E-Paper
Rising savings can up GDP growth
The Indian economy can be put in the higher orbit of 9-10 per cent annual growth if rising domestic savings are properly channelised absorbed within the country.
The Indian economy, poised to post 6.9 per cent growth in fiscal 2004-05, can be put in the higher orbit of 9-10 per cent annual growth if rising domestic savings are properly channelised and a policy framework is created to absorb savings within the country.
India should leverage the rising domestic savings -- predominantly household savings -- to increase investment activity and further accelerate economic growth, say economists.
Government can channelise rising household savings into infrastructure projects, which in turn, will lead to enhanced economic growth and create more demand for goods and services, they add.
Domestic savings have shown an upward trend in the past two fiscals thanks to a reversal in growth in financial savings done by the Indian households.
According to Central Statistical Organisation, gross domestic saving (GDS) at current prices in 2003-04 is estimated to have grown to Rs 7,76,420 crore as against Rs 6,42,298 crore in 2002-03, constituting 28.1 per cent of GDP (at market prices) as against 26.1 per cent in the previous year.
In contrast, domestic savings were almost static during 1990-2002, accounting for 23.1 per cent of GDP in 1999-91, 23.7 per cent in 2000-01 and 23.5 per cent in 2001-02.
"The breakthrough in stagnation in domestic savings is good news. Investment rate should also be stepped up", said Confederation of Indian Industry (CII) senior advisor TK Bhaumik.
Estimates put India's requirement for infrastructure projects -- ports, roads, power, rail, water and other projects -- in the next decade at $150 billion. The cost of upgrading existing infrastructure to levels that exist in, say China, are expected to be much higher.
"The domestic savings can provide a huge investible surplus which can be used in infrastructure financing", said a senior Federation of Indian Chamber of Commerce and Industry (FICCI) official, adding: "The multiplier effect can lead to more income creation and more demand".
Given the dire state of Government finances, India has so far not been able to commit extra-ordinarily huge amounts for infrastructure development. At the ideation stage, though, some of the policy makers are debating the pros and cons of committing a portion of the $130 billion of foreign exchange reserves that the country holds, largely in foreign currency assets.
With rising disposable income levels and deregulation in the financial services sector making finance options easy, savings are expected to grow in the coming years. But, some experts say that with India already running a current account deficit and savings rate exceeding that of investment, it will be pertinent to create a mechanism that helps the savings through increasing imports and cutting customs duties and making the rupee appreciate.
