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Householder Focus Shifts To Physical Assets

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BUSINESS STANDARD
Last Updated : Aug 29 2001 | 12:00 AM IST

The low returns on financial assets have forced the household sector to shift focus from financial assets to physical assets. The rate of financial saving by households dipped to 10.5 per cent in 1999-2000 from 10.9 per cent in the preceding year.

RBI attributed this phenomenon to relatively low rates of return on financial assets in a phase of deceleration in overall economic activity.

During this period, the rate of gross domestic saving went up marginally to 22.3 per cent from 22 per cent in 1998-99. This was on account of the improvement in the rate of household saving - the principal component of gross domestic saving - to 19.8 from 19.1 per cent. This was driven by an increase in savings in physical assets.

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The rate of household financial savings (gross) in deposits decreased to 4.5 per cent of gross domestic product during 1999-2000 from a high of 6.5 per cent of GDP during 1994-95 while the claims on government and contractual savings (provident/ pension/ insurance funds) moved up to 1.5 per cent of GDP and 4.3 per cent of GDP respectively in 1999-2000 from 1.3 per cent of GDP and 3.2 per cent of GDP, respectively.

The Reserve Bank of India has tentatively estimated the rate of financial savings of households (net of financial liabilities) at 10.5 per cent of gross domestic product in 2000-01 as against 10.6 per cent estimated in the previous fiscal.

Instrument-wise, while the rates of saving in the form of currency, investment in shares and debentures including units of Unit Trust of India (UTI) and contractual savings declined, the rate of saving in the form of deposits is estimated to have moved up to 5.4 per cent in 2000-01 from 4.9 per cent in 1999-2000.

The private corporate sector saving rate remained at 3.7 per cent during 1999-2000 and the stagnation has been attributed to low profitability conditions associated with slackening of industrial activity as well as the subdued capital market.

The rate of public saving, which turned negative in 1998-99 deteriorated further to a dissaving of 1.2 per cent in 1999-2000 mainly on account of a widening of revenue deficits in the Centre and States primarily to accommodate the impact of pay revisions under the 5th Pay Commission Award.

During 1999-2000, external saving stood at 1 per cent of GDP, the same as in the preceding year. Accordingly, the rate of gross domestic capital formation tracked the behaviour of the gross domestic savings rate, moving upto 23.3 per cent in 1999-2000 from 23 per cent in 1998-99.

The net inflow of external saving has remained broadly stable at around 1.4 per cent of GDP in the 1990s with small year-to-year variations. Its contribution to aggregate investment has also remained stable at about 5.6 per cent.

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First Published: Aug 29 2001 | 12:00 AM IST

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