Opinion - Editorials   

Weak capital market structures

A high-level committee headed by C. Rangarajan that undertook a critical review of the estimates of domestic and national saving and investment in the economy has come up with several recommendations aimed at making them more robust and useful as policy inputs. Among other things, the panel calls for strengthening the existing methods of estimation through regular updating of the rates and ratios and the development of alternative data bases for cross validation of the est imates. The National Sample Survey Organisation has been asked to conduct a pilot survey of income-expenditure of households in 2010-11, paving the way for the eventual introduction of comprehensive surveys at periodic intervals. Nodal agencies and regulators such as the Nabard, the SEBI, the Insurance Regulation and Development Authority, the Provident Fund Regulatory and Development Authority as well as the RBI should be involved actively in the process of collecting and verifying data. The emphasis ought to be on minimising the time-lag in publishing the data without compromising its integrity. The committee has made a number of suggestions to improve the methodology of data collection in areas such as currency holdings, and deposits with cooperative banks and non-banking financial companies.

The Rangarajan committee has corroborated the findings of the RBI in the area of household savings. The CSO has estimated the share of gross domestic savings in the GDP at 34.8 per cent in 2007, which is sharply higher than the 2003 figure of 24.4 per cent. Over the years, there has been a shift in favour of financial savings — according to the committee, the proportion of household financial savings in total household savings rose to 47 per cent during the period 2002 to 2007, nearly double the 25 per cent estimated in the 1950s.The main beneficiaries have been commercial banks, post-offices, and insurance companies. The share of capital market instruments in the financial savings has continued to languish at very low levels. In fact, investment in the Indian equity markets fell to 5.1 per cent of total household savings in 2006, from 9.2 per cent in 1994. A very large part of the investment in the capital market instruments comes from just three cities — Mumbai, Delhi and Kolkata. The strong urban orientation of investors has remained unchanged for decades, although the markets have grown exponentially, both in terms of volume and activities. Capital market reform and technology were expected to make investment in shares and debentures more accessible but that has not quite happened.

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

Stories in this Section

BJP’s deepening crisis
Weak capital market structures
Sri Lanka: task of livelihood rehabilitation
At Yekaterinburg, the BRICs come of age
Russia, the world’s critical ‘swing’ state
Media: journalists and the right to silence
Corrections and clarifications
Continuing attacks
On cricket
New Readers’ Editor

Copyright © 2009, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu