Opinion - Editorials   

Sustaining high investment levels

Prime Minister Manmohan Singh has spoken of policy reforms to not just sustain but also accelerate the current high levels of domestic savings and investment. Quick estimates of national income trends for 2005-06 released in February by the CSO showed a sharp increase in the rate of savings and capital formation since the beginning of this decade. The rate of domestic savings was 32.4 per cent and that of capital formation 33.7 per cent of the GDP. In 2000-01, they were 23.4 per cent and 24 per cent respectively. The jump of 9 to 10 percentage points in a matter of five years is in contrast to what obtained in the mid-1990s when savings and capital formation stagnated at relatively low levels ranging between 24 and 26 per cent. The already impressive rates will become actually flattering if the size of India's current account deficit is factored in while estimating capital formation. The current account deficit that mirrors capital flows is projected to rise from 1.4 per cent in 2005-06 to 2 per cent of the GDP this year. Hence the investment rate might well move closer to 35 per cent, bringing India almost on a par with the Asean nations.

A further reform of the financial sector especially in the pension and insurance segments will help in reaping the benefit of the demographic dividend. More than at any time before, a vast majority of young people are able and willing to save for the long term. Practically all sectors — the household, the private corporate, and the public — have contributed to the surge in savings. The household sector continues to be the major contributor but its share has come down from 86 per cent during 2002-03 to 69 per cent in 2005-06. The composition of household savings is also witnessing a change in favour of financial assets. While the public sector has considerably pruned down its "dissavings" and hence contributed to the surge, it is the role of the private corporate sector that is nothing short of spectacular. The former is a natural corollary of improved public finances at the Centre and in the States as indicated by their lower revenue deficits. The corporate sector, which is recording bumper profits, is driving the pace of investment. While some statistical revisions and accounting reclassifications have tended to heighten the gloss, there is no doubt that the recent record is satisfying. The Eleventh Plan document has postulated a 9 per cent GDP growth on the basis of a savings rate of 32.3 per cent and an average investment rate of 35.1 per cent, and the recent estimates place the rates almost at these levels.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Sustaining high investment levels
Europe at fifty
Behind the events at Nandigram
U.K. government policy inspired by a film?
New software to create music
Corrections and Clarifications
Shocking
It's just a game
Child abuse
Media hype

Copyright © 2007, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu