It is also likely that households have not been able to save enough because of sustained high inflation. The consumer price index-based inflation rate in India has been on the higher side since the pandemic. In fact, the RBI failed to achieve the inflation target as defined in the law in 2022 and had to give an explanation to the Union government. The inflation rate is again running above the upper end of the central bank’s tolerance band. Notably, financial liabilities for households went up from 3.8 per cent of GDP in 2021-22 to 5.8 per cent in 2022-23. It is probable that households borrowed for consumption because the income was not sufficient. It is also likely that households borrowed more to buy real assets such as houses. The credit offtake data does indicate that individuals have been borrowing at a higher pace. The stock of household debt went up to 37.6 per cent of GDP in 2022-23 from 36.9 per cent the previous year. If the consumption demand is being supported by credit, as seems to be the case to some extent, the required rebalancing of household balance sheets would mean lower future demand.
Weak consumer demand would implicitly mean lower economic growth in the near to medium term. It is hoped that a recovery in private investment will support growth. However, in the absence of sustained growth in private consumption, corporations would be reluctant to expand capacity. Given that global demand is also expected to remain weak, corporations may lack the incentive to make fresh large investments. Thus, from a macroeconomic standpoint, if private consumption, investment, and exports are expected to remain muted, the government will have to fill the gap, which it has been doing for some time through higher capital expenditure. However, given the overall fiscal constraints, it may not be able to do the same for an extended period.
Lower household financial savings can also put pressure on interest rates and affect investments. It is worth noting that the general government borrowing is higher than the supply of financial savings from the household sector. If the corporate sector also begins to borrow significantly to invest, it would put upward pressure on interest rates. An increase in investment with lower availability of domestic savings would mean India will need to import capital, which could have its own set of implications. It thus appears that while the overall output has recovered from the pandemic shock, the recovery has been uneven and will take time to rebalance. The policy challenge to push economic growth — at a time when the global economy is expected to grow at a slower pace and fiscal constraints are likely to increase — nonetheless remains.
 "savings, investment, saving scheme")
