Economic Survey Chapter 3: Investment and Savings slowdown and recoveries

The Chapter 3 of the Economic Survey is titled, “Investment and Saving Slowdowns and Recoveries: Cross-Country Insights for India.”

This chapter makes a point that savings and investment growth in India is not unduly low. In fact, they are above the levels in the 1990s.

The savings and investment rate reached historically high levels in the mid-2000s and have gradually declined to the normal (1990s level) ever since:-

  • The ratio of Investment (measured by gross fixed capital formation) to GDP climbed from 26.5 percent in 2003 to a peak of 35.6 percent in 2007, and then slid back to 26.4 percent in 2017.
  • The ratio of domestic saving to GDP climbed from 29.2 percent in 2003 to a peak of 38.3 percent in 2007, before falling back to 29 percent in 2016.

The sector responsible for investment and savings slowdown in India are:

  • Private investment
  • Household and Government savings

This chapter presents the cross-country analysis of Investment and Savings slowdown pattern and recoveries in different countries to derive policy lessons for India.

  • The slowdown in India has been lengthy (lasted 5 years) and it may not be over yet.
  • Investment slowdown has an impact on growth. On the other hand, the relationship between growth and savings is not clear. Therefore, India should focus on encouraging investment to re-ignite economic growth
  • Investments slowdown following from balance sheet problems (like in India) are difficult to reverse.
  • Overall, the policy conclusion is urgent prioritisation of investment revival as the Government has done with increasing public investment and taking steps to resolve the twin balance sheet crisis.
  • These steps will have to be followed up, along with complementary measures like easing the costs of doing business further and creating a clear, transparent, and stable tax and regulatory environment.
  • In addition, creating a conducive environment for small and medium industries to prosper and invest will help revive private investment.

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