According to a research report from Crisil, India's managed investment kitty, including mutual funds, insurance, alternate investment funds (AIFs), pension funds, and portfolio management services (PMS) grew from Rs 63 lakh crore in FY2017 to Rs 135 lakh crore in FY2022. In other words, it grew from 41 percent of Gross Domestic Product (GDP) in FY17 to 57 percent of GDP in FY22.

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Bank deposits still dominate the saver's mind space, accounting for a kitty of Rs 170 lakh crore against 135 lakh crore. But there is a steady migration from bank deposits. In FY17, managed investments were 59 percent of bank deposits, but by the FY22 end, they were 79 percent.

Managed investments have grown at a compound annual growth rate (CAGR) of 16 percent over the past five years; bank deposits have grown at a 10 percent CAGR over the same period. However, separate Reserve Bank of India (RBI) and National Statistics Office (NSO) data show that India's savings rate is at a modest 28 percent as of FY21 against a high of 37 percent in 2011-12.

Within this, household savings as a percentage of GDP have been stagnating at around 8.3 percent. What do these trends in savings and investments mean for the Indian economy? Even if the percentage of savings doesn't grow, does the fact that there is more money in mutual funds, AIFs, and insurance companies mean more equity capital for growth? Is this in any way because of the demographic dividend of more investors and more taxpayers in the economy?

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To discuss this, CNBC-TV18's Latha Venkatesh spoke to Pronab Sen, former chief statistician, and T Ramadorai, professor at Imperial College, London.

Sen said the trend of savers becoming investors presents a threat to the bank kitty as lenders invest in a whole range of entrepreneurs from MSMEs right up to large corporates.

On the other hand, capital markets are restricted to a very thin layer of companies that can directly access capital markets, he pointed out. So now, overall savings are getting funnelled to a relatively smaller group of entities.

Sen said banks don't go in for equity as that is not their business model. But insurance companies, as a part of managed funds, do go into equity. But insurance companies go into equity in a very selected manner. As far as the mutual funds are concerned, they go into equity only of the listed companies. So it becomes even narrower as you go along.

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Ramadorai had two-handed views on this issue. He said increasing the financialization of savings is good from the household perspective.

He said from the household perspective, this is entirely positive as Indians have moved from (investing) about 5 percent (in the last all-India debt and investment survey) of total household assets, to about 15 percent now. So a fraction of their total wealth is invested in risky assets in the stock market.

He said according to most models the right allocation is far closer to 15 percent and possibly even higher. For comparison purposes, in the United States, households invest about 40 percent on average of their assets in financial markets and retirement savings.

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On the other hand, there are well-known problems associated with banks, especially public sector banks, Ramadorai said. These PSBs are particularly efficient at channelling savings to the most highly productive corporations. There are benefits and costs to doing both.

"I wouldn't by any means say that it's a risk-free kind of trend that we are seeing. But on the whole, I think I would come out and say that this is a positive development, both for households and for the rebalancing of the Indian economy, away from bank financing to equity financing," he added.

(Edited by : Shoma Bhattacharjee)

First Published:Dec 15, 2022 6:52 PM IST