India saves 29.1% of GDP, invests 30.1%

ECONOMIC SURVEY 2005-06\ SAVINGS & INVESTMENT

Public sector serves savings on the double while household savings play spoilsport.

The impact of the implementation of the Fiscal Responsibility and Budget Management Act was visible in 2004-05 with public sector savings more than doubling to 2.2 per cent of the GDP in the year, compared with 1 per cent in the previous year.

But declining growth in household savings slowed down savings growth, which grew by 0.2 per cent of the GDP to 29.1 per cent in 2004-05, compared with 28.9 per cent in 2003-04, when it had grown by 2.4 per cent of the GDP.

Household savings declined for the first time in the last four years to 22 per cent of the GDP in 2004-05 with savings in financial assets falling sharply by 1.2 per cent of the GDP to 10.3 per cent.

The growth at 5.9 per cent, slower than the GDP growth rate, thus makes a negative contribution. Household savings in physical assets fell to 11.7 per cent in 2004-05 compared with 12 per cent in 2003-04.

Investments in 2004-05 overtook savings to stand at 30.1 per cent of the GDP, growing by 2.9 per cent of the GDP. The increase in investments or capital formation was mainly on account of private investments growing by 19.7 per cent.

With investments growing faster than savings, the savings-investment gap which had stood at 1.6 per cent of the GDP in 2003-04 was wiped out with investments standing higher by 1 per cent of the GDP compared with a savings-investment gap of 1.6 per cent of the GDP in 2003-04.

Lower dissavings of public authorities and higher savings from non-departmental enterprises contributed to savings of Rs 69.390 crore in 2004-05.

The increasing savings trend which began in 2001-02 continued for a straight fourth year. On the back of higher retained earnings due to higher profits, private sector savings grew by 24.9 per cent to 4.8 per cent of the GDP in 2004-05.

The government's final expenditure grew marginally to 11.3 per cent in 2004-05 compared with 11.2 per cent in 2003-04. It had been showing a declining trend since 1999-2000 when it had stood at 12.9 per cent of the GDP.

While investments showed robust growth and savings grew marginally, consumption expenditure showed a declining trend. Private final consumption fell to 60.6 per cent in 2004-05 from 62.4 per cent in 2003-04.

The share of food, beverage and tobacco came down to 40.6 per cent in 2004-05 from 46.8 in 2000-01 while the share of transport and communication rose from 14.3 per cent in 2000-01 to 18.2 per cent in 2004-05.