Private corporate sector's share in savings rate grows

New Delhi, Feb 27 (UNI) The Economic Survey 2006-07 today brought to the fore the changing savings profile of the Indian economy which has witnessed a sharp rise in the private corporate sector savings helping it to finance its growing investments and the decline in the negative savings rate of the public sector -- pushing up the overall savings rate to 32.4 per cent.

The survey tabled by Finance Minister P Chidambaram in Parliament shows that while the private corporate and household sector savings as a proportion of GDP increased by 1 percentage point and 0.7 percentage points respectively, the public savings declined by 0.4 percentage points, and made a negative contribution to the overall savings rate.

''A dramatic element in the savings profile of the Indian economy has been the sharp rise in the savings rate of the private corporate sector for four years in row. The private sector has financed a large part of its investment in the on-going long capex cycle from retained earnings or savings,'' it says.

The private sector's savings rate for 2005-06, as per the quick estimates released by the Central Statistical Organisation (CSO), has been placed at 8.1 per cent, while that of 2004-05 has been substantially scaled up to 7.1 per cent from the earlier 4.8 per cent.

Driven by a construction boom and the progressive maturing of financial market, the household sector has contributed to as much as 0.7 percentage point of the 1.3 percentage increase in gross domestic savings rate between 2004-05 and 2005-06.

While the contruction boom with residential buildings financed from housing loans from banks tended to increase household savings in a physical form and depress financial savings, the maturing of markets provided incentives for higher financial savings.

The study notes a perceptible shift in the household portfolio in the three years ending 2005-06 as physical savings as a proportion of GDP declined steadily from a high of 12.4 per cent in 2003-04 to 10.7 per cent in 2005-06.

Financial savings, on the other hand, after declining from 11.3 per cent to 10.2 per cent between 2003-04 and 2004-05, recovered to 11.7 per cent in 2005-06.

However, a redeeming feature of recent years is that the savings of the public sector, which had been negative until 2002-03, was positive for the third successive year in 2005-06.

The positive saving of Rs 71,262 crore in 2005-06 is largely attributable to the higher savings of non-departmental as well as departmental enterprises.

With declining dependency ratio and higher economic growth rate, ''the demographic dividend in the form of high savings rate is likely to coontinue.'' UNI