Improving Household Savings Measurement in India's Securities Market

Examination of Household Savings through the Indian Securities Market

In September 2024, a working paper by the Department of Economic and Policy Analysis was released, focusing on the methodology currently employed to calculate household savings via the Indian securities market. The existing data on household investments in equities, debt instruments, and mutual funds relies partially on estimates. While actual investment figures for mutual funds are derived from the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI), the methodologies for equity and debt investments use imputed percentages that may not adequately reflect the true extent of household savings.

The paper recommends three significant modifications to improve the computation methodology:

Investor Categories: Revising how the categories of investors are defined.
Financial Instruments: Expanding the range of financial instruments considered.
Inclusion of Missing Segments: Accounting for omitted segments to enhance the accuracy of savings representation.

Additionally, the paper proposes that SEBI provide detailed granular data to the Reserve Bank of India (RBI), which would then relay this information to the Ministry of Statistics and Programme Implementation (MoSPI). These revisions aim to align the data with current saving behaviors and structural shifts in the securities market, ultimately leading to more accurate national accounts statistics regarding household savings.

Importance of Household Savings in National Income Accounting

Household savings play a critical role in financial asset measurement within the framework of national income accounting. They serve as indicators of disposable income and overall financial health in households.

The Reserve Bank of India (RBI) and the MoSPI regularly publish data related to household savings across various segments, with securities market investments being one key component.

Upon reviewing data from RBI Bulletin’s Table 50A (Flow of Financial Assets and Liabilities of Households) and Table 50B (Stocks of Financial Assets and Liabilities of Households), it was found that the current methodology fails to fully capture household savings via the Indian securities market.

Current Methodology Used by RBI

1. Resource Mobilization (Flow)

The segments included in the flow computation are equity, debt, and mutual funds.

For equity and debt, data is acquired from the SEBI Monthly Bulletin. The RBI estimates that 35% of primary market issuances in equity (including Initial Public Offerings (IPOs), Offer for Sale (OFS), Follow-on Public Offers (FPOs), and rights issues) and 40% of public issuance of debt is attributed to individual and Hindu Undivided Families (HUFs).
Actual mutual fund contributions from households have been sourced from SEBI data since FY 2018-19.

2. Holding Data (Stock)

To determine the asset value held by households, the current methodology considers only the Assets Under Management (AUM) in mutual funds for High Net Worth Individuals (HNIs) and retail investors. The data source is categorized AUM published by AMFI.

Proposed Changes to the Computation Methodology

The paper suggests three main changes to enhance the computation techniques:

Investor Categories: Amendments to how investors are classified.
Instruments: Expanding the categories of financial instruments that investors utilize.
Absent Components: Inclusion of omitted components not currently represented in the methodology.

These refinements are expected to improve the accuracy and reliability of household savings data by reflecting real investment values and covering additional financial sectors in the Indian securities market.

Conclusion

The working paper endeavors to address deficiencies in the existing household savings computation methodology, aligning the data with evolving market dynamics. By revising investor categories, expanding instrument considerations, and incorporating missing segments, we aim to obtain a comprehensive overview of household savings through the Indian securities market, which is essential for economic analysis and policy formulation.