Through a press note, the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation released the First Revised Estimates of National Income, Consumption Expenditure, Saving, and Capital Formation for the financial year 2018-19along with Second Revised Estimates for the financial year 2017-18 and Third Revised Estimates for the financial year 2016-17 (with Base Year 2011-12) as per the revision policy.
The press note reveals the nominal GDP estimates that have been calculated with the new methodology. Nominal GDP or GDP at current prices for the year 2018-19 is estimated as Rs 189.71 lakh crore against Rs 170.98 lakh crore for the year 2017-18, showing a growth of 11 per cent during 2018-19 as compared to 11.1 per cent during 2017-18.
Real GDP or GDP at constant (2011-12) prices for the years 2018-19 and 2017-18 stand at Rs 139.81 lakh crore and Rs 131.75 lakh crore, respectively, showing growth of 6.1 per cent during 2018- 19 and 7.0 per cent during 2017-18.
Furthermore, the data even highlights the overall saving contribution by each segment. As seen in the graph below, over the years the government hasn't been able to accumulate savings. Although the total gross savings have increased, the biggest contributor has been Household sector.
Graph 1: Savings contribution of each segment
*: Third Revised Estimates; # : Second Revised Estimates; @ : First Revised Estimates
Data as on January 31, 2020
(Source: Ministry of finance press release note)
If one looked at the data in depth, the rising trend of gross financial savings from the household sector dropped marginally by -3.2% on a yearly basis and the net savings to GDP reduced to 6.5% as seen below in graph 2
Graph 2: Marginal drop financial gross savings and reduction in net savings to GDP
*: Third Revised Estimates; # : Second Revised Estimates; @ : First Revised Estimates
Data as on January 31, 2020
(Source: Ministry of finance press release note)
According to the press note, gross financial savings as per the new methodology doesn't show the breakup. In the previous version, the financial investments including mutual funds, bank savings, and insurance can be seen. Last year the financial savings of households surged, specifically in term of investments, however savings in terms of deposits and banks dropped drastically. For 2018-2019, no data is available.
Graph 3: Reduction in savings in deposits and banks
(Source: National Account Statistics)
The prime reasons for this were the demonetisation, default in loan repayment due to higher lending rates and many banking fraudulent activities came to light.
Due to which many households preferred investing their income rather than saving it in banks. Hence, until the implementation of Insolvency and Bankruptcy Code (IBC), and the write-offs due to the ageing of loans, infusion of capital and merger of several banks, the Non-Performing Assets (NPAs) rose. According to the RBI report, there was a decline NPA to 9.1% in March 2019 (from 11.8% the year before).
However, this contraction of savings has affected the overall economy of liquidity crunch and led to slowdown in consumption and sagging economy. To boost it, the RBI consecutively slashed rates in five of its monetary policy review meetings held in 2019; and in the last two meetings, the rates were kept unchanged.
[Read: How Should You Approach Debt Mutual Funds After RBI's Rate Cut?]
Besides this, benchmarking of the bank rates was made effective, so that seamless transmission of previous rate cuts can be carried out by the banks for free flow of consumption and increase in lending activity.
As an investor, one should be careful while making investments. You need to save mindfully so that you can invest for your long-term benefit. Parking money in savings bank does not help in compounding wealth, but, it definitely helps in building a contingency fund for your short-term needs or untoward emergencies.
So, create a financial plan that includes all your short-term, mid-term and long-term financial goals, and make suitable investments. Consider the risk return of each investment avenue with respect to your risk profile and the time horizon of each of your goal before you invest.
Mutual funds are a potent avenue that allows you to allocate your investments across various asset classes, manage to minimize risk, and increase gains in the long run.
Editor's note:
If you are looking for high rewards with moderate risk, consider PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025 (2020 Edition)".
With this, you gain access to a ready-made portfolio of top recommended equity mutual funds for 2025 based on the Core & Satellite approach to investing.
If you haven't subscribed yet, do it now!
Add Comments