Roman Saini is teaching live on Unacademy Plus
ECONOMIC SURVEY 2017-2018
Released By Government of India Ministry of Finance Department of Economic Affairs Economic Division January 29, 2018 Presented By Roman Saini
List of Chapters 1. State of the Economy: An Analytical Overview and Outlook for Policy 2. A New, Exciting Bird's-Eye View of the 3. Investment and Saving Slowdowns and Recoveries: Cross-Country Insights for India 4. Reconciling Fiscal Federalism and Accountability: Is there a Low Equilibrium Trap 5. Is there a "Late Converger Stall" in Economic Development? Can India Escape it? 6. Climate, Climate Change, and Agriculture 7. Gender and Son Meta-Preference: Is Development Itself an Antidote 8. Transforming Science and Technology in India 9 Ease of Doing Business' Next Frontier: Timely Justice ian Economy Through the GST
CHAPTER 3 1. Investment & Saving asa percent of GDP 2. Investment and Saving Investment and Saving Slowdowns and Recoveries: Cross-Country Insights for India Slowdowns 3. Savings vs Investment: Growth Consequences 4. Recovery from India-Type Investment Slowdowns 5. Policy Lessons for India
Investment and Savings as a percent of GDP Gross fixed capital formation includes 1. Purchases of plant, machinery, and equipment; 2. The construction of infrastructure (roads and railways, schools and hospitals, private residential dwellings, industrial buildings, etc.) and 3. Land improvement For India, investment (gross fixed capital formation) rate and gross domestic saving rate are actually above the levels that prevailed throughout the 1990s In fact, it was the boom of the 2000s that was exceptional, as India's climb to about 10 percent real GDP growth was accompanied by an unprecedented 9 percentage point pick-up in domestic saving and investment rates.
India (left panel) and average for sample economies (right panel)* 40 Investment Saving _Investment Saning 35 30 15
Specifically for India: The ratio of gross fixed capital formation to GDP climbed from 26.5 percent in 2003, reached a peak of 35.6 percent in 2007, and then slid back to 26.4 percent in 2017 The ratio of domestic saving to GDP has registered a similar evolution, rising from 29.2 percent in 2003 to a peak of 38.3 percent in 2007, before falling back to 29 percent in 2016. . The cumulative fall over 2007 and 2016 has been milder for investment tharn saving, but investment has fallen to a lower level. Such sharp swings in investment and saving rates have never occurred in India's history-not during the balance-of-payments crises of 1991 nor during the Asian Financial Crisis of the late 1990s
And while it is true that the past 15 years have been a special period for the entire global economy, no other country seems to have gone through such a large investment boom and bust during this period as happened in India. large investment period as happened in Indi The only country that displays a similar pattern to India over the same time period is Brazi and even in this case the parallel is far from exact. Which sectors are responsible for the saving/investment decline in India? Essentially, private investment and household/government saving. Based on the break-up of investment and saving, that is available up to 2015-16, private investment accounts for 5 percentage points out of the 6.3 percentage point overall investment decline over 2007-08 and 2015-16
The fall in saving, by about 8 percentage points over the same period, has been driven almost equally by a fall in household and public saving The fall in household saving has in turn been driven by a fall in physical saving, partly offset by an increase in the holding of financial assets. Within the latter, there has been a shift from currency and bank deposits towards market instruments, viz, shares and debentures
Figure 2. Percent of countries experiencing a slowdown (3 percent threshold) 35 Oil Shock: Great Moderation: Pre-Crisis: Post-Crisis: Com-0.4) Corr-0.6) Corr: -0.42) Corr:0.0) 30 Investment 25 20 15 10 Saving Note: Does not include oil exporters. Source: WDI database and Survey Calculations.