after the severe second Covid-19 outbreak in April and May led to lockdowns across much of the country and to a sharp contraction in economic activity.
“The economy has turned a corner now. New Covid-19 cases have been falling consistently and mobility is recovering. We expect this recovery to be less steep compared with the bounce in late 2020 and early 2021. Households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens,” it said.
The ratio of household bank deposits to GDP declined to 3% in Q3FY21 from 7.7% in Q2.
In contrast, the household debt-to-GDP ratio, which is based on select financial instruments, has been increasing steadily since end-March 2019. It rose to 37.9% at end-December 2020 from 37.1% at end-September 2020, the RBI data showed.
S&P said the lockdowns during the second wave were more targeted than the blanket national lockdown of last year, but were still stringent enough to lower discretionary mobility to more than 60% below normal. “Manufacturing and exports were less severely affected compared with 2020, but services were acutely disrupted. Consumption indicators such as vehicle sales fell sharply in May 2021 and consumer confidence remains downbeat,” it said.
