India Ratings on Thursday warned that the national savings rate will slip further to 30% or so this fiscal, from 30.8% of the GDP last fiscal, if the advance estimates of national income is anything to go by.
Earlier in the day, the Central Statistical Organisation (CSO) said the national savings rate may plunge to a decade year low this fiscal, which had slipped to an eight year low of 30.8% last fiscal.
According to India Ratings chief economist and public finance head Devendra Kumar Pant, the gross domestic savings will slip by 80 basis points to 30% this fiscal.
"The estimates portray a weak picture of stabilising twin deficits. While the estimated investment rate this fiscal is likely to be similar to FY12, an 80 bps rise in the share of consumption expenditure (private and government) will reduce the savings rate further, leading to further widening of the current account deficit," Pant said in a note.
The domestic saving rate had touched a high of 36.9% in FY08 but since then has steadily fallen.
It fell to 33.8% in FY10 and rose a tad in FY11 to 34% but again fell to 30.8 of GDP in FY12.
A major impact of a low savings rate, considered as one of the biggest economic strengths, will be a higher current account deficit (CAD), which is already burgeoning to historic high of 5.3% in Q2.
The CSO, in its advance estimates, pegged GDP growth at a low 5% this fiscal, much lower than consensus estimate of over 5.5% as the economy is expected to grow only by 4.6% in the second half, against 5.4% in the first half.
The CSO said while the manufacturing sector growth is estimated to increase to 3.1% in H2 from 0.5% in H1, growth of construction, and finance, insurance, real estate and business services is expected to slow down considerably in H2 to 3.3% and 7.3% respectively from 8.8% and 10.1% respectively in H1.
The projected GDP readings this fiscal will be the lowest after FY03 numbers when GDP had grown at 4%. Since then, the economy has been expanding at over 6%, the highest rate being 9.6% in 2006-07 and 9.3% in FY10.
India Ratings said the projection indicates that the economy has not yet bottomed out.
Since the third quarter every analyst was saying that the economy has bottomed out and that FY13 will see the economy clipping at over 7% or thereabout.
These very low growth numbers have implications for fiscal situation, said Pant.
However, a Noumra report early this week had pegged the savings rate to a low of 27% this fiscal.
"Based on the available investment data, we estimate that savings will plunge even further to a 10-year low of 27% of GDP in FY13," Nomura had said in a note.
National savings rate usually refers to the percentage of GDP savings by households.
According to the government data released over weekend, growth in per capita income fell both on current prices and real terms basis in FY12.
The per capita income rose 4.7% on real terms basis to Rs 38,037 in FY12 as against 7.2 % in previous fiscal. Similarly, on current prices basis, it grew by only 13.7% as against 17.1% in FY11.
According to analysts, the slowdown in the savings rate takes resources away from investment, which will result in greater dependence on foreign capital.
The lower savings rate is also having an impact on the current account, which is moving deeper into deficits.
"The slowdown is reflective on the poor tax collection. The government has changed its fiscal deficit target to 5.3% this fiscal from the budget estimate of 5.1%.
"Even after factoring in recent disinvestment proceeds, we expect the new fiscal deficit target will be difficult to be met," Pant said.
The CSO estimate is drastically lower than what has been projected thus far by the government and RBI, which pegged growth at 5.7 and 5.5% respectively.
Last week, the government had revised downward the the FY12 growth to 6.2 from 6.5%.
The CSO lowered the growth in agriculture and allied activities to 1.8% compared to 3.6% last fiscal, while manufacturing is also expected to drop to 1.9%, from 2.7%.
In its mid-year Economic Review, the government had also estimated growth ranging from 5.7-5.9%. The current estimate is a sharply lower than the 7.6% growth projected in the Budget.
The recent savings rate of the country is comparable to Indonesia, Thailand and South Korea but much lower than that of China, Malaysia and Singapore.
Consumer states like the US and Britain had their savings rate as low as 11% levels in 2009, while the rate is 17% for France and 21.4% for Germany.
Among emerging economies, Brazil had a low savings rate at 16.5%.