Book value method to assess savings should stay: Rangarajan

The Rangarajan Committee, which looked into aggregate savings in the country, has recommended against switching to a system of estimating corporate savings on the basis of prices prevailing in the market from the one based on book value.

"(The) High-level committee feels that savings estimates on (a) mark-to-market (MTM) basis may not be apt as it may lead to wide fluctuations from one reporting period to the next even when the underlying fundamentals do not change," the committee said in its report submitted to the Government yesterday.

Moreover, the absence of a liquid market for various types of assets also makes such estimation inappropriate, it said. One of the terms of reference of the committee was to examine if corporate saving estimation should be done on an MTM basis.

MTM refers to the present value of assets based on their market prices.

The eight-member committee was constituted on December 12, 2007, to critically review the existing methodologies used to estimate saving and investment aggregates for the Indian economy.

To facilitate better correspondence between corporate performance and bank lending, the committee, under the chairmanship of the former head of the Prime Minister's economic panel, C Rangarajan, suggested including both secured and unsecured assets in companies' balance sheets and profit-and-loss accounts.

It has also asked the Ministry of Corporate Affairs to explore collecting information on different types of employment from companies.

There were doubts in several quarters on the reliability of employment data in the backdrop of the global financial crisis, but the committee's terms of reference did not include data on employment.

As regards savings and investment estimates of households as policy inputs, the committee recommended a comprehensive income-expenditure survey for households by the National Sample Survey Organisation.

"The survey will provide an alternative data base for direct estimation of household savings for cross-validation of the present estimates," it said, asking for a concurrent survey of income and expenditure of 'pure households' with the Enterprise Survey.