India’s household financial net worth (HHFNW) has significantly improved in the post-pandemic period, driven primarily by gains in equity and investment funds (E&IFs). However, according to a report by Motilal Oswal Financial Services, this increase has not yet translated into higher consumption or savings, raising concerns about the sustainability of the wealth effect on the broader economy.
The report, which replicates the methodology of the Reserve Bank of India’s (RBI) inaugural quarterly estimates of household financial balance sheets, highlights a remarkable rise in HHFNW compared to other major economies. While India’s HHFNW has grown, the wealth effect—which posits that increased financial assets should lead to greater spending and economic growth—has not materialised despite a sustained equity boom.
Household consumption
According to the analysis, India’s nominal household consumption grew at a slower 9.8% compound annual growth rate (CAGR) during the post-pandemic period (FY20-FY24), compared to 10.8% pre-pandemic (FY16-FY20). Additionally, household savings growth slowed from 11.6% pre-pandemic to 10.3% in the post-pandemic period. In contrast, other major economies reported faster consumption growth and higher savings, with the exception of Australia and the United States.
Non-mortgage household debt in India, which includes unsecured loans, also saw a notable increase, growing at a 15.1% CAGR between CY20 and CY23, up from 12.8% pre-pandemic. This faster growth in debt, combined with sluggish consumption and savings, raises questions about the overall financial health of households, despite the rise in HHFNW.
The report further cautions that the concentration of wealth in capital markets among the richest households may be skewing the positive financial net worth figures. Data from the U.S. shows that the top 20% of households hold nearly 87% of all corporate equities and mutual funds. While comparable data for India is unavailable, nearly 95% of Indian taxpayers reported no capital gains in FY23, indicating the wealth gains are concentrated among the wealthiest.
The report also points out that similar surges in household net worth, such as in the U.S. before the 2008 financial crisis, did not lead to sustained economic growth. This raises concerns that the current rise in India’s HHFNW, driven by volatile equity markets, may not lead to longer-term economic benefits or higher household spending.
