Survey prescribes inflation-indexed bonds to curb investment skew

Says share of household investments in financial savings as against physical savings such as gold has been declining in recent years

The Economic Survey for 2012-13 has captured the significant changes in the composition of domestic savings over the years and has outlined the required measures to shift investments in gold to other areas.

The savings rate in the country (gross domestic savings as percentage of gross domestic product at market prices) peaked in 2007-08 at 36.8 per cent and reached an eight-year low of 30.8 per cent in 2011-12.

The survey has pointed out that within households, the share of financial savings as against physical savings has been declining in recent years.

It said that a combination of lower returns and higher volatility in the 2000s as compared to the 1990s could have contributed to the reduced share of shares and debentures in total financial savings.

“This, coupled with high inflation, could also be one of the reasons why gold has become a ‘safe haven’ investment in recent times,” the survey stresses and adds that acquisition of gold by the households in the country tends to have a negative impact on savings and on household financial investments.

Pointing out that the rising demand for gold is only a "symptom" of more fundamental problems in the economy, the survey has emphasized that curbing inflation, expanding financial inclusion, offering new products such as inflation indexed bonds, and improving saver access to financial products are all of paramount importance.

Much of the financial savings of the household sector in the country are in the form of bank deposits (around 30 per cent in the 2000s), life insurance funds (22 per cent in the 2000s as against 9.6 per cent in the 1980s), and pension and provident funds (16.5 per cent in the 2000s as against 23.6 per cent in the 1980s).

Ratio of savings to GDP (at current market prices per cent)
	2004-05	2006-07	2007-08	2008-09	2009-10	2010-11*	2011-12#
Gross domestic savings	32.4	34.6	36.8	32	33.7	34	30.8
Public sector	2.3	3.6	5	1	0.2	2.6	1.3
Private  sector	30.1	31	31.8	31.1	33.5	31.5	29.5
Household sector	23.6	23.2	22.4	23.6	25.2	23.5	22.3
Financial saving	10.1	11.3	11.6	10.1	12	10.4	8
Saving in physical assets	13.4	11.9	10.8	13.5	13.2	13.1	14.3
Private corporate sector	6.6	7.9	9.4	7.4	8.4	7.9	7.2
Source: CSO; *Second revised estimate, #First revised estimate