Our Chapter’s Publications

Behavioural economics is all about understanding why people make the choices they do. Traditional economics assumes we’re all rational decision-makers, carefully weighing pros and cons before acting. But in reality, we’re influenced by emotions, habits, biases, and even the people around us. That’s why we sometimes splurge on things we don’t need, put off important tasks, or panic-buy toilet paper during a crisis.

The COVID-19 pandemic showed us just how unpredictable human behaviour can be. In India and across the world, people reacted to lockdowns, vaccines, and financial uncertainty in ways that weren’t always logical. Some hesitated to get vaccinated due to fear or misinformation, while others rushed to stockpile essentials. Governments had to step in, using nudges—like making vaccines free and easily accessible—to encourage the right choices. Economically, the pandemic shook everything up. In India, migrant workers faced sudden job losses, and small businesses struggled to survive. Globally, industries like travel collapsed overnight, while digital services boomed. Even now, the way we work, shop, and save money is shaped by those experiences. Understanding behavioural economics helps us make sense of these shifts and plan for a future where people’s decisions aren’t always as predictable as we think.

Digital Transformation in Spending

The transformation in spending patterns in India during and after the pandemic has been drastic. The crisis forced consumers and businesses to rethink their financial habits, as the country witnessed an unanticipated upsurge in the use of digital payment platforms, such as UPI (Unified Payments Interface), Paytm, Google Pay, BharatPe and PhonePe. By 2023, India processed over 80 billion transactions a year through UPI, making it the world leader in digital payment systems.

Contactless payments during the pandemic became necessary due to the social distancing norms and problems associated with handling cash. This led to an unprecedented spike in QR-code-based payments even in the rural areas, where digital payments became routine for street vendors, small traders, and consumers. The government accelerated the process through schemes like ‘Digital India’ and the promotion of the Jan Dhan-Aadhaar-Mobile trinity, compelling a large proportion of the Indian population to open bank accounts.

Behavioural economics throws light upon this shift. In India, the principle of loss aversion emerged, as consumers, driven by the fear of Covid-19, leaned towards cashless payments even though they had some initial hesitations. Similarly, the lockdown and restrictions compelled businesses to get online, leading to an annual e-commerce growth of over 25% during the pandemic.

Post-Pandemic Spending Behaviours in India

Post-pandemic, India’s spending habits show several key traits:

1. Shift from Need to Convenience: Consumers now prioritize convenience over traditional preferences, which favours platforms that provide a nice digital experience.
2. Rising Financial Inclusion: Rural India, once opposing to digital financial system, has now adopted it. Awareness on the same has converted non-users to active users of digital payments.
3. Increased Savings and Investments: The past uncertainty during the Covid-19 pandemic, about money (expenditure, savings & investment) prompted many Indians to shift from excessive spending to saving and investing through digital platforms like Zerodha, Groww, and Paytm Money.

Global Perspective on Digital Spending

The pandemic also caused a significant change in expenditure pattern around the world. Like India, European nations, China and the US also experienced an increase in the use of digital payment methods and E-Commerce.

However, challenges were still prevalent. Unlike India, developed nations struggled with issues such as digital privacy concerns, cybersecurity risks, and the exclusion of older generations who are generally not very well-equipped with technology. Still, the global embrace of such technology and cryptocurrencies reflects the rapid evolution of spending behaviour worldwide.

Challenges and Opportunities

While India’s digital transformation is inspiring, it also accompanies some challenges. The problem of making the population learn the digital payments system, cybersecurity threats, increasing number of online frauds and scams, and infrastructural gaps persist, particularly in remote regions. The government and private sector must work together to ensure equitable access to technology, adopt data privacy measures, and conduct financial literacy campaigns.
However, the opportunities of digital banking are immense. India’s youth and its growing digital economy facilitate innovation in fintech, e-commerce, and digital payments. The integration of artificial intelligence (AI) and machine learning (ML) into financial services can improve the user experience, detect online frauds and provide personalized financial planning to the users.

