Savings rate to dip to 30% this fiscal: India Ratings

India Ratings today warned that the national savings rate will slip further to 30 per cent or so this fiscal, from 30.8 per cent of the GDP last fiscal, if the advance estimates of national income is anything to go by.

Earlier in the day, the Central Statistical Organisation (CSO) said the national savings rate may plunge to a decade year low this fiscal, which had slipped to an eight year low of 30.8 per cent last fiscal.

According to India Ratings chief economist and public finance head Devendra Kumar Pant, the gross domestic savings will slip by 80 basis points to 30 per cent this fiscal.

"The estimates portray a weak picture of stabilising twin deficits. While the estimated investment rate this fiscal is likely to be similar to FY12, an 80 bps rise in the share of consumption expenditure (private and government) will reduce the savings rate further, leading to further widening of the current account deficit," Pant said in a note.

The domestic saving rate had touched a high of 36.9 per cent in FY08 but since then has steadily fallen. It fell to 33.8 per cent in FY10 and rose a tad in FY11 to 34 per cent but again fell to 30.8 of GDP in FY12. A major impact of a low savings rate, considered as one of the biggest economic strengths, will be a higher current account deficit (CAD), which is already burgeoning to historic high of 5.3 per cent in Q2.

The CSO, in its advance estimates, pegged GDP growth at a low 5 per cent this fiscal, much lower than consensus estimate of over 5.5 per cent as the economy is expected to grow only by 4.6 per cent in the second half, against 5.4 per cent in the first half.

The CSO said while the manufacturing sector growth is estimated to increase to 3.1 per cent in H2 from 0.5 per cent in H1, growth of construction, and finance, insurance, real estate and business services is expected to slow down considerably in H2 to 3.3 per cent and 7.3 per cent respectively from 8.8 per cent and 10.1 per cent respectively in H1.

The projected GDP readings this fiscal will be the lowest after FY03 numbers when GDP had grown at 4 per cent. Since then, the economy has been expanding at over 6 per cent, the highest rate being 9.6 per cent in 2006-07 and 9.3 per cent in FY10.

India Ratings said the projection indicates that the economy has not yet bottomed out. Since the third quarter every analyst was saying that
the economy has bottomed out and that FY13 will see the economy clipping at over 7 per cent or thereabout. These very low growth numbers have implications for fiscal situation, said Pant.