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Gross domestic savings were broadly unchanged in 1HFY20…
…but household financial savings likely to have revived
* With slowing consumption and real GDP growth weakening substantially from 7.5% a year ago to 4.7% in 1HFY20, there are some murmurs regarding the revival in gross domestic savings (GDS). This may or may not be true depending on the recent trends in income growth.
* Ironically, the official statistics on GDS and its components come with a significant lag of 10 months on an annual basis. However, quarterly GDP statistics provide valuable information on the recent trends in GDS. Further, various monthly indicators provide a directional guidance on household financial savings and fiscal dis-savings.
* These leading indicators suggest that GDS in 1HFY20 was unchanged to that a year ago but much lower than in the previous years. This stabilization of GDS is encouraging, especially considering that household financial savings are likely to have improved in 1HFY20. A likely rise in fiscal dis-savings, however, probably offset it.
* From the broad economy perspective, as discussed in detail in one of our previous notes, GDS, not financial savings, matters. We will be closely monitoring if the stabilization eventually leads to a revival in GDS, or it falters back again. The former may require subdued economic growth for a longer period of time.
With real GDP growth weakening substantially from 7.5% a year ago to 4.7% in 1HFY20 and real private consumption expenditure (PCE) growth slowing from 8.5% in 1HFY19 to 4.1% in 1HFY20, there have been obvious questions regarding India’s gross domestic savings (GDS). It may be conjectured that since consumption growth has slowed down markedly, it implies a recovery in savings. This, however, is not necessarily true. What if income growth has weakened faster? Savings then could fall further notwithstanding weaker consumption growth.
It is ironical that the official statistics on GDS come with a significant lag of 10 months on an annual basis – data for FY19 will be published at end-Jan’20. In strict sense, GDS is the summation of gross domestic investments (including ‘errors & omissions’) and current account balance. Therefore, by adding gross capital formation (with no information on ‘errors & omissions’) and net exports of goods & services from quarterly GDP statistics, we can get valuable information on the recent trends in savings (called ‘implied savings’).
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