As households save less, India's growth story may not have happy ending

[Bilal9]

What the data suggests, however, is that India's numbers are unsustainable. They're driven by debt-fueled household consumption and government investment​

Photo: Bloomberg
Bloomberg
4 min read Last Updated : Oct 2 2023 | 6:32 PM IST
Follow Us

By Mihir Sharma

Indian households are saving less than they have for half a century. According to the Reserve Bank of India, net household savings in 2022-23 — the Indian financial year runs from April to March — were only 5 percent of gross domestic product. That’s down from 8 per cent of GDP in 2019-20 and 11.5 per cent in the year the pandemic hit.

These are levels not seen since the oil crises of the 1970s. The debt burden of Indians is also increasing. Household financial liabilities rose sharply to 5.8 per cent of GDP in the last financial year. The ratio had stood at 3.8 per cent the previous year.

This is a problem. If a country does not save, it does not grow. It is increasingly hard to see where India’s growth momentum will come from.

To outside observers, this might sound like an odd concern to raise. The International Monetary Fund expects India to grow at 6.1 per cent during 2023, faster than most other large economies.

What the data suggests, however, is that India’s numbers are unsustainable. They’re driven by debt-fueled household consumption and government investment. Neither can form the basis of a long-term growth strategy for India.

In its boom years of the early 2000s, when India grew almost as fast as China, investment by companies optimistic about the country’s long-term prospects powered its expansion. That was backed up by a decent savings rate and a government that steadily decreased its primary deficit — the fiscal deficit less interest savings.

That figure was in surplus by the time the financial crisis hit.

With companies reeling after 2008, outsize government spending picked up the slack. We went from a surplus of 1.1 per cent of GDP before the crisis to a primary deficit of 2.5 per cent of GDP after and got double-digit growth as a reward.

Naturally, that couldn’t last. Through much of the 2010s, the government cut down on overall spending. An increase in the share devoted to investment, as well as a consumption boom as more Indian households began to spend on luxuries and access to formal finance increased, kept the economy ticking over for a while.

Now, however, post-pandemic inflation has shrunk real household incomes. That has intensified a pre-existing trend: Gross household savings peaked at more than 25 per cent of GDP in 2010 and have declined sharply since. Households are increasingly borrowing to finance their spending.

At the same time, private-sector investment has never fully recovered since the boom years. China’s investment rate is 40 per cent; India’s is 28 per cent to 30 per cent, well below the peak rates of 34 per cent to 36 per cent achieved in the 2000s.

This decrease is almost entirely due to a collapse in investments made by private corporations since 2008. Attempts to reverse this collapse have not succeeded: Corporate investments continued to decline in the last two quarters, according to Motilal Oswal Financial Services.

Today, the government is doing most of the work on investment; companies aren’t taking on their share of the burden. Total private-sector projects sanctioned by Indian banks and financial institutions, when the government-driven infrastructure sector is excluded, have grown by only 1.8 per cent since the current government took office in 2014.

Households, meanwhile, are running up debt just to maintain consumption levels. What little they manage to save is being co-opted by government to service its increasing deficit. And, even then, the government is running out of room to spend. It simply isn’t gathering the taxes that would justify its big public-investment programs.

If India is to maintain its world-beating growth rates, private corporate investment must recover to 2000s levels. Reversing this sustained slowdown requires two things to happen.

First, the government must stop taking the lion’s share of Indian households’ declining savings, so that more capital is available at an affordable rate to firms.

Second, it needs to reassure private companies that it is safe to invest in India. Pro-business rhetoric from officials has consistently been undermined by the politicization of tax collection and enforcement, by more complex forms of tax compliance, and by the unthinking extension of regulation. High tariffs meant to boost domestic manufacturing have instead convinced local suppliers that they will not be able to participate in global value chains.

For a decade, India’s growth has been fueled by consumers and by bureaucrats. That model has run its course. It’s time for the government to step back and let the private sector take the lead.

 

[White and Green with M/S]

What the data suggests, however, is that India's numbers are unsustainable. They're driven by debt-fueled household consumption and government investment​

Photo: Bloomberg
Bloomberg
4 min read Last Updated : Oct 2 2023 | 6:32 PM IST
Follow Us

By Mihir Sharma

Indian households are saving less than they have for half a century. According to the Reserve Bank of India, net household savings in 2022-23 — the Indian financial year runs from April to March — were only 5per cent of gross domestic product. That’s down from 8 per cent of GDP in 2019-20 and 11.5 per cent in the year the pandemic hit.

