Mumbai: Reserve Bank Thursday expressed concern over steadily falling savings and investment rates, especially the financial savings by households which slipped to 22.3 percent in 2011-12 as households turned to physical assets as a hedge against inflation.
According to the annual Macroeconomic and Monetary Developments report released here this evening by the Reserve Bank, household savings declined from a high 25.2 percent in 2009-10 to 22.3 percent in 2011-12. It had stood at 23.5 percent in 2010-11.
"Within household savings, while the financial savings rate declined, physical saving rate rose as households turned to physical assets as inflation hedge. Persistence of high inflation with average headline inflation at about 9 percent in 2011-12 withered financial savings, as households attempted to stave off the downward pressure on their real consumption," the report said.
While Gross savings during the reporting period declined to a low 30.8 percent in 2011-12, down from 34 percent in the previous year and 33.7 percent in 2009-10, the gross capital formation declined to 35 percent in the reporting period from 36.8 percent in 2010-11 and 36.5 percent in 2009-10, the RBI report said.
The report also notes with concern that all the three core sectors--households, private and public sectors -- witnessed a slowdown in savings, apart from an overall decline in investment rates during 2011-12.
Financial savings by households steeply declined to a paltry 8 percent in 2011-12, from 12 percent two years ago and 10.4 percent in 2010-11, while their savings in physical assets have been on a steady rise and touched 14.3 percent in the reporting year from 13.1 percent a year before and 13.2 percent in 2009-10, the report added.
The decline in savings was more visible in the private corporates, at 7.2 percent in the reporting period from 7.9 percent a year before and 8.4 percent in 2009-10.
However, the public sector fared a tad better with their savings rate at 1.3 percent, halving from 2.6 percent the year before but a steady improvement from the dismal 0.2 percent in 2009-10, according to the report.
"The decline in the rate of investment in 2011-12 was mainly due to decline in the investment rate of the private corporate sector followed by that of the public sector even as the household investment rate increased.
"The increase in investment in valuables continued in 2011-12 and exhibited a sharper rise, partly contributing to the high current account deficit in 2011-12."
When it comes to gross capital formation, the decline was more visible at 35.5 percent, against 37 percent the year before and 36.3 percent the previous fiscal.
Since the households kept on parking their money in physical assets, there was a tangible increase in the gross capital formation by households to 14.3 percent during the reporting period, up from 13.1 percent the year before and 13.2 percent in 2009-10.
Capital formation by the private corporate sector, however, declined massively to 10.6 percent from 13.4 percent in 2010-11 and 12.1 percent in 2009-10, while the same for the public sector stood at 7.9, 8.4 and 9.2 percent, respectively.
The savings in valuables too rose from 1.8 percent in 2009-10 to 2.1 percent the next year to 2.7 percent in 2011-12, says the report.
First Published: Thursday, May 2, 2013, 22:37