Fall in household savings

The focus of recent discussions in India has been the decline in household savings. Since the household net financial savings to GDP ratio reached a four-decade low, the sharp decline in net financial savings is the primary cause of the decline in household savings.Despite a slight recovery in physical savings, the dramatic decline in household net financial savings in 2022–2023 has been linked to a decline in household savings overall.

Context:

• The difference between the household’s gross financial savings and borrowing is its net financial savings. The amount that a household’s financial assets fluctuate over time is known as its gross financial savings. Households usually have bank accounts, cash, and investments in mutual funds, pension funds, and other securities.
• The majority of household borrowing comes from commercial banks, even if it also includes credit from housing corporations and non-bank financial corporations.

Key Takeaways

Generally speaking, a decrease in household net financial savings may result from at least three different factors:

• First, households usually borrow more money or use up all of their gross savings to pay for their increased consumption expenses. In this instance, smaller net financial savings stimulate aggregate demand and output by funding higher consumer expenditure at any given level of disposable income.
• Second, when consumers borrow more money or spend up all of their gross savings in order to finance larger tangible (physical) investments. In this instance, the decrease in net financial savings increases output and aggregate demand via the investment channel.
• Third, households can borrow money to cover the additional burden of paying interest, or they can reduce their gross financial savings, which lowers their net financial savings, to offset the increase in interest payments brought on by higher interest rates.
• The spending to GDP ratio did not significantly alter between 2021–22 (60.95%) and 2022–2023 (60.93%), suggesting that the first component had no bearing on the rapid decline in gross financial savings in 2022–2023.
• The second factor’s influence was minimal. The household physical investment to GDP ratio increased by just 0.3 percentage point (12.6% to 12.9%) in 2022–2023 compared to a 3 percentage point fall (7.3% to 5.3%) in the gross financial savings to GDP ratio.
• Even while interest income from financial assets contributes to larger borrowing, the main cause of this is the household’s increased interest payments in the most recent quarter.
• In 2022–2023, the percentage of household borrowing in disposable income had a notable increase.

Higher debt burden implications

• There are two issues with the macroeconomy raised by the increase in household debt.
• First, there is the issue of debt repayment and precarious finances. The difference between the interest rate and the income growth rate is a crucial factor in determining how sustainable a household’s debt is, as repayment capacity is contingent upon income flow.
• Conversely, the financial sector receives its interest income from home interest payments.
• The financial sector’s income is negatively impacted and balance sheets deteriorate when households default on their debt repayment obligations. This can have a domino effect on the macroeconomy if the financial sector responds by cutting back on credit disbursements to the non-financial sector.
• The implications for demand for consumption are the subject of the second worry. In addition to disposable income, a household’s wealth, debt, and interest rate can have an impact on its consumption expenditures. A decrease in household wealth may result in less money being spent on consumption since households may try to protect their worth by saving more money.
• There are two main ways in which a higher household debt can lower consumption expenditure.
• First, increased household leverage may prompt banks to engage in credit rationing and lower loan disbursement if it is thought to be a sign of increased default risk. Consumption may suffer from the ensuing decrease in credit disbursement. Second, in addition to the impact of higher interest rates on consumption expenditure, more debt might decrease it by raising the interest burden.

NATIONAL SECURITY GUARD (NSG)

• Nalin Prabhat, a senior IPS officer, has been named the National Security Guard’s (NSG) director general.

Context:

• The NSG is essential to safeguarding India against terrorist attacks and preserving security in urgent circumstances.

About NATIONAL SECURITY GUARD (NSG):

• Known by most as the “Black Cats,” the National Security Guard (NSG) is an elite counterterrorism force in India.
• Under the Ministry of Home Affairs, it is run.
• On October 16, 1984, it was founded in the wake of Operation Blue Star.

Mission and Vision:

• Mission: To uphold the organization’s slogan, “Sarvatra Sarvottam Suraksha” (Everywhere and Always Supreme Security), by organizing, supplying, and training a unique force that can battle terrorism in a timely and efficient manner.
• Goal: To become a premier “zero error force” in the globe.

Functions and Role:

• As a government crisis deployment force, the NSG is responsible for a number of vital duties, including:
• Anti-hijack operations: Addressing threats of hijacking.
• Rescue operations: Offering support in times of need.
• Providing strong support: assisting the Central Paramilitary forces.

Composition:

• Officers and staff from the Indian Army, State Police Forces, and Central Armed Police Forces make up the NSG.

NAGORNO-KARABAKH REGION

As Azerbaijan regains authority, Russian peacekeepers have begun to leave from Nagorno-Karabakh, causing tension and maybe more confrontations.

Background:

• After serving as peacekeepers in the area since the end of the 2020 conflict, this procedure marks the withdrawal of Russian forces.

About NAGORNO-KARABAKH REGION :

• Nagorno-Karabakh is an area where Armenia and Azerbaijan are at odds.
• This hilly region has been the subject of historical and territorial disputes that have caused decades of unrest, skirmishes, and wars.
• The South Caucasus is still at odds about the region’s status, which has not been settled.

Geographical Context:

• Within the borders of Azerbaijan, Nagorno-Karabakh is a landlocked territory with mountains that is primarily inhabited by ethnic Armenians.
• The Lesser Caucasus Mountain range extends southeast into the territory known as Nagorno-Karabakh.
• It is connected to Armenia through the Lachin corridor, a mountain pass under the authority of Russian peacekeeping forces in Nagorno-Karabakh, while not having a direct border with Armenia.

FOOD SAFETY AND STANDARDS AUTHORITY OF INDIA (FSSAI)

The Food Safety and Standards Authority of India (FSSAI) was requested by the Union Consumer Affairs Ministry to take “appropriate action” against the Nestle group for allegedly selling baby goods with high sugar content in India.

Context:

• The majority of the infractions occur in countries in Asia, Africa, and Latin America; in industrialized nations such as the UK and Germany, these items continue to be sugar-free.

About:

• The Food Safety and Standards Act of 2006 created the Food Safety and Standards Authority of India (FSSAI), an independent statutory organization.
• It is run by the Government of India’s Ministry of Health & Family Welfare, which has its main office in Delhi.
• A number of food safety-related legislation and orders that were formerly under the purview of several Ministries and Departments were combined under the FSS Act, 2006.

Functions:

• establishing rules for norms and guidelines related to food safety.
• granting certification and licenses for food enterprises related to food safety.
• establishing protocols for food testing facilities.
• giving the government policy-making advice.
• gathering information on food poisoning and risk management.
• establishing a national food safety information network.
• raising public awareness of food safety requirements.

Legislative Framework:

• The FSS Act seeks to create a single point of reference for all issues pertaining to standards and food safety.
• Each state’s State Food Safety Authority and the FSSAI were created by it.
• The Food Safety Appellate Tribunal and the Registrar of the Appellate Tribunal are established by the Food Safety and Standards Rules, 2011.