These are levels not seen since the oil crises of the 1970s. The debt burden of Indians is also increasing. Household financial liabilities rose sharply to 5.8 per cent of GDP in the last financial year. The ratio had stood at 3.8 per cent the previous year.

This is a problem. If a country does not save, it does not grow. It is increasingly hard to see where India’s growth momentum will come from.

To outside observers, this might sound like an odd concern to raise. The International Monetary Fund expects India to grow at 6.1 per cent during 2023, faster than most other large economies.

What the data suggests, however, is that India’s numbers are unsustainable. They’re driven by debt-fueled household consumption and government investment. Neither can form the basis of a long-term growth strategy for India.

In its boom years of the early 2000s, when India grew almost as fast as China, investment by companies optimistic about the country’s long-term prospects powered its expansion. That was backed up by a decent savings rate and a government that steadily decreased its primary deficit — the fiscal deficit less interest savings.

That figure was in surplus by the time the financial crisis hit.

With companies reeling after 2008, outsize government spending picked up the slack. We went from a surplus of 1.1 per cent of GDP before the crisis to a primary deficit of 2.5 per cent of GDP after and got double-digit growth as a reward.

Naturally, that couldn’t last. Through much of the 2010s, the government cut down on overall spending. An increase in the share devoted to investment, as well as a consumption boom as more Indian households began to spend on luxuries and access to formal finance increased, kept the economy ticking over for a while.

Now, however, post-pandemic inflation has shrunk real household incomes. That has intensified a pre-existing trend: Gross household savings peaked at more than 25 per cent of GDP in 2010 and have declined sharply since. Households are increasingly borrowing to finance their spending.

At the same time, private-sector investment has never fully recovered since the boom years. China’s investment rate is 40 per cent; India’s is 28 per cent to 30 per cent, well below the peak rates of 34 per cent to 36 per cent achieved in the 2000s.

This decrease is almost entirely due to a collapse in investments made by private corporations since 2008. Attempts to reverse this collapse have not succeeded: Corporate investments continued to decline in the last two quarters, according to Motilal Oswal Financial Services.

Today, the government is doing most of the work on investment; companies aren’t taking on their share of the burden. Total private-sector projects sanctioned by Indian banks and financial institutions, when the government-driven infrastructure sector is excluded, have grown by only 1.8 per cent since the current government took office in 2014.

Households, meanwhile, are running up debt just to maintain consumption levels. What little they manage to save is being co-opted by government to service its increasing deficit. And, even then, the government is running out of room to spend. It simply isn’t gathering the taxes that would justify its big public-investment programs.

If India is to maintain its world-beating growth rates, private corporate investment must recover to 2000s levels. Reversing this sustained slowdown requires two things to happen.

First, the government must stop taking the lion’s share of Indian households’ declining savings, so that more capital is available at an affordable rate to firms.

Second, it needs to reassure private companies that it is safe to invest in India. Pro-business rhetoric from officials has consistently been undermined by the politicization of tax collection and enforcement, by more complex forms of tax compliance, and by the unthinking extension of regulation. High tariffs meant to boost domestic manufacturing have instead convinced local suppliers that they will not be able to participate in global value chains.

For a decade, India’s growth has been fueled by consumers and by bureaucrats. That model has run its course. It’s time for the government to step back and let the private sector take the lead.

Source???

 

[sms]

What the data suggests, however, is that India's numbers are unsustainable. They're driven by debt-fueled household consumption and government investment​

Photo: Bloomberg
Bloomberg
4 min read Last Updated : Oct 2 2023 | 6:32 PM IST
Follow Us

By Mihir Sharma

Indian households are saving less than they have for half a century. According to the Reserve Bank of India, net household savings in 2022-23 — the Indian financial year runs from April to March — were only 5 percent of gross domestic product. That’s down from 8 per cent of GDP in 2019-20 and 11.5 per cent in the year the pandemic hit.

These are levels not seen since the oil crises of the 1970s. The debt burden of Indians is also increasing. Household financial liabilities rose sharply to 5.8 per cent of GDP in the last financial year. The ratio had stood at 3.8 per cent the previous year.

This is a problem. If a country does not save, it does not grow. It is increasingly hard to see where India’s growth momentum will come from.

To outside observers, this might sound like an odd concern to raise. The International Monetary Fund expects India to grow at 6.1 per cent during 2023, faster than most other large economies.

What the data suggests, however, is that India’s numbers are unsustainable. They’re driven by debt-fueled household consumption and government investment. Neither can form the basis of a long-term growth strategy for India.

