PO­TEN­TIAL MINE­FIELD

IN­DIA’S DE­CLIN­ING SAV­INGS RATE COULD WELL POSE A SE­RI­OUS CHAL­LENGE TO OVER­ALL GROWTH AND MACROE­CO­NOMIC STA­BIL­ITY.

Business Today - - CONTENTS - By NITI KI­RAN

In­dia’s de­clin­ing sav­ings rate could well pose a se­ri­ous chal­lenge to over­all growth and macroe­co­nomic sta­bil­ity

THAT the sav­ings rate of a coun­try is im­por­tant for its GDP growth has long been known. In re­cent years, both In­dia and China have grown fast and have had high sav­ings rates. But since 2011/12, the sav­ing rate, mea­sured as a share of gross sav­ing to GDP has been con­tin­u­ously fall­ing in In­dia — there was just a mi­nor im­prove­ment in 2014/15. It de­clined 4.7 per­cent­age points over the pe­riod to stand at 30 per cent in fis­cal 2017. The high­est con­trib­u­tor to gross sav­ings is the house­hold sec­tor, with a share of 54.2 per cent in

2016/17; this de­clined from

56.9 per cent in 2015/16. The house­hold sav­ing rate plunged to 16.3 per cent from a high of 23.6 per cent in 2011/12. The re­cent de­cline in the house­hold sec­tor can be at­trib­uted to the de­cline in its gross fi­nan­cial sav­ings, which has re­duced from ` 15.21 lakh crore in 2015/16 to ` 14.05 lakh crore in 2016/17. The pri­vate sec­tor sav­ings rate has also de­clined a bit, while that for pub­lic sec­tor has gone up marginally. The over­all sav­ings rate, how­ever, has dropped to its low­est in years be­cause of the plunge in house­hold sav­ings rate. The twin shocks of de­mon­eti­sa­tion and Goods and Ser­vices Tax have af­fected the sav­ings rate and while the shock seems to be over now, the sav­ings rate has only gone down. If this de­clin­ing trend con­tin­ues, it will mean less money for lend­ing and in­vest­ments and there­fore will im­pact GDP growth rate go­ing for­ward.

@ni­ti_ ki­ran

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