The household sector will provide an additional amount of Rs 15,000 crore at 1996-97 prices to the private and public sectors through savings in financial assets during the ninth plan period. However, this will be possible only if the country achieves the targeted gross domestic product growth of 7 per cent.
These are the conclusions of a working group chaired by former Reserve Bank of India deputy governor S S Tarapore.
The group, which includes representatives of the finance ministry, different financial institutions and the Planning Commission, has predicted that gross domestic savings during the ninth plan will rise by 3.1 per cent of GDP.
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Gross domestic savings are expected to rise from 22.5 per cent in the eight plan to 25.6 per cent by the end of the ninth plan if a GDP growth rate of 7 per cent is attained. The improvement in the domestic saving rate will imply an addition of Rs 2,42,983 crore to domestic resources at current prices.
Household savings will continue to be the mainstay of domestic resource mobilisation, although its share in gross domestic savings could register a small decline.
The working group has said that savings in the household sector will grow at an average rate of 18.9 per cent over the next five years.
This will include net financial saving rate of 10.6 per cent of GDP and physical asset rate of 8.3 per cent. The group said there will be further acceleration in the rate of savings if the insurance sector is made more competitive and privately-run pension funds are launched.
The group felt that strong policy initiatives are necessary to improve contractual savings, which have contributed most markedly to the private saving rate in east Asian countries. Investments in shares, debentures, units of the Unit Trust of India and other mutual funds would be largely determined by the movement of share prices and foreign inflows in the stock exchanges.
There is evidence that fluctuations in asset prices have greatly influenced savings in those instruments, making prediction difficult, said the group.
Under normal conditions, these investments could continue to grow at an impressive pace. In times when capital market conditions turn adverse, there could be substitutions by other financial instruments.
The working group said gross financing saving is expected to rise to 14.4 per cent of GDP by the end of the ninth plan, while financial liabilities could rise to 2.8 per cent of the gross domestic product, leaving a financial surplus of 11.6 per cent of GDP by the ninth plans terminal year, 2001-2002.