In its boom years of the early 2000s, when India grew almost as fast as China, investment by companies optimistic about the country’s long-term prospects powered its expansion. That was backed up by a decent savings rate and a government that steadily decreased its primary deficit — the fiscal deficit less interest savings.

That figure was in surplus by the time the financial crisis hit.

With companies reeling after 2008, outsize government spending picked up the slack. We went from a surplus of 1.1 per cent of GDP before the crisis to a primary deficit of 2.5 per cent of GDP after and got double-digit growth as a reward.

Naturally, that couldn’t last. Through much of the 2010s, the government cut down on overall spending. An increase in the share devoted to investment, as well as a consumption boom as more Indian households began to spend on luxuries and access to formal finance increased, kept the economy ticking over for a while.

Now, however, post-pandemic inflation has shrunk real household incomes. That has intensified a pre-existing trend: Gross household savings peaked at more than 25 per cent of GDP in 2010 and have declined sharply since. Households are increasingly borrowing to finance their spending.

At the same time, private-sector investment has never fully recovered since the boom years. China’s investment rate is 40 per cent; India’s is 28 per cent to 30 per cent, well below the peak rates of 34 per cent to 36 per cent achieved in the 2000s.

This decrease is almost entirely due to a collapse in investments made by private corporations since 2008. Attempts to reverse this collapse have not succeeded: Corporate investments continued to decline in the last two quarters, according to Motilal Oswal Financial Services.

Today, the government is doing most of the work on investment; companies aren’t taking on their share of the burden. Total private-sector projects sanctioned by Indian banks and financial institutions, when the government-driven infrastructure sector is excluded, have grown by only 1.8 per cent since the current government took office in 2014.

Households, meanwhile, are running up debt just to maintain consumption levels. What little they manage to save is being co-opted by government to service its increasing deficit. And, even then, the government is running out of room to spend. It simply isn’t gathering the taxes that would justify its big public-investment programs.

If India is to maintain its world-beating growth rates, private corporate investment must recover to 2000s levels. Reversing this sustained slowdown requires two things to happen.

First, the government must stop taking the lion’s share of Indian households’ declining savings, so that more capital is available at an affordable rate to firms.

Second, it needs to reassure private companies that it is safe to invest in India. Pro-business rhetoric from officials has consistently been undermined by the politicization of tax collection and enforcement, by more complex forms of tax compliance, and by the unthinking extension of regulation. High tariffs meant to boost domestic manufacturing have instead convinced local suppliers that they will not be able to participate in global value chains.

For a decade, India’s growth has been fueled by consumers and by bureaucrats. That model has run its course. It’s time for the government to step back and let the private sector take the lead.

World is full of people contributing to success, spectators and whiners. Choice is always yours.

 

[CallSignMaverick]

Bangladesh’s GDP growth number does not hold water

Almost a year ago, in this column, I wrote about the obsession of our policymakers’ with the growth of Gross Domestic Product (GDP) (“Our incomprehensible obsession with GDP”, May 19, 2019). I discussed in brief how GDP is estimated, and its inherent weaknesses which is why this indicator should...

www.thedailystar.net

 

[Skull and Bones]

Bangladesh’s GDP growth number does not hold water

Almost a year ago, in this column, I wrote about the obsession of our policymakers’ with the growth of Gross Domestic Product (GDP) (“Our incomprehensible obsession with GDP”, May 19, 2019). I discussed in brief how GDP is estimated, and its inherent weaknesses which is why this indicator should...

www.thedailystar.net

Open a separate thread

World is full of people contributing to success, spectators and whiners. Choice is always yours.

Indian savings to income ratio is very decent compared to many developed countries, the challenge should be to encourage people to invest in the country’s growth sectors, and not hoard it in form of gold.

 

[my2cents]

What the data suggests, however, is that India's numbers are unsustainable. They're driven by debt-fueled household consumption and government investment​

Photo: Bloomberg
Bloomberg
4 min read Last Updated : Oct 2 2023 | 6:32 PM IST
Follow Us

By Mihir Sharma

Indian households are saving less than they have for half a century. According to the Reserve Bank of India, net household savings in 2022-23 — the Indian financial year runs from April to March — were only 5 percent of gross domestic product. That’s down from 8 per cent of GDP in 2019-20 and 11.5 per cent in the year the pandemic hit.

These are levels not seen since the oil crises of the 1970s. The debt burden of Indians is also increasing. Household financial liabilities rose sharply to 5.8 per cent of GDP in the last financial year. The ratio had stood at 3.8 per cent the previous year.

