The First Revised Estimates of GDP data are important since they include the first estimates of savings and investment for the year. While much has been written on the revisions made to the GDP output, the result of growth on financial savings does not seem to have got as much prominence. Changes in domestic savings behaviour has become a critical driver of multiple macroeconomic indicators, including interest rates, liquidity, and increasingly, external vulnerability, since the deficit in ability to mobilise domestic funds has led to increasing dependence on foreign capital to finance domestic capex, exposing India to global volatility.
The drop in household (HH) financial savings turns out to have been deeper and even more rapid than we believed from the numbers published last year. It is bad enough that gross domestic savings have come down from 36.8% of GDP in FY08 (the year of the financial crisis) to 30.1% in FY13 (bottom chart). But the components paint a picture even more dire.
Total financial savings (HHs, corporates and government combined) has almost halved from a high of 26% in FY08 to 15% in FY13. This fall was led by HHs. From 12% in FY10, their share had dropped to 10% in FY11 and then to 7% in FY12 and remained there in FY13. The FY12 number is also a downward revision; the first estimate was 8%. HH financial savings had hovered in the range of 11.3-12% during the four years from FY06ĖFY10, with the exception of FY09 when it fell to 10%.
Private corporate savings are also down, but the drop is not as sharp, a peak of 9.4% in FY08 to 8.4% in FY10 and then 7% in FY13. This, obviously, reflects the slowdown in profits, offsetting the large cash holdings which have built up. The profits (plus depreciation) of a sample of companies (sourced from CMIE) show trends which are similar.
Public sector savings have also come down from a peak of 5% in FY08 to 1.2%, almost entirely due to the rise in fiscal deficits of the central and state government (which had increased from a combined 4.1% of GDP in FY08 to 9.4% in FY10 before stabilising to 7% in FY13. The residual drop was due to the (very modest) fall in savings of Public Sector Enterprises, whose profits (and hence savings) have held up better. A large part of this is presumably due