FDI flow is necessary for infrastructure development

Mumbai, March 30 | Updated: Mar 31 2006, 05:30am hrs
Commenting on the foreign fund inflows into India, Nicholas Kwan, regional head of economic research, Standard Chartered bank said that even though India has seen robust flows from foreign Institutional investor in to stock market, still attempts should be made to increase FDI inflows. These flows should be channalised in key sector such as infrastructure.

Due of lack of investment avenues and high proportion of salary component going towards provident funds, countries like China and Singapore have shown high gross domestic savings rates as compared to that of India.

Indias gross domestic saving (GDS) rates are figured quite low about 29% when compared to that of Asian counterparts. However, if the situation was compared with the developed economies India stands at better position.

Highlighting the reason for this low savings ratio Mr Kwan said, In Singapore the saving rate is as high as 50%. The basic reason for such high saving rate is that they have better social security system. Moreover, the Singapore government has forced individuals to save more by way of central provident fund. Nearly 20% of the individuals salary goes to central provident fund in Singapore.

Further explaining, Mr Kwan said that in China the saving rates have reached high because of higher dependence on the banking system and lack of other saving avenues. Due to this over dependence on the banking sector, risk of assets turning bad is very high in China.

Whereas in India, non-performing assets level is comparatively low. Still, there are certain issues such as subsidies that are attached to the loans that need to be addressed. In order to increase the savings rates emphasis on real sector is needed, wherein more private sector participation should be encouraged, he added.