Saving=Investment & Economic Growth.

Savings=Investment is a pre-condition for economic equilibrium, students are taught. But, when both start declining, the equilibrium is reached at a lower level of National Income or GDP, perhaps a pre-recession stage. The latest data show that national Savings rate has fallen from a high of 37.8% of the GDP in 2007-08 to 30.2% in 2021-22.  The fall in Investment rates has been higher, from 39.8% of the GDP in 2010-11 to 31.4% in 2021-22. Historically, households have been the largest savers and the lenders to the Government and Corporates who have been the borrowers. If we try to understand the reason behind Savings fall, then reasons would be many: (a) Covid 19 induced recession (b) Declining Incomes in some income groups during 2016-2021. This is due to increased under-employment with low wages and erratic income in the gig economy (c) Declining labour force participation rate during 2011-2022 etc. Regarding decline in Investments, the cause for concern is the reduced appetite of the Corporate sector for Investments. During 2011-2021, Investment by PSUs have fallen from 5% to 2.8% of GDP while that of Private enterprises have fallen from 13.3% to 10.8% of GDP. FDI is coming , under ‘Make in India’ and PLI schemes and annual flow has doubled to $83 billion. But, there is still a gap which could be bridged if Government takes some measures to increase market demand through employment generation and social welfare schemes, on top of the existing infrastructure development programs. This will create a multiplier effect on Corporate  Investment and increase Employment and national Savings.

Leave a Reply

Your email address will not be published.

You might also like

Subscribe Our Newsletter