In an otherwise well-written Economic Survey, there is one recommendation that is puzzling. It says to promote growth "India needs to shift from consumption to investment by way of increased government and household financial savings". There is the aggregation problem in economics where the sum of the constituents is not equal to the total. Keynes demonstrated how increased saving at the level of the individuals will eventually lead to its decline in the total at the national level owing to a fall in effective demand for goods and services, output and income - the last resulting in a fall in total savings. He suggested fiscal spending to counterbalance this adverse result. What is needed is a proper balance between consumption and saving on the one hand, and investment on the other. Finding this balance is a challenging job but worth pursuing for policy making.
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A Seshan Mumbai
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number