Savings rate dips to 8-year low, investment rate down to 3-year low
India's economic growth rate has been revised downwards to a 9-year low of 6.2% for 2011-12 from the earlier estimate of 6.5%, as global turmoil and high interest rates choked investment and slowed factory output. The Central Statistics Office also revised the growth rates for 2010-11 and 2009-10 to 9.3% and 8.2% respectively from 8.4% each earlier.
As per the first revised estimates (RE) of National Income, Consumption Expenditure, Saving and Capital Formation, the GDP for the fiscal 2010-11, “GDP at factor cost at constant (2004-05) prices in 2011-12 is estimated at R52,43,582 crore as against R49,37,006 crore in 2010-11, registering a growth of 6.2% during the year as against a growth of 9.3% in the year 2010-11."
With the base year growth now being lower, the economic expansion in 2012-13 would statistically be a little better than forecast earlier. The government is due to release advance growth estimates for 2012-13 next Thursday.
What's worrying is the sharp decline in savings rate to an 8-year low of 30.8% of GDP in 2011-12 from 34% in the previous year and the fall in investment rate to 3-year low of 35% from 36.8% during the previous year. Private final consumption expenditure grew at a lower 16.2% in 2011-12 compared with 17.3% in the previous year. Thanks to the failure to rein in the fisc, government consumption expenditure grew 17% in 2011-12 as against 15.5% in 2010-11. In 2009-10, the year that saw the effect of the fiscal stimulus the most, government consumption expenditure grew 25.3%.
Worse, the data of first two quarters of this fiscal would give little solace, as private consumption growth remained sluggish. A positive feature is that gross fixed capital formation, a close proxy of investment, grew at a slightly better rate (yoy) in Q2 of this fiscal, compared with the previous three quarters.
In the monetary policy review on Tuesday, the Reserve Bank of India has pared growth projection to 5.5% for 2012-13, from 5.8% forecast in December and 7.3% projected in April 2012, as industrial growth crawling at just 1% during April-November and farm output may remain subdued due to lower kharif crop this year. Finance minister P Chidamabaram has pegged it at 5.7%. Growth in first half of the current fiscal stood at 5.4%.
Economists advocated fiscal, administrative and monetary steps to revive private