|Missing India Inc|
|Wednesday, 02 February 2011 00:00|
The upward revision of the GDP growth rate for 2009-10, from 7.4% to 8% in the quick estimates made by the CSO, may apparently boost confidence (ministers like Pranab Mukherjee spoke of an 8.5% growth for 2009-10 early last year). But the savings and investment rates estimated for the year are far from comforting and put a big question mark over the sustainability of the high growth rates in the medium term. The savings rate has marginally improved from 32.2% of GDP in 2008-09 to 33.7% in 2009-10, slightly below the 34% level estimated in the mid-term review of the Eleventh Plan and far below the 36.9% level achieved in 2007-08, just before the advent of the global crisis. Similarly, in the case of investment rates, while the numbers have improved from 34.5% to 36.5% over the last two years, the rate still falls far short of the the peak rate of 38.1% achieved in 2007-08.
The slow recovery in savings and investment rates is mainly because corporate and public sector savings and investments are yet to recover in the post-recession period. For instance, the numbers show that while household savings (as % of GDP), and especially their savings in financial assets, have remained largely stable in the second half of the decade, corporate savings, which stood at 8.1% of the GDP in 2009-10, were 1.3 percentage points lower than the levels achieved in the first year of the Eleventh Plan. The scenario was even worse in the case of the public sector, where the savings rate of 2.1% in 2009-10 was less than half of the 5% level achieved two years ago. The worst affected on the investment front has been the corporate sector, where the investment rates have slipped sharply by more than 4 percentage points, from 17.3% of GDP in 2007-08 to 13.2% in 2009-01. And the nominal corporate investments have almost remained stagnant for the last three years, with the numbers barely moving from Rs 8,63,154 crore in 2007-08 to Rs 8,64,643 crore in 2009-10, which bodes badly for the economy, considering that the corporate sector is the biggest investor in the economy. In fact, the trends show that the share of the corporate investments in total investments steadily decelerated from 45.5% to 36.6% between 2007-08 and 2009-10. And the public sector is in no position to compensate for the fall, given the large deficits. So, any steady pick-up in the economy will now depend on putting savings and investments back on the fast track or substantially boosting productivity levels—both difficult targets in the current scenario.