The Transformation of Consumer Lifestyles Post-Pandemic

The COVID-19 pandemic has truly changed our lives in ways we never could have imagined. One of the biggest shifts we’ve seen is in how people approach their everyday spending and lifestyles. With lockdowns and social distancing becoming the “norm”, many of us took a step back to look at our habits and rethink what we really value in our purchases.

1. The Rise of Digital-First Consumers

One of the most significant shifts has been the quick adoption of digital platforms. According to a 2023 report by McKinsey, e-commerce penetration in the United States jumped from 16% in 2019 to 33% in 2022. Consumers who were previously hesitant about online shopping were forced to adapt during lockdowns. Many of these consumers have retained the habit.

• Online Grocery Shopping– BigBasket, and Amazon Fresh services saw a demand surge. A NielsenIQ survey revealed that 70% of consumers now prefer online grocery shopping for the convenience that it provides.
• Digital Entertainment– Platforms such as Netflix, Disney+, and Spotify reported record growth, with streaming hours increasing by 20% globally between 2020 and 2022.

2. Travel and Hospitality Redefined

The pandemic brought travel to a standstill, but it also redefined how people perceive and plan trips.

• Staycations– Domestic travel and short-distance trips gained popularity. Airbnb reported that 62% of its bookings in 2022 were within 300 miles of the traveler’s home.
• Workcations– The blending of work and leisure has led to longer stays in destinations that offer robust internet connectivity.
• Sustainable Travel– Travelers are increasingly looking for eco-friendly accommodations and experiences, with 40% willing to pay a premium, according to Booking.com’s 2023 Sustainable Travel Report.

3. Sustainability and Ethical Consumption

After the pandemic, consumers have demonstrated a higher level of awareness related to environmental and social issues. They are now more likely to support brands that align with their ethics and values.

• Sustainable Packaging- A PwC report found that 62% of consumers prefer products with biodegradable packaging.
• Consciousness in Fashion– The fashion brand H&M’s Conscious Collection has seen an increase in demand.
• Local and Small Businesses– Supporting local businesses became a priority for 55% of consumers in 2022 according to a survey by Accenture.

4. Personal Finance and Frugality

Uncertainty related to economic situations during the pandemic made people more cautious about their finances.

• Increased Savings– The global savings rate reached its peak in 2020 as many households prioritized emergency funds.
• Shift to Value– Consumers became more inclined to compare prices and seek discounts. A Deloitte survey found that 54% of shoppers actively look for promotions.
• Digital Banking– The adoption of apps like Paytm and Google Pay increased significantly. 49% of global e-commerce transactions in 2022 were digital wallets pay as reported by Worldpay.

Shifting Household Savings Patterns 

The chunk of income earned by households that is saved for future use rather than being spent on consumption is known as household savings. Historically, they have contributed for almost 60 to 65% of the gross savings in the economy (except the Covid era). They enhance people’s financial security and offer a substantial source of capital for economic activity.

There are two types of household savings: financial savings and physical savings. The difference between households’ gross financial savings and financial liabilities is their net financial savings. Financial assets held by families in the form of cash, deposits, shares, and debentures, as well as investments in government securities and insurance funds, are all included in gross financial savings. Borrowings from banks, NBFCs, cooperative societies, insurance companies, and other sources make up household financial liabilities. The household sector’s physical savings comprise both savings made in jewels like gold and silver as well as savings held in the form of tangible assets.

Household savings rate, expressed as the ratio of household savings to GDP, stood at 18.4 per cent in 2022-23, compared to 19.1 per cent in 2019-20. Post pandemic there has been a shift in the composition of overall savings of the household sector. The percentage of physical savings increased from 59.7% to 71.5% over the same time period, but the percentage of financial savings in total savings decreased from 40.3% in 2019–20 to 28.5% in 2022–2023 as well. The net financial savings of households decreased by 17% year over year. It fell to a 5 years low of Rs.14.16 lakh crore in 2022-23, lower than Rs.15.5 lakh crore recorded in the pre-pandemic period (2019-20). This has mainly been on account of rising financial liabilities of the households, which recorded a YoY growth rate of 22 per cent and 74 per cent in the corresponding periods. Among household liabilities, the lion’s share is commanded by loans from the banking sector (about 76 per cent of total liabilities).

