Sunil Jain: Strangulating savings

PERSPECTIVES

With all manner of restrictions on the financial sector, such as SLR norms for banks and rules that ensure 90 per cent of a provident fund's corpus is invested in government securities, the country's dynamic private sector gets just around 30 per cent of the total savings while the rest goes to the government and the public sector, according to consulting firm McKinsey & Company.

Since private sector firms have, on an average, twice the productivity of the public sector, the impact on GDP is obvious. The latest McKinsey Quarterly says fixing the country's financial system could add as much as $48 bn a year to the economy, taking GDP growth from a three-year average of 7 per cent to around 9.4 per cent.

As a result of all these regulations, according to McKinsey, even the corporate bond market is just 2 per cent of GDP, as compared to 68 per cent in South Korea and 145 per cent in the US. Naturally then, the price paid by Indian corporates for raising debt is much higher than that in other countries "" listed companies in India spend around 2.5 times more than their counterparts in China.