Life hasn't been easy for the middle-class Indian for some time. High inflation and interest rate coupled with low return on investments have hurt their finances quite badly. No wonder, the household savings rate is down from 37 per cent in FY08 to 30 per cent in FY13 - a drop of Rs 7 lakh crore on a Rs 100-lakh crore base.
And things are unlikely to change soon, if one goes by the mid-quarter report of the Reserve Bank of India (RBI). As the review report says, "Some softening of the global commodity prices and lower pricing power of companies domestically is moderating non-food manufactured products inflation. However, the unrelenting rise in the food inflation is keeping the headline wholesale price inflation above the threshold level and consumer price inflation in double digits." In February, the consumer price index was at 10.9 per cent.
However, what is more worrying is that RBI says there is still some suppressed inflation related to administered prices which carries latent inflationary pressure. In simple words, it means that food inflation is expected to continue to hurt your household budgets, at least for some more time.
Says Madan Sabnavis, chief economist, CARE Ratings, "The food inflation is going up, partially due to minimum support prices in rice and wheat. Then, there is supply shortage in pulses and edible oils. I don't think anyone has a solution for this." According to him, this is reducing the savings' ability quite badly as there is less money in the hands of consumers.
This, along with the fact that borrowing costs will remain high because banks are unlikely to cut rates means your household budgets will continue to bleed for some more time. As a senior official with the country's largest bank, State Bank of India (SBI), says, "Given the cost of funds for the banking industry is still high, a repo rate cut will not inspire banks to cut lending rates as of now."
The deposit rates for the country's bigger banks - SBI, ICICI Bank and HDFC Bank - range from 7.50 - 8.75 per cent. On the other hand, the home loan rates stand at 9.95 per cent (up to Rs 30 lakh) and 10.10 per cent (above Rs 30 lakh) for SBI, while ICICI Bank is lending at 10.25 per cent (up to Rs 30 lakh) and 10.50-11 per cent (above Rs 30 lakh).
Also, with liquidity expected to remain tight till the month end because of advance tax outflows, there will be little opportunity for bankers to cut rates. Come April, things may improve as the liquidity condition gets better. According to Sabnavis, things might get better on the inflation front after May, as the rabi crop is expected to be good.
For consumers, with expenses unlikely to go down in the near future, the hope lies in investments. But with the uncertainty over equities and gold markets, this financial year may be another tough one.