India, the self-acclaimed knowledge economy, has still some way to go when it comes to securing estimates of fundamental macroeconomic parameters, such as investment, savings and consumption. In all developed economies and many developing ones, the national accounts data that is released, whether on annual or on quarterly basis, always provides, and often leads with the gross domestic product (GDP) by expenditure. Knowing that industry and services are growing, but agriculture is not, is indeed very useful, but actually less so than knowing what is happening to fixed capital formation, and exactly in which areas it is rising, and in which it is falling

Such information is of great use to the private sector because it tells you which way the economy is moving. In our country, from the very outset, the government has prided itself on having a historical, larger-than-life role in the management of the economy.

The central government?s plan outlay is Rs 1,64,000 crore or 5.3% of GDP. And yet, over the past so many decades of planning, and even after we decided to become global, the GDP by expenditure categories arrive one year late and quarterly estimates have yet to be heard of. This is something like a large company that supplies to many customers, but fails to learn whether orders have been delivered, and gets to know everything a year late. Actually two years late, since the revision to the provisional numbers are large enough to make analysis based on provisional data somewhat infructuous.

We know what would happen to the company who knew not what was going on, but in the case of governments there is much greater latitude. Still, does not government really want to know whether investment is happening or not, whether it is consumption demand that?s driving growth or investment demand? Somewhat fed up with this state of affairs, I asked myself whether we can know anything about I&S ? investment and savings, the holy grail of macromanagement. My humble efforts are summarised here?for the reader?s information, or amusement, or whatever.

First, the Reserve Bank of India (RBI) publishes its estimate of savings of households in its annual report. Households in the parlance mean individuals and unincorporated business. In 2003-04, net financial savings of the households available for the rest of the economy (including government) to borrow stood at 11.8% of GDP in 2003-04, up from 10.7% in 2002-03.

Second, the RBI annual report estimates that revenue deficit of the central and state governments combined declined from 6.6% in 2002-03 to 6.2% of GDP in 2003-04 on the basis of revised estimates (RE). Although there is some difference between RE and the audited accounts, it is not large enough to be material. There is a difference between the budgetary revenue deficit and the measure of the negative savings or dissavings by the government system in the national accounts statistics (NAS). For 2002-03, the NAS estimate of government dissavings was 5.7% of GDP, lower than the 6.1% of 2001-02. The budgetary revenue deficit in 2001-02 was 7.0% and had fallen to 6.6% in 2002-03?a 0.4 percentage point of GDP decline?exactly of the same magnitude as the reduction in the NAS measure of government dissavings (from 6.1% to 5.7%).

By the same token it is plausible to infer from the reduction of budgetary revenue deficit in 2003-04 from 6.6% to 6.2% that the NAS measure of government dissavings in 2003-04 must have declined by close to 0.4 percentage points in 2003-04 relative to 2002-03. That gives us an estimate of 5.3% for the negative savings of government in 2003-04.

Starting thus, we can work our way towards making a reasonable estimate of what might have been the magnitude of savings in 2003-04. That is, excluding the ?savings in physical assets? ? a number that broadly corresponds to the physical assets (and inventory) constructed by households and unincorporated business. Total domestic savings less ?savings in physical assets? basically corresponds to the financial resources available to the private corporate and public sector for capital accumulation. The current account deficit, which is the net foreign savings available for financing domestic investment, links this estimate to investment made by corporates and government.

We take a marginal improvement in retained earnings of state-owned corporates to 3.8% in 2003-04 and no change in the retained earnings of departmental enterprises. This gives us an overall dissavings for the public sector at 1.4%, compared to 1.9% of GDP in the two previous years and 2.7% in 2001-02. Private corporate savings (retained earnings) have improved significantly in 2003-04, relative to the previous year and we conservatively estimate that this number as a proportion of GDP was 3.6%, taking a small (0.2 percentage point) impro-vement over the previous year.

The combination of the above gives us an estimate of 14.1% for domestic savings in 2003-04, compared to the reported NAS number of 11.9% in the previous year. However, if we were to factor in the RBI revised estimate of household financial savings in 2002-03, then assuming all other things unchanged, the aggregate domestic financial savings number for 2002-03 would be 12.3% But still quite a bit lower than the estimate for 2003-04. Net capital inflow (NAS current account deficit) was (-)0.5% of GDP in 2002-03, and has risen to (-)1.4 per cent in 2003-04. The negative sign indicates that there was a current account surplus. Knocking this out, we get the financial resources available to government and private corporate sector for capital formation in 2003-04 at 12.6% of GDP, an increase by 1.7 percentage points of GDP over 2002-03, that is a 12% to 15% increase in the investment ratio. This is indeed significant, but one must hasten to add that the same measure had higher values in the mid-90s. But it is still a substantial increase.One wonders why official sources do not provide us at least with a similar, more authoritative working.

The writer is economist advisor to ICRA. These are his personal views