<p>India’s falling household savings, and not the corporate sector, has dragged down investments by almost 10 percentage points in six years from 2012 to 2018, a Reserve Bank of India (RBI) data showed, debunking the myth that weak demand by corporates slows investment and economy.</p>.<p>Household savings as a proportion of the gross domestic product declined to 17.2% in 2017-18. This is the lowest rate since 1997-98. Household savings were at their peak in 2009-10 at 25.2%.</p>.<p>Investment rate came down from its peak of 41.5% in 2011-12 to a little above 31% in 2017-18, but the private corporate sector investment in fact recovered, with a total capacity expansion of close to Rs 1.50 lakh crore in 2017-18.</p>.<p>The data released as part of the biannual monetary policy report showed that the fall in household savings, which is a net supplier of funds to the economy, was much sharper between 2011-12 and 2017-18. It fell from 23.6% to 17.2% in these six years.</p>.<p>“Household” includes individual households and non-corporate business. Non-corporate entities are those which are not registered under the Companies Act of 1956 or 2013.</p>.<p>The central bank warned that a sustained slowdown in household savings rate could impact the public sector more than private ones. “While private corporate sector financed its investment predominantly through its own saving, the public sector continues to rely heavily on households for resources,” the report said.</p>.<p>Falling household savings, which accounted for more than two-thirds of the total savings in the economy, act as a serious constraint to investment as the economy has to depend on foreign borrowings or current account deficit (CAD) to finance investments.</p>.<p>The data showed that the growth of capital goods imports — a proxy for investment demand — contracted in February again. The production of capital goods also either contracted or remained tepid from November 2018 to January 2019.</p>.<p>According to RBI estimates, the country’s growth would primarily be consumption-driven even in 2019-20 on the back of government’s announcement of a higher outgo in the interim Budget on income support schemes.</p>
<p>India’s falling household savings, and not the corporate sector, has dragged down investments by almost 10 percentage points in six years from 2012 to 2018, a Reserve Bank of India (RBI) data showed, debunking the myth that weak demand by corporates slows investment and economy.</p>.<p>Household savings as a proportion of the gross domestic product declined to 17.2% in 2017-18. This is the lowest rate since 1997-98. Household savings were at their peak in 2009-10 at 25.2%.</p>.<p>Investment rate came down from its peak of 41.5% in 2011-12 to a little above 31% in 2017-18, but the private corporate sector investment in fact recovered, with a total capacity expansion of close to Rs 1.50 lakh crore in 2017-18.</p>.<p>The data released as part of the biannual monetary policy report showed that the fall in household savings, which is a net supplier of funds to the economy, was much sharper between 2011-12 and 2017-18. It fell from 23.6% to 17.2% in these six years.</p>.<p>“Household” includes individual households and non-corporate business. Non-corporate entities are those which are not registered under the Companies Act of 1956 or 2013.</p>.<p>The central bank warned that a sustained slowdown in household savings rate could impact the public sector more than private ones. “While private corporate sector financed its investment predominantly through its own saving, the public sector continues to rely heavily on households for resources,” the report said.</p>.<p>Falling household savings, which accounted for more than two-thirds of the total savings in the economy, act as a serious constraint to investment as the economy has to depend on foreign borrowings or current account deficit (CAD) to finance investments.</p>.<p>The data showed that the growth of capital goods imports — a proxy for investment demand — contracted in February again. The production of capital goods also either contracted or remained tepid from November 2018 to January 2019.</p>.<p>According to RBI estimates, the country’s growth would primarily be consumption-driven even in 2019-20 on the back of government’s announcement of a higher outgo in the interim Budget on income support schemes.</p>
