Not only is their preference for equity somewhat low, it is also declining over time. Such investments amounted to 0.2% of GDP at market prices in 2003-04 down from a high of 0.9% of GDP at market prices in 1999-2000.
While booms and busts in the stock exchanges are no doubt a factor in their saving preferences, CSOs numbers indicates that household participation in mutual funds is relatively low as well.
Such funds collectively mobilised Rs 48,809 crore in 2003-04 of which only 10% came from households. Here again, it is possible that the UTI crisis reinforced their aversion for equity.
These dismal trends should be read in conjunction with a broader pattern: A greater proportion of household savings as a share of GDP at market prices is going to physical than financial assets.
This switch is observable from 2000-01 onwards. Between 1996-97 to 1999-2000, the share that went into financial assets was larger at 10.2% of GDP at market prices when compared to 8.3% of GDP at market prices that flowed into physical assets. This position reversed itself since 2000-01.
The obvious implication of these numbers is that only a small fraction of household savings is flowing into the stock markets. An act of saving doesnt necessarily imply an act of investment.
As long as this state of affairs persists, it is possible that investments by corporates will remain relatively depressed. This, in turn, is not good news for the Indian economys growth prospects.
The upshot is that less conservatism on the part of household savers can re-kindle the animal spirits of entrepreneurs in the country.