Latest data on savings and investment, released by the Central Statistical Organisation (CSO), indicates a slight uptrend from the disappointing numbers seen in the previous year. While the savings rate stood at 33.7% to gross domestic product in fiscal year 2010 (FY10) against 32.2% in FY09, and the investment rate at 36.5% against 34.5% in FY09, they still remain significantly below the peak levels of 37% and 38%, respectively, seen in FY08.
On the savings front, the share of household savings held firm at 70%. Encouragingly, public sector savings posted an uptrend, with a share of 6.3% (against 1.6% last year).
Also see | Trends in savings and investments (PDF)
However, despite the improvement in private sector profitability during FY10, trends in savings remained lacklustre (24.1% of total savings against 24.3% in FY09).
As regards investments, trends were held up by the private sector (share of 36% of the total) as well as household investment (32%). However, public sector investments posted a slippage to 25% of total investments against 27.5% in FY09 despite the government’s thrust on infrastructure.
Trends could turn for the better, but there are risks. We expect savings rates to edge marginally higher in the coming year, with trends supported by improved financial intermediation and fiscal consolidation initiatives and efforts towards divestments, which could boost public sector savings. On the investment front, a renewed thrust on infrastructure development as elections approach could aid numbers.
However, there are looming risks. These include increasing signs of margin pressure on companies due to rising input costs, infrastructure projects getting deferred due to higher rates, environmental clearance issues and risks to fiscal consolidation on the back of higher subsidies/expenditure pressures.
The other set of data released by CSO, on private final consumption expenditure, pegs growth at 16.2% year-on-year (y-o-y) in FY10 compared with 14.6% y-o-y in FY09. Similar to recent trends, spending on essential items such as food and beverages continued to edge lower (to 36.1% in FY10 from 36.9% in FY09). This indicates that rising food prices could have a lesser impact on consumption.
Expenditure on clothing and footwear, transport and communication also saw a decline. The two items that posted a rise were rent, fuel and power—possibly reflecting higher oil prices—and miscellaneous goods and services—this includes personal care, services such as banking, legal, insurance services, and items not included elsewhere.
Edited excerpts from a report by Citi Global Markets. Your comments are welcome at firstname.lastname@example.org