As per a Reserve Bank of India (RBI) report, namely Quarterly Estimates of Households’ Financial Assets and Liabilities, the total amount of households’ gross financial assets fell from Rs141 trillion in September 2016 to Rs 137 trillion by end-December 2016. As a proportion of gross domestic product (GDP), the total amount outstanding in households’ financial assets fell by 6% from 95.2% of GDP in September 2016 to 89.2% by end-December 2016.
One can also look at the numbers by seeing the rate of growth in household financial assets. The growth in amounts outstanding in household financial assets was 9.7% in September 2017 as compared to a year ago, when it was 17.1%. So, clearly, demonetisation is the reason behind this fall.
Demonetisation also led to a change in the composition of households’ financial assets. By September 2017, currency holdings were down from 10.6% in the pre-demonetisation quarter to 8.7% of GDP. Also, the households’ holdings of mutual funds went up from 10.6% before demonetisation to 12.5% in September 2017.
The bigger issue than these is the fall in overall household saving. Data from the Central Statistics Office (CSO) shows that overall household savings fell to 19.2% in 2015-16 from 23.6% of GDP in 2011-12. This indicates households are saving much less in physical assets.
RBI’s annual report showed that households’ gross financial savings as a proportion of gross national disposable income went up to 11.7% in 2016-17 from 10.9% in 2015-16. It’s now clear that the increase happened before the demonetisation shock.