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Demonetisation changed saving habits of Indians, says finance ministry

A note submitted to a parliamentary panel said gross financial savings in terms of deposits, share, debentures, insurance funds and pension funds increased by 48% in 2016-17, while assets parked in mutual funds grew by 45% between July 2016 and July 2017.

india Updated: Nov 10, 2017 09:56 IST
Saubhadra Chatterji
Saubhadra Chatterji
Hindustan Times, New Delhi
Demonetisation,Saving habits,Bank deposits
The demonetisation drive resulted in people across the country queueing up at banks to deposit their old currency notes. (Burhaan Kinu/HT File)

Demonetisation has brought about a significant shift in saving habits among Indians, with many parking a higher share of their disposable income in bank deposits and market instruments, the government has said.

A finance ministry note submitted to a parliamentary panel said gross financial savings in terms of deposits, shares, debentures, insurance funds and pension funds increased by 48% in 2016-17, while assets parked in mutual funds grew by 45% between July 2016 and July 2017.

“The demonetisation drive led to a significant change in saving habits and formalisation of the assets market. More funds came into the organised financial markets, whereas households would earlier park much of their savings in unproductive physical assets,” the note stated.

This shift in savings pattern is significant because India has always fluctuated between high and low domestic savings. The country had already seen its share of equities and mutual funds double from 5.29% to 11.04% in fiscal year 2016 — indicating more consistency in monetary deposits as far as productive financial assets were concerned.

“The gross financial saving in term of deposits, shares and debentures, insurance funds, and provident and pension funds increased from 9% to 13.3% of the GNDI (Gross National Disposable Income) in 2016-17 — a hike of about 48%. The assets under management by mutual funds were Rs 13.8 lakh crore at the end of July 2017, which is a substantial increase of 45%,” the note said.

The high collection of insurance premium also indicates that people rushed to pay them with old currency notes after Prime Minister Narendra Modi’s announcement. “The cumulative collections from November 2016 to January 2017 increased by 46% over the same period of the previous year. It stabilised at 18% from November 2016 to June 2017,” the note said.

The government also stated that demonetisation effectively eliminated Rs 6 lakh crore of potential black money from the economy, a claim rejected by the Opposition. Referring to the rate of growth of specified bank notes (of 500 and 1000 denominations), the government argued that they would have amounted to about Rs 18 lakh crore by now. “The estimated worth of high value notes, as of September 2017, was approximately Rs 12 lakh crore. Therefore, the amount of high value notes has been effectively (brought) down by Rs 6 lakh crore,” said the note.

Several Opposition members questioned economic affairs secretary Subhash Garg and financial services secretary Anjali Chhib Duggal on the merits of demonetisation on Thursday. They wanted to know the costs incurred through the demonetisation initiative, and why banks were not giving enough credit despite sitting on piles of money.

A BJP member reportedly admitted that many beedi workers in his constituency were unemployed and starving due to demonetisation.

First Published: Nov 10, 2017 09:56 IST