The gradual reopening of the economy post the COVID-induced economic lockdown seems to have nudged Indian households to return to pre-COVID spending habits, albeit slowly.

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According to the Reserve Bank of India’s March bulletin, household consumption has switched from an ‘essentials only’ pattern to ‘discretionary’ spending in the quarter ending September 2020.

The change has resulted in a fall of household financial savings rate to 10.4 percent of GDP in the second quarter of 2020-2021, from a high of 21 percent in the first quarter.

The report said that the reversal in the household financial savings trend was corroborated by the reduced contraction in private final consumption expenditure.

The switch in spending pattern has also led to the reduced pace of contraction in private consumption to 11.3 percent, compared with 26.3 percent contraction in the quarter ending June 2020.

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Touching on the impact of the pandemic, the study said, “Although the aggregate savings increased during the pandemic, it, however, might conceal the unequal impact in terms of household savings and consumption expenditures of non-essential items as several households in the unorganised sector suffered from loss of employment, income and borrowing opportunities.”

The report said that following the phased-in easing of the stringency of lockdown restrictions, some constituents of consumption, particularly discretionary, picked up after a quarter-long dormancy. This has, in turn, led to the moderation in financial savings of households.

The report also said that the country appeared to be spending more “on account of the approaching festive season demand along with the release of pent-up demand”.

This was, the report explained, causing the spending pattern to reach closer to the pre-pandemic levels of household financial savings in the quarter ending September 2020.

“Going forward, optimism on account of mass vaccination is expected to further boost consumption demand and work further towards the restoration of the pre-pandemic spending and saving pattern,” the RBI bulletin added.

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First Published:Mar 20, 2021 3:24 PM IST