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> Policies> economic survey 2000-01
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Economic Survey 2000-2001
[Review of Developments]
Demand Factors: Consumption, savings and investment
1.16 On the demand side, real consumption growth decelerated from 7.9 per cent in 1998-99 to 5.8 per cent in 1999-2000 mainly due to deceleration of the growth rate of private consumption from 7.2 per cent in 1998-99 to 4.1 per cent in 1999-2000, although Government consumption expenditure recorded a higher increase during the same period. The growth rate of gross domestic capital formation showed a significant acceleration from only 2.3 percent in 1998-99 to 9.4 per cent in 1999-2000 .
1.17 The rates of investment and saving in India are high as judged by its level of economic development. Gross domestic savings as per cent of GDP declined from 23.5 per cent in 1997-98 to 22.0 per cent in 1998-99 due to negative savings in the public sector. Gross domestic savings have improved marginally to 22.3 per cent in 1999-2000 as a result of sustained economic growth, low inflation rates and better performance by the household sector. Private corporate savings remained stagnant at 3.7 per cent of GDP in 1999-2000. However, there was a steep fall in the savings of the public sector due to an increase in the dis-savings of Government administrative departments caused by large revenue deficit. In fact, public sector savings continued to be negative in 1999-2000 as in 1998-99. As a percentage of GDP, public sector savings deteriorated from (-) 0.8 per cent in 1998-99 to (-) 1.2 per cent in 1999-2000
1.18 Gross domestic investment (GDI) as percentage of GDP has shown similar trends. It declined from 25.0 per cent in 1997-98 to 23.0 per cent in 1998-99 due to decline of investment in both public and private sectors. It is estimated that GDI as percentage of GDP has improved to 23.3 per cent in 1999-2000 (at current prices) due to higher investment by both public and private sectors . While public investment as percentage of GDP improved from 6.4 per cent in 1998-99 to 7.1 per cent in 1999-2000, private investment as percentage of GDP also improved from 14.8 per cent to 15.6 per cent over the same period.
1.19 There was significant improvement in the real gross domestic capital formation (GDCF) in 1999-2000. The growth rate of public sector GDCF accelerated from 5.1 per cent in 1998-99 to 19 per cent in 1999-2000 and that of private sector GDCF accelerated from 1.6 per cent to 15.2 per cent resulting in the acceleration of the overall GDCF growth rate from 2.3 per cent to 9.4 per cent over the same period . As percentage of GDP at market prices (at 1993-94 prices), real GDCF improved from 25.4 per cent in 1998-99 to 26 per cent in 1999-2000 due to improvement in both public and private sector real capital formation in 1999-2000. However, within private sector, there was marginal deterioration of real capital formation by the private corporate sector although the household sector showed significant improvement.
1.20 It is mentionable in this context that although GDCF in current prices seems to have fallen as a proportion of GDP in the late 90s, the trend in constant prices is quite different. Because of changes in relative prices, GDCF in constant prices has remained in the range of 25-26 per cent during this period.
1.21 Real gross fixed capital formation (GFCF) as per cent of GDP also showed some improvement from 23.5 per cent in 1998-99 to 23.8 per cent in 1999-2000 due to improvement in both public and private fixed capital formation. After a decline in 1998-99, inventories as proportion of GDP surged to 1.6 per cent in 1999-2000 with almost equal levels of inventories in public and private sectors.
1.22 As data on capital formation are not available for the year 2000-01, the trends have to be assessed by looking at various leading indicators of investment and growth. These present a mixed picture. Both domestic production as well as imports of capital goods have shown considerable deceleration in the current year. There was significant improvement in sanctions and disbursements made by the All India Financial Institutions (AIFIs). The inflows of Foreign Direct Investment (FDI) also recorded significant improvement in the current year. Inflows of FII investment have been erratic in the current year with overall inflows of portfolio investment lower than those in the last year. The trends indicate that there may not be any significant recovery of investment in 2000-01. Sustained high economic growth would require significant improvement in investment, which in turn, would depend on steep rise of foreign direct and portfolio investment, structural reduction in inflationary expectations and real interest rates, reduction in the fiscal deficit and further liberalisation of the domestic debt and capital markets.
1.23 While India’s private savings rate is more or less comparable to those achieved by the high performing East Asian economies, its negative public savings is a major constraint on domestic resource mobilisation. The Government is restructuring public expenditure for fostering domestic savings, releasing resources for physical and social infrastructure development and for reducing the crowding out effect on private investment.
1.24 The tempo of economic reforms was sustained successfully in 1999-2000. Major fiscal reforms were undertaken for broadening the income tax base and streamlining the excise and customs duty structures. There were enabling reforms in foreign investment and trade policy spheres also. Reforms in public sector enterprises are underway for reducing pressures on public finances, increasing the efficiency of public sector operations and reducing the incremental capital output ratio (ICOR). Strengthening of legal, institutional and regulatory frameworks in insurance, banking, capital markets, power and telecom are being undertaken for inducing greater private investment in infrastructure. The Union Budget for 2000-01 announced various measures for further deepening of the capital markets and financial sector and allowed private entry in insurance and provident funds. It is expected that these measures would enhance both the savings and investment rates for the economy.
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