Indian households are moving their savings from financial assets to real assets: CEA V Anantha Nageswaran

Indian households accumulated real assets at the expense of financial assets, Chief Economic Advisor V Anantha Nageswaran told Businessline.

A real asset is a physical asset such as real estate, infrastructure or commodities with an intrinsic value tied to their substance and properties. Financial assets are liquid assets that derive value from a contractual right or ownership claim.

According to the Reserve Bank of India (RBI) data, household financial liabilities rose from 3.8% in 2021-22 to 5.8% in 2022-23. Financial assets also grew from 10.99% to 11.1% during the same period.

Nageswaran told Businessline that the increased household financial liabilities were an "accretion to household financial savings". He explained that the net financial assets of Indian households, which include financial assets after taking liabilities into consideration, are still on an upward trend.

The net financial assets of households saw a slower growth in 2022-23 compared to the pace in the previous year. The CEA pointed out that the slowdown is not due to households consuming more but because they are acquiring more real assets.

He said that the financial savings were diverted to physical assets. "You can see that from the second half of 2020-21, the pick-up in residential loans has been much stronger. Therefore, it is a portfolio re-allocation. Real assets accumulation has happened at the expense of financial asset accumulation," the CEA added.

Regarding India's current position, he said that the country's ₹3.7 trillion economy can comfortably absorb capital inflows but stressed that reforms are necessary.

He attributed India's increased absorptive capacity to the production-linked incentive (PLI) scheme for which semiconductors and 13 other sectors are eligible.

He also said that India's ₹30 trillion economy target by 2047 is achievable, but it would not be an easy task.