The optimistic review of the Indian economy by the Prime Minister’s economic advisory council has some depressing figures.
Consider savings. The review estimates the domestic savings rate in 2011-12 to be at 31.6% of the gross domestic product (GDP). This is in sharp contrast to 36.8% of GDP in 2007-08. While it is expected to improve marginally in the next fiscal year, it will not make much of a dent in what is required to push the economy back to the 8-9% growth rate.
In the absence of domestic savings, foreign borrowings will have to fill the gap. It is here that the news is grim: this will only lead to a worsening of the current account balance, and should there be further global headwinds—leading to lower exports—the country’s current account deficit will worsen. While this does not presage a balance of payments problem, it certainly will fuel uncertainty on many fronts.