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SAVINGS AND INVESTMENT TRENDS IN INDIA

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Poulami Roy

on 14 April 2014

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Transcript of SAVINGS AND INVESTMENT TRENDS IN INDIA

Savings and Investment Trends in India
IMPACT OF EXTERNAL FINANCE ON INVESTMENT IN INDIA
GROSS DOMESTIC CAPITAL FORMATION
(1951-1996)
Gross Domestic Saving (1951-1996)
INTERNATIONAL
COMPARISONS

Investment levels in the high growth Asian economies

The broad but significant changes in the macroeconomic and policy environment over the past one and a half decades that have impacted India’s savings performance are as follows:

The decade of the 1990s marked the initiation of wide-ranging structural reforms and financial liberalization, in response to the unprecedented external payments crisis of 1990-91.

The decade of the 2000s was characterized by a build-up to over 9 per cent real GDP growth during three consecutive years ended 2007-08, a period that coincided with the enactment and implementation of fiscal responsibility legislation and an upsurge in capital inflows.

This was followed by a sharp decline in the growth rate and increased financial market volatility in 2008-09 in the face of the knock-on effects of the global financial crisis, and then, a quick recovery to the pre-crisis trend rate of growth, facilitated by coordinated fiscal and monetary policy actions.

As the economy emerged from the shadows of the global financial crisis, it faced an upsurge of inflationary pressures engendered by sharp increases in commodity prices and later by the strengthening of domestic demand. In this context, a series of hikes in policy interest rates were affected by the Reserve Bank with a view to arresting inflationary pressures.

But the uncertainty in the global economy has refused to fade.

EVOLVING MACROECONOMIC AND POLICY ENVIRONMENT
Over the Eighth to the Eleventh Plan so far - an 18-year period that coincided with the structural reforms process - the average rate of Gross Domestic Savings (GDS) increased by around 14 percentage points

This was higher than the increase of around 11 percentage points in the GDS rate that occurred over the First to the Seventh Plans, a period of around 40 years.

The maximum increase (of around 8 percentage points) in the average GDS rate occurred over the Tenth Plan (2002-2007).
SAVINGS AND INVESTMENT TRENDS IN THE PERIOD 1997-2017
(NINTH TO TWELFTH YEAR PLAN)

The Gross Domestic Savings (GDS) rate has exhibited a generally upward trend since the 1950s, with some intermittent sharp escalations, notably over the period 2002-03 to 2007-08
TREND AND COMPOSITION OF SAVING
CONTRASTING MOVEMENTS IN THE SAVINGS OF THE HOUSEHOLD, PRIVATE CORPORATE AND PUBLIC SECTORS
CONTRASTING MOVEMENTS OF THE THREE SECTORS
HOUSEHOLD SAVINGS
PUBLIC SAVINGS
PRIVATE CORPORATE SAVINGS
TRENDS AND COMPOSITION OF INVESTMENT
NINTH YEAR PLAN
Average Gross Domestic Savings Rate: 23.4%

Average Investment Rate: 25%
ELEVENTH YEAR PLAN
TENTH YEAR PLAN
Average Gross Domestic Savings Rate: 31.1%

Average Investment Rate: 31%
Average Gross Domestic Savings Rate: 33.5%

Average Investment Rate: 36.1%
FIVE SCENARIOS FOR PROJECTION
SCENARIO 1
Scenario 2
Real GDP growth WPI Inflation Implied growth rate of GDP
at current market prices
Scenario 3
Real GDP growth WPI Inflation Implied growth rate of GDP
at current market prices
Scenario 4
Real GDP growth WPI Inflation Implied growth rate of GDP
at current market prices
Scenario 5
Real GDP growth WPI Inflation Implied growth rate of GDP
at current market prices
The Working Group constituted by the Planning Commission decided in its first meeting that all six Sub-Groups would adopt the following five scenarios of real GDP growth and WPI inflation as a common starting point for making projections of savings relating to their respective sectors over the Twelfth Plan:
Real GDP growth WPI Inflation Implied growth rate of GDP
at current market prices
INFRASTRUCTURE INVESTMENT
INVESTMENT REQUIREMENT:
65 Lakh Crore
Investment met by debt & equity
32.5 Lakh Crore
Investment met by budgetary resources
32.5 Lakh Crore
17.84 Lakh Crore
-
Funding Gap :
14.61 Lakh Crore
32.5 Lakh Crore
Funding Gap :
5.89 Lakh Crore
-
KEY ASSUMPTIONS MADE DURING THE TWELFTH FIVE YEAR PLAN
SAVING PROJECTIONS DURING THE TWELFTH FIVE YEAR PLAN
8.5
5.0
13.9
9.0
5.0
Project Funding :
26.61 Lakh Crore
Project Funding :
14.5
9.0
6.0
15.5
9.5
5.0
15.0
9.5
6.5
16.6
The Japanese experience suggests that other East Asian countries, particularly those at higher income levels and undergoing rapid demographic transition, are likely to experience lower saving and investment rates in the future.
Saving Rate, Investment Rate and Real
GDP Growth in some
Asian Countries, 1970-2005
By 2030 India and China will dominate global saving and investment, says new World Bank report
 
India and China show a clear contrast to Japan, South Korea, Singapore and Hong Kong.

Whereas in Japan, South Korea, Singapore and Hong Kong there was a decline in the proportion of the economy devoted to investment and a decline in the rate of economic growth, both India and China India have systematically increased the share of investment in their GDP and have seen an acceleration of their growth rates.
Growth in India and China
FOCUS ON THE NINTH - TWEFTH YEAR PLANS
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