Letter to BS: Demand for goods and services is crucial to boost investment

This refers to "The Budget, the Survey and the trilemma" (July 29). While the demand for goods and services is crucial to promote investment, the resources to cater to the latter come mainly from the domestic household savings. An attractive return on savings induces the propensity to save but negatively impacts the allocation for consumption. Consequently, consumption expenditure will get confined to essentials. The inflow of foreign funds through foreign portfolio investment, foreign direct investment and against increased exports is rather beneficial than the raising of external savings through the issue of sovereign bonds in foreign currency. It is fraught with the danger of volatility in the exchange rate.

Domestic investment is depended on the cost of capital and the prevailing elevated lending rates are impediments. Therefore, lenders have to cut down the interest rates in consonance with the monetary policy rate. Factors like consumption, savings and rate of interest on deposits and loans all have significant implications on the growth of investments and therefore, the economy needs a balanced combination of all these to attain the envisaged growth goals. It is also imperative to bring down the rising unemployment and to cut down the gap in the inequality in income distribution for smooth economic growth and social development.

V S K Pillai Kottayam

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