Household Savings Shrink In FY26 Despite Double-Digit Income Growth In Last Five Years: Report

Cities in urban India are an exorbitant display of upward mobility and outward indicators of material success. Exhibits like packed airport terminals filled with holidaygoers queuing up for foreign destinations, crowds of fans thronging concert venues and the ubiquity of premium electronics such as Apple’s iPhones show a strong desire to spend money. This spending spree comes on the back of greater confidence and rising income in urban India.

Data from Kotak Mutual Fund’s report titled, ‘The Great Consumption Shift’ shows that incomes among the urban wealthy and urban mass cohorts have risen at a compounded annual growth rate of 18 per cent and 6 per cent, respectively, in the five-year period between FY20 and FY25.

However, this growth is set to slow down in the next five fiscals as urban India’s incomes are projected to grow at a CAGR of 12 per cent for the urban wealthy cohort and by 4 per cent for the urban mass between FY25-30. The report also forecasts that this growth is expected to further reduce its pace between FY30-35 as the income growth for the urban wealthy and urban mass cohorts will slow down to 10 per cent and 3 per cent.

Despite the recent rise in income, the report showed that household savings have been on the decline. According to the report, household savings have consistently declined each year since the pandemic. In the nine-month period of FY20, the net financial savings of Indian households made up as much as 7.8 per cent of the GDP. This number surged to 11.2 per cent in FY21. However, in the years following the pandemic, the size of household savings has contracted each year and has fallen to 5.3 per cent of the GDP in FY26. A rise in income and a decline in household savings indicate that simply earning more money is no longer translating into having more money.

What’s Eating Into India’s Savings

Several factors have contributed to the decline in household savings in India. The drop in household savings has been exacerbated by an increase in both discretionary spends, such as consumer durables, cars and other expenses, along with a rise in the non-discretionary spends, such as rent, utilities and the basic costs of living in urban India.

Easy Access To Credit

According to Kotak’s report, one of the key drivers of the spending spree seen in India post the pandemic is the rise in the adoption of credit. Typically, Indian households have remained conservative when it comes to debt. However, the report shows that there’s a stark mindset shift as consumers now view massive purchases purely in terms of the monthly instalment impact. However, the report suggests that consumer debt is scaling fast as the total household EMI burden has expanded in the most recent tracked fiscal period (FY25), while total household income grew by a modest 8.0 per cent, the total household EMI burden surged by a staggering 13.4 per cent.

Shifts In Consumption Patterns

The report has also identified several major shifts in consumption patterns as more and more money is being spent on premium discretionary goods, and the money spent on traditional staples is decreasing. The report showed that premium smartphones, priced above Rs 30,000, have expanded their market share from 20 per cent to 26 per cent. Apple India's revenue is also actively projected to hit Rs 1.42 lakh crore in FY26, more than twice that of FMCG giant Hindustan Unilever Ltd, which is projected to make a revenue of Rs 67,121 crore.

Rising Rent In Urban India

While discretionary spending and shifts in consumption patterns can be controlled at the level of the individual, non-discretionary spending is also greatly reducing India’s household savings. The compounding baseline cost of urban survival has several parts, such as rent, which has ceased to be a minor budget item, now natively commanding 6.6 per cent of all urban household spending nationwide.

Over a five-year window, average rents on Sarjapur Road in Bengaluru skyrocketed by 67 per cent, moving from Rs 21,000 to Rs 35,000. Similarly, Sector 150 in Noida saw a 63 per cent rent explosion , while Mulund in Mumbai experienced a 29 per cent jump.

As income growth projections moderate and geopolitical tensions raise the cost of living, Prime Minister Modi’s recent calls for austerity come as a wake-up call for India. The report shows that millions of Indians are trying to balance premium lifestyles on a financial tightrope. When income expansion stalls, the margin for error disappears entirely.

Thus, prudent financial planning and budgeting are no longer just best practices, but a necessity for survival. The report also puts forth a need to redefine what success means and benchmark it against lifestyle sustainability and the ability to protect what you earn rather than symbols of social mobility.