Posted at 4:30 PM , on February 26, 2020
In the midst of all the chatter about the Coronavirus, the impending Trump visit, and rising inflation; most readers missed out on an extremely important data point. India’s savings rate has fallen to a 15-year low and is down nearly 600 bps from the peak of 2007. Why is the savings rate so critical and what are the implications of dwindling savings?
Look at the savings numbers
There have been some disconcerting statistics pertaining to savings. Here we are referring to overall savings and also to household savings. In India, the household savings account for over 60% of all the savings. While private business accounts for the balance, PSUs are actually dis-saving. Some numbers are really startling. The savings rate had touched a peak of 36.4% in 2007 at the peak of the bull rally. However, between 2007 and 2012, the savings rate fell to 34% and since then it has fallen further to just above 30%. This is marginally above the savings rate of 29% recorded in the year 2003. It is not only overall savings, but even household savings are sharply down. For example, household savings accounted for 23% of the GDP in the year 2012 but now accounts for just about 18%. That clearly implies that Indian households are saving much lower than they used to save 10 years ago. This is partly due to a greater propensity among Indians to spend and partly due to the sharp increase in the cost of most goods and services.
Posted at 5:34 PM , on February 13, 2017
A very subtle aspect focused on by the budget was on financial markets and institutions. These have larger implications for the integrity of the markets. Here are some of the key institutions that the budget addressed… Continue reading
Posted at 10:52 AM , on February 2, 2017
While the broad theme of the Union Budget focused on putting more money in the hands of the people and giving a push to rural incomes, the budget also had important provisions for other areas like Infrastructure, Financial Markets, Fiscal discipline etc There were some key announcements pertaining to the Financial Markets with the broad goal of making these markets and financial institutions more transparent and effective in discharging their role… Continue reading
Posted at 5:03 PM , on January 30, 2017
The core of the government’s fiscal policy in the Union Budget will depend on how it treats its fiscal deficit. For the coming year, the Union Budget may keep the fiscal deficit target in the range of 3-3.5%. One of the problems of the FRBM is that it tends to be cyclical rather than counter-cyclical. Ideally, Fiscal Deficit should come down in times of high growth and be allowed to go up in terms of low growth. However, the FRBM insists that the discipline of fiscal deficit control be maintained irrespective of the pump-priming that the economy will require. While we believe that the government in this budget will focus largely on pump-priming the economy to a higher growth trajectory, it will also take care to ensure that the fiscal deficit does not spiral out of control. Indian Rupee tends to be vulnerable to higher levels of Fiscal Deficit and CAD and the government will be keen not to repeat the experience of 2013. Broadly, we expect the following line of thinking in terms of government revenues in the Union Budget…
Posted at 11:42 AM , on January 2, 2017
Is it a good idea for the Indian economy?
In his speech at Mumbai, the prime minister hinted at taxing capital market profits. While the exact contours of the plan are not available, there are a variety of possibilities. More importantly, what are the arguments for and against taxing the capital markets? And will it really work in practice? Continue reading