High inflation eats up household savings

Published Jul 22, 2014, 7:18 am IST
Updated Mar 31, 2019, 5:46 pm IST
People are earning negative real interest on fixed bank deposits
Picture for representational purpose   (Photo: DC archives)
 Picture for representational purpose (Photo: DC archives)

New Delhi: The high inflation rate is eating into the savings of the people. An analysis of the last three years show that people are earning negative real interest on fixed bank deposits.

During 2011-12 while wholesale price index (WPI) based inflation was at 8.94 per cent, the public sector banks on average were offering interest rate on fixed deposits of 7.79 per cent. This means PSU banks were offering a negative real interest rate of 1.15 per cent.


At the same period private sector banks were offering even lower interest rates of 7.49 per cent and foreign banks were offering 6.96 per cent.
In 2012-13 while the CPI based inflation shot up to 10.44 percent, the average interest on fixed deposits offered by the banks came down hurting the savers. The interest rates offered by PSU bank was 7.63 percent, by private sector banks at 7.35 per cent and the foreign banks at 6.87 per cent.

Last year while the CPI based inflation was at 9.68 per cent, PSU banks were offering interest rate of 7.85 per cent, private sector banks at 7.67 percent and the foreign banks at 7.56 per cent.

Banks deposits are one of the favourite financial saving instrument for the Indians.

Unlike US,  percentage of people investing in stocks is less as Indians prefer stability in returns. Due to high inflation, saving rate in India has come down. India’s savings rate which was over 38 per cent of GDP in 2008 has come down 30 per cent in 2012-13.

As per the estimates the total household savings in India at the end of 2011-12 was at Rs 20.03 lakh crore. Some two-thirds of these savings were in physical assets such as gold and real estate, with remaining in financials such as bank deposits etc.