Rates pick up momentum

Gap between savings and investment narrows, but remains wide.

Savings and investment rates have picked up and are likely to rise further, as the government continues a gradual rollback of stimulus, according to the Economic Survey 2010-11. In 2009-10, the gap between savings and investment narrowed compared to previous years, but still remained wide.

The savings rate went up to 33.7 per cent, while the investment rate increased to 36.5 per cent of the GDP in 2009-10, indicating prospects of sustained output growth. Both rates are still below the 2007-08 levels. The savings rate stood at 36.9 per cent in 2007-08, while the investment rate was at 38.1 per cent.

“Since savings and investments show a positive momentum and the government is implementing a gradual exit from the stimulus package, savings and investment rates are likely to rise further. Hence, it is expected that the economy’s growth will breach the nine per cent mark in 2011-12,” the survey said.

The growth in 2009-10 was helped by savings from public sector, which saw its savings rate improving from 0.5 per cent in 2008-09 to 2.1 per cent in 2009-10. Private sector savings remained flat at 31.6 per cent in 2009-10. Savings have remained sticky in the range of 30.1 per cent to 31.9 per cent in the last six years and apparently, the global crisis had no significant impact on it.

The survey pointed out further growth in savings and investment would be supported by strong fundamentals of the economy and demographic advantage of a higher proportion of working population. It, however, cautioned that once an economy began to operate close to its capacity, savings and investment rates were no longer such effective drivers of GDP growth.

The investment rate dipped sharply in agriculture, trade, transport, banking and insurance, but picked up in mining and quarrying and construction.