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Patra shared these insights during the keynote address at the Financing 3.0 Summit: Preparing for Viksit Bharat, organised by the Confederation of Indian Industries (CII) in Mumbai.
The main focus of the discussion was on the continuing significance of household savings in financing economic growth in India, the evolving financial landscape, and the respective roles of the private corporate sector and public sector in this dynamic. It also covered the importance of external financing while maintaining a strong policy focus on debt sustainability and leveraging India’s demographic dividend to fuel future growth.
Patra explained that household net financial savings have significantly decreased from 2020-21 levels. This change is attributed to behavioural shifts, including the unwinding of prudential savings accumulated during the COVID-19 pandemic, and a move from financial assets to physical assets such as housing. Despite this decline, he noted that the trend is beginning to reverse.
“Going forward, boosted by rising incomes, households will likely build back their financial assets…This process has already begun. Households’ financial assets have increased from 10.6 percent of GDP during 2011-17 to 11.5 percent during 2017-23 (excluding the pandemic year),” Patra observed.
Post-pandemic behavioural change
Patra highlighted that physical savings by households have also seen an upsurge in the post-pandemic years, exceeding 12 percent of GDP and potentially increasing further. He observed that physical savings reached 16 percent of GDP in 2010-11.”Accordingly, households will remain the top net lenders to the rest of the economy in the coming decades,” he said.Patra pointed out that the private corporate sector has notably decreased its net borrowings from the economy, a result of increased internal accruals and subdued capacity creation. However, he projected that the sector’s need for borrowing might escalate with a revival in the capital expenditure (capex) cycle.
“These financing requirements will largely be met by households and external resources,” he noted.
Regarding public sector financial behaviour, Patra noted that there has been a moderation in net dis-saving, albeit uneven. He emphasized that the public sector will continue to be a net borrower, considering the pivotal role of fiscal policy in shaping India’s future economic landscape.
“If the nation, as a whole, has a deficit, it borrows from the rest of the world and the inflow of foreign savings helps finance its investment needs,” he explained.
Main investment sources for India
Patra asserted that domestic savings have played a significant role in financing India’s investment growth, with external financing serving as a supplementary source. This is demonstrated by the modest overall current account deficits.
“As the productive capacity of the economy rises and its ability to absorb foreign resources expands, the volume of external financing and its composition may undergo fundamental shifts, but in the light of past experiences, external debt sustainability will remain a policy priority,” Patra said.
During his talk, Patra also highlighted India’s advantageous demographic position. He emphasised the importance of a productive workforce for value creation and acknowledged the supportive role of capital.
CII Director General Chandrajit Banerjee praised the performance of India’s external sector. He underscored the role played by the RBI in ensuring that financial flows are stable, sustainable, and in harmony with the nation’s economic policies.
Banerjee noted, “Greater investment can be useful to garner more financing in physical infrastructure, components for the digital economy, as well as emerging sectors like renewable energy, warehousing, semiconductor ecosystem, and data centres.”