This is a problem. If a country does not save, it does not grow. It is increasingly hard to see where India’s growth momentum will come from.

To outside observers, this might sound like an odd concern to raise. The International Monetary Fund expects India to grow at 6.1 per cent during 2023, faster than most other large economies.

What the data suggests, however, is that India’s numbers are unsustainable. They’re driven by debt-fueled household consumption and government investment. Neither can form the basis of a long-term growth strategy for India.

In its boom years of the early 2000s, when India grew almost as fast as China, investment by companies optimistic about the country’s long-term prospects powered its expansion. That was backed up by a decent savings rate and a government that steadily decreased its primary deficit — the fiscal deficit less interest savings.

That figure was in surplus by the time the financial crisis hit.

With companies reeling after 2008, outsize government spending picked up the slack. We went from a surplus of 1.1 per cent of GDP before the crisis to a primary deficit of 2.5 per cent of GDP after and got double-digit growth as a reward.

Naturally, that couldn’t last. Through much of the 2010s, the government cut down on overall spending. An increase in the share devoted to investment, as well as a consumption boom as more Indian households began to spend on luxuries and access to formal finance increased, kept the economy ticking over for a while.

Now, however, post-pandemic inflation has shrunk real household incomes. That has intensified a pre-existing trend: Gross household savings peaked at more than 25 per cent of GDP in 2010 and have declined sharply since. Households are increasingly borrowing to finance their spending.

At the same time, private-sector investment has never fully recovered since the boom years. China’s investment rate is 40 per cent; India’s is 28 per cent to 30 per cent, well below the peak rates of 34 per cent to 36 per cent achieved in the 2000s.

This decrease is almost entirely due to a collapse in investments made by private corporations since 2008. Attempts to reverse this collapse have not succeeded: Corporate investments continued to decline in the last two quarters, according to Motilal Oswal Financial Services.

Today, the government is doing most of the work on investment; companies aren’t taking on their share of the burden. Total private-sector projects sanctioned by Indian banks and financial institutions, when the government-driven infrastructure sector is excluded, have grown by only 1.8 per cent since the current government took office in 2014.

Households, meanwhile, are running up debt just to maintain consumption levels. What little they manage to save is being co-opted by government to service its increasing deficit. And, even then, the government is running out of room to spend. It simply isn’t gathering the taxes that would justify its big public-investment programs.

If India is to maintain its world-beating growth rates, private corporate investment must recover to 2000s levels. Reversing this sustained slowdown requires two things to happen.

First, the government must stop taking the lion’s share of Indian households’ declining savings, so that more capital is available at an affordable rate to firms.

Second, it needs to reassure private companies that it is safe to invest in India. Pro-business rhetoric from officials has consistently been undermined by the politicization of tax collection and enforcement, by more complex forms of tax compliance, and by the unthinking extension of regulation. High tariffs meant to boost domestic manufacturing have instead convinced local suppliers that they will not be able to participate in global value chains.

For a decade, India’s growth has been fueled by consumers and by bureaucrats. That model has run its course. It’s time for the government to step back and let the private sector take the lead.

If US can grow with mountain loads of debt and no savings, so can we.

It is where you invest the most that matter. Education and infrastructure investment will propel India growth in future.

 

[Species]

India is only investing in capital intensive industries like oil refinery to resell Russian oil which hardly generates any jobs. Once the global oil transactions normalize, their filthy shithole will start to crumble.

India’s Narendra Modi has a problem: high economic growth but few jobs

Dogged unemployment poses election challenge as youth stuck in menial labour that does not match skills

www.ft.com

Most of the people in their shithole are yet to recover from the COVID shock and these subhuman poojeets are just too dumb to even realize. Their per capita consumption level is now around half that of Bangladesh despite the latter facing an economic crisis itself.

 

[CallSignMaverick]

India is only investing in capital intensive industries like oil refinery to resell Russian oil which hardly generates any jobs. Once the global oil transactions normalize, their filthy shithole will start to crumble.

India’s Narendra Modi has a problem: high economic growth but few jobs

Dogged unemployment poses election challenge as youth stuck in menial labour that does not match skills

www.ft.com

Most of the people in their shithole are yet to recover from the COVID shock and these subhuman poojeets are just too dumb to even realize. Their per capita consumption level is now around half that of Bangladesh despite the latter facing an economic crisis itself.

