## Thursday, February 12, 2015

### For GDP growth to revive, we must win back households into financial savings

The decline in private corporate investment in India, in recent years, has been widely noticed. What deserves equal attention is the dismal state of household financial savings. If corporate investment is to revive, firms will require external capital, and the problem of household financial savings will become an important bottleneck. I have a column in the Economic Times today on this.

#### 5 comments:

1. so pie-in-the-sky - yes we need bond markets, yes we need financial saings, yes we need good governance, yes we need Gandhiji back.. how are we going to achieve these is the only question..everyone knows what needs to be done. and an intellectually dishonest statement in saying equity markets are functioning well.. what has been the growth in household financial savings in equities in the last 10 years? Zero. look at any piece of data in terms of MF folios, active demat accounts etc. India will be better served by sharp brains such as yours if they are focused on doing rather than thinking in ivory towers

2. This is borderline rude and I am inclined to delete the comment. However.

The equity market is the only liquid market with genuine speculative price discovery in India. All other components of organised financial trading don't have this diversity of participants, freedom to take positions, active processes for taking in information and making prices.

You say "Yes, we need Gandhiji back". It's easy to be cynical in policy work.

It's hard to fix the world. Many attempts to fix the world don't work out. That doesn't mean you should be derisive. If you can't help, stay off. Don't actively oppose the work.

Look at http://ajayshahblog.blogspot.in/2015/02/expert-committee-reports-in-indian.html
Over and over, you see practical people saying change will never come. At every step of the journey, worldly wise men have advised in favour of small steps, and against grand schemes. What's remarkable is how many grand schemes have worked. This is the land of opportunity. We can actually do stuff.

1. Since you referred to a prior post in this reply arguing for bold reforms and hence FSLRC, have you seen this rebuke on FSLRC - http://www.livemint.com/Opinion/J5v0wbIVDdeFpzLLMovFWK/Stop-the-task-forces-Mr-Jaitley.html. If this is true, whats your response to it?

3. Very interesting article. Thank you. On the issue of liberalising foreign investment into bonds, what do you think is the government/ RBI/ SEBI's stance on this? I note that your collaborator Ila Patnaik advised this in 2013 but nothing has come of it (http://www.sebi.gov.in/cms/sebi_data/DRG_Study/FIIGBM.pdf). Are there vested interests in gov't who fear flighty capital? If they were to liberalise how do you think they'd go about it? Who ultimately wields the axe on this law? I would be very interested to hear your thoughts. Best wishes, Alex (London).

4. It was a refreshing change to read this article.

Normally we only hear praises about the financial sector, the lack of household savings by Indians, their propensity to invest in gold, the need to divert Provident Fund savings to equity and such other fashionable statements. No one and I mean literally no one tries to understand the perspective of the householder.

The insurance scam is a great example where the gullible householder was mislead by almost every insurer. Given the magnitude of the scam one would have thought that the government would wake up and launch an investigation and the courts would take notice but sadly not a single person has been put behind bars or even a financial penalty imposed. The worst action which was taken in very few cases was that the premium amount was returned.

If a parallel was drawn to petty theft or burglary it would amount to a burglar when he is caught, if he is caught, can return the stolen goods and not be punished.

The worst part is, the companies have grown rich through lapsed premiums, the agents have made their commissions, the employees have got bonuses and the promoters are happily selling their shares at huge premiums. My father who is 92 years has been defrauded of several lacs and it has been a uphill task of recovering the money even though forgery was apparent. I wish someone would file a PIL with the Supreme Court. If we had a Preet Bhara in India, the Indian Government could have raised an enormous sum by way of financial penalties in addition to protecting Indian investors.

All the best. At least you are keeping the flag flying.

Please note: Comments are moderated. Only civilised conversation is permitted on this blog. Criticism is perfectly okay; uncivilised language is not. We delete any comment which is spam, has personal attacks against anyone, or uses foul language. We delete any comment which does not contribute to the intellectual discussion about the blog article in question.

LaTeX mathematics works. This means that if you want to say $10 you have to say \$10.