Economic Survey 2018: Demonetisation has given a boost to share of financial instruments in household savings

Economic Survey 2017-18 has said that demonetisation of November 2016 has given a boost to share of financial savings in aggregate household savings with a tilt towards market instruments.

“The share of financial saving is already rising in aggregate household saving – with a clear shift visible towards market instruments – a phenomenon that has been helped by demonetisation,” the survey has said.

It says that the pan-India study on the pattern of investment and savings slowdowns has revealed that the investment slowdowns have an impact on growth but not necessarily savings. “The policy conclusion is urgent prioritisation of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debts and recapitalization of public sector banks,” the survey states.

According to the survey, India‘s unprecedented climb to historic high levels of investment and saving rates in the mid-2000s has been followed by a pronounced, though gradual, decline. This current episode of investment and savings slowdown is still ongoing.

The ratio of domestic saving to GDP reached 29.2 percent in 2013 to a peak of 38.3 percent in 2007, before falling back to 29 percent in 2016. The cumulative fall over 2007 and 2016 has been milder for investment than saving, but investment has fallen to a lower level.

“Based on the break-up of investment and saving that is available up to 2015-16, private investment accounts for 5 percentage points out of the 6.3 percentage point overall investment decline over 2007-08 and 2015-16. Asian countries faced the largest number of slowdown episodes following 1997. Currently (after 2008), these economies are in the era of saving slowdowns,” the survey states.

It also says that in India, the investment slowdown started in 2012, but later intensified and was still continuing as of the latest date, that for 2016. “Since investment slowdowns are more detrimental to growth than savings slowdown, so, policy priorities over the short run have focused on reviving investment by mobilizing saving, via attempts to unearth black money and encouraging the conversion of gold into financial saving,” the Survey said.moneycontrol