Only a kanglu fencejumper subhomo-bakchodian chimp will have the confidence to repeatedly claim this shit which even a creature with IQ less than an earthworm wouldn't dare to .

Do jodi chaddi kya seel di or ye fudakne Lage hai bsdwale .

 

[RealDeal]

India is only investing in capital intensive industries like oil refinery to resell Russian oil which hardly generates any jobs. Once the global oil transactions normalize, their filthy shithole will start to crumble.

India’s Narendra Modi has a problem: high economic growth but few jobs

Dogged unemployment poses election challenge as youth stuck in menial labour that does not match skills

www.ft.com

Most of the people in their shithole are yet to recover from the COVID shock and these subhuman poojeets are just too dumb to even realize. Their per capita consumption level is now around half that of Bangladesh despite the latter facing an economic crisis itself.

 

[hembo]

Open a separate thread


Indian savings to income ratio is very decent compared to many developed countries, the challenge should be to encourage people to invest in the country’s growth sectors, and not hoard it in form of gold.

Lower %age saving means people are consuming more, which is good thing for a part consumption driven economy. As long as wage increase is coping /more than inflation, it is all good.

 

[Bilal9]

If US can grow with mountain loads of debt and no savings, so can we.

It is where you invest the most that matter. Education and infrastructure investment will propel India growth in future.

Have you noticed that you and some of the Indians here keep comparing India to the US?

Even for arguments' sake, doesn't that comparison seem like a fallacy to you? I want to know what you base this on?

In what way are the US and India comparable other than maybe being large countries?

Let's just consider (for starters) GDP per capita, industrial diversity, industrial output, innovation?

Maybe @Joe Shearer dada can shed some light on this.

Source???

The writer is Mihir Sharma, he is a respected economist from India whom I follow.

Mihir Sharma - Wikipedia

en.wikipedia.org

 

[Bilal9]

Lower %age saving means people are consuming more, which is good thing for a part consumption driven economy. As long as wage increase is coping /more than inflation, it is all good.

The writer (who happens to be from India) is talking about long term trends in savings rates (which dictate the long term financial health of a nation).

You can have a party on borrowed money for a while (giving first world semblances to a third-world economy), but when the money runs out, party also stops.

Then all kinds of other financial problems also start to appear. Largest of which is a tumble in GDP growth rates.

I am not saying this.

This is coming from Mihir Baboo - a respected economist from India.

@Species bhai, would you agree?

 

[Bilal9]

Lower %age saving means people are consuming more, which is good thing for a part consumption driven economy. As long as wage increase is coping /more than inflation, it is all good.

An increase in wages is not guaranteed. Inflation lately has gone crazy too - as evident globally.

Increases in inflation means spending power (and consumption) will be curtailed severely. This is already being observed all across India.

There are many forces which act against wage increases (such as competition from other wage-starved countries, for example), for the same value addition work done. The fact that India has so far kept certain sectors (such as Backoffice) for itself does not guarantee future situations and changes.

The more Indian economy gets connected to the world economy (like China), the more true it is.

 

[Bilal9]

Indian savings to income ratio is very decent compared to many developed countries, the challenge should be to encourage people to invest in the country’s growth sectors, and not hoard it in form of gold.

Here is the comparison between Bangladesh and India in Gross saving rates as percentage of GDP. Per this statistic Bangladesh is doing better than India - then? Interesting question.

World Bank Open Data

Free and open access to global development data

data.worldbank.org

And good luck telling Indians not to hoard gold in the form of jewelry. 90% of the gold smuggled into Bangladesh from Arab countries is smuggled back to India, because there is such a humongous demand.

 

[my2cents]

Have you noticed that you and some of the Indians here keep comparing India to the US?

Even for arguments' sake, doesn't that comparison seem like a fallacy to you? I want to know what you base this on?

In what way are the US and India comparable other than maybe being large countries?

Let's just consider (for starters) GDP per capita, industrial diversity, industrial output, innovation?

Maybe @Joe Shearer dada can shed some light on this.



The writer is Mihir Sharma, he is a respected economist from India whom I follow.

Mihir Sharma - Wikipedia

en.wikipedia.org

It is hard to predict the future with respect to tech innovation and it's impact on the economy and the country's productivity. US is by far the most productive nation on earth. India with it's huge population burden, can only strive to follow their lead and come close to fill the gap.

In case of India, with vast labor force at its disposal, it's technology adoption at rapid pace, heavy investment in infrastructure and emphasis on education and science, future looks bright , if only we can integrate diverse engines of growth, work together as one nation, provide inclusive progress.