Foreign brokerage HSBC today said the country’s savings rate needs to go up by at least 5 percentage points to 35 per cent, if we want to boost GDP growth to the 7-8 per cent.
“The national saving rate is about 30 per cent of GDP. To achieve GDP growth of 7-8 per cent during Modi’s first term in office, investment needs to rise to at least 35 per cent of GDP,” it said in a note.
The brokerage said the current situation leaves a savings shortfall of 5 per cent of GDP.
It is essential for the euphoric expectations built up prior to Narendra Modi’s election as the PM translate into action in order to achieve the jump in growth, HSBC said.
“Business sentiment has cooled after the post-election euphoria: projects remain stuck, output has cooled and hopes for rapid changes curtailed. To kick up growth, it is essential for infrastructure spending to accelerate, and plans for better housing supply and electricity to be realised,” it said.
It can be noted that the national savings rate had hit an all time high of 36.9 per cent in FY08, but has been consistently declining ever since as the economic conditions worsened.
The country has witnessed two consecutive fiscals of sub 5 per cent growth. However, it clipped up in the first quarter of the current fiscal to 5.7 per cent, but analysts expect it to dip again to the 5 per cent level. RBI Governor Raghuram Rajan has called it an “uneven” recovery which is underway in the country.
HSBC said there are a few inherent factors which will push up savings rate in the next few years, like rising labour force participation and deepening of banking network that will attract the savings.
However, it said that narrowing of the fiscal deficit and more efficient public firms will contribute the most in this objective of upping the savings rate.
“Even then, India will still need some 2-3 per cent of GDP in foreign savings to top things up,” it said.