Due to unstable earnings and fewer possibilities for consumption, the household sector’s net financial savings increased drastically during the pandemic, or FY 2020–21, to Rs. 23.30 lakh crore, representing a YoY jump of 50%. Households rushed to safe havens during this period, including investments in government securities, bank deposits, and life insurance funds. The increase in saving behaviour was driven by fewer spending opportunities and a heightened financial caution due to the economic disruptions caused by the pandemic.

In the last decade, households have also diversified their holdings of gross financial savings. Deposits that accounted 58% in 2011-12, now came down at 37%, still holding the maximum share. Provident and pension funds doubled their share from 11% to 21%. Even if the percentage of household savings invested in shares and debentures and claims on government has grown, it is still in the single digits. The increase in insurance funds was only 3%. Share of currency decreased from 11% to 8%.

IMPACT ON RURAL INDIA

Pandemic has significantly affected the saving behaviours of rural households in India by prompting a shift in financial priorities. Traditionally, these families relied on cash savings at home for immediate needs. However, the economic uncertainty caused by the pandemic increased the urgency to save, as many faced limited earning opportunities and rising prices for essential goods. As a result, emergency savings, frequently kept in the form of bank deposits and liquid cash, have become a top priority for rural households. These savings serve as a buffer against income loss and health emergencies. In order to protect themselves financially from unforeseen circumstances, many families are now purchasing life insurance. They are also making precautionary deposits for long-term objectives like their children’s education and retirement. This transformation reflects a growing awareness of the need for financial resilience, as rural households adapt their savings strategies to safeguard their well-being and future.

Conclusion

The COVID-19 pandemic changed the way we spend, and save money. In India, digital payments have become a way of life. E-commerce and fintech platforms like UPI and Paytm saw massive growth, making financial transactions more convenient. At the same time, the uncertainty of the crisis made many people rethink their finances—saving more and investing wisely.

Even though digital adoption has reached a record high, challenges such as online fraud, and financial literacy gaps remain. Rural India is now also embracing digital financial tools, showing how deeply habits have shifted. Moving forward, the key is balance- innovation with security. The pandemic has disrupted lives, but it has also reshaped financial habits in ways that are here to stay.

REFERENCES

1. Dixit, S. (2023) India’s digital transformation could be a game-changer for Economic Development, World Bank Blogs. Available at: https://blogs.worldbank.org/en/developmenttalk/indias-digital-transformation-could-be-game-changer-economic-development?cid=SHR_BlogSiteShare_EN_EXT
2. Impact of COVID-19 on Digital Payments in India – KPMG LLP (2020) kpmg. Available at: https://assets.kpmg.com/content/dam/kpmg/in/pdf/2020/08/impacting-digital-payments-in-india.pdf
3. Singh, D. and Behl, S. (2024) Shifting Household Savings Patterns: Implications for the Banking Sector: Punjab National Bank, Punjab National Bank. https://www.pnbindia.in/downloadprocess.aspx?fid=/o5qMFVXerEsd7ZQ/2UnOA==
4. Malliasamy, P. and Gopal, S. (2022) Transformational impact of covid-19 on savings and Spending Patterns of Indian Rural Households, Sage Journals Home. Available at: https://journals.sagepub.com/doi/full/10.1177/21582440221079885
5. Fabius, V. et al. (2020) How covid-19 is changing consumer behavior-now xand forever, McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/how-covid-19-is-changing-consumer-behavior-now-and-forever
6. Blackburn, E. and Wright, O. (2020) COVID-19: How consumer behavior will be changed, Accenture. Available at: https://www.accenture.com/cl-es/insights/consumer-goods-services/coronavirus-consumer-behavior-research
7. Klapper, L. (2022) Worldbank, world bank. Available at: https://openknowledge.worldbank.org/server/api/core/bitstreams/e1e22749-80c3-50ea-b7e1-8bc332d0c2ff/content