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Economic Situation by Dr. Tarun Das 1
Savings and Investment
Dr. Tarun Das, Eco.Adviser.MOF
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Contents of this presentation
1. Trends of savings andInvestment
2. Factors affecting savings
-- Macro-economic fundamentals-- Performance of capital markets
-- Inflation and interest rates
-- Demographic transition
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1.1 Gross Domestic Savings(as % of GDP)
Year Houshold Pvt.Corp Public Total
1990-91 19.3 2.7 1.1 23.1
1991-92 17.0 3.1 2.0 22.0
1992-93 17.7 2.7 1.6 21.8
1993-94 18.4 3.5 0.6 22.5
1994-95 19.7 3.5 1.7 24.9
1995-96 18.2 4.9 2.0 25.1
1996-97 17.0 4.5 1.7 23.2
1997-98 17.6 4.2 1.3 23.1
1998-99 18.8 3.7 -1.0 21.51999-00 20.9 4.4 -1.0 24.3
2000-01 21.6 4.1 -2.3 23.5
2001-02 22.6 3.6 -2.7 23.4
2002-03 23.3 3.8 -1.1 26.1
2003-04 24.3 4.1 -0.3 28.1
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1.2 Trend of GDS as % of GDP
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1990-
91
1991-
92
1992-
93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
RatiotoG
DP(%)
Household Pvt.Corp Public Total
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1.3 Composition of savings(per cent)
S a v i n g s i n
H o u s
8 5 %
P v t . C
1 4 %
P u b
1 %
H o u s h o ldP v t . C o r pP u b
S a v in g s in 1 9
H o u s h
8 3 %
Pv t .C o
1 2 %
Pu b li
5 %
H o u s h o ldPv t .C o r pP u b li
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1.4 Composition of householdsavings (% to total)
Financial Physical Total
1990-91 45 55 100
1991-92 56 44 100
1992-93 49 51 100
1993-94 60 40 100
1994-95 61 39 100
1995-96 49 51 100
1996-97 61 39 1001997-98 55 45 100
1998-99 55 45 100
1999-00 51 49 100
2000-01 49 51 100
2001-02 49 51 100
2002-03 45 55 100
2003-04 47 53 100
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1.5 Composition of householdsavings (percentage to total)
0
20
40
60
80
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
Percentto
Tot
al
Fin a nc ia l P h ys i ca
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1.6 Composition of HouseholdsFinancial Savings (in per cent to
total)
I te m s 2 0 0 2 - 0 32 0 0 3 -0 4 2 0 0 4 - 0C u r r e n c y 8 . 9 1 0 . 5 9 . 2
D e p o s i ts 4 0 . 9 4 1 .6 3 9 . 4
G o v t . c l a i m 1 7 . 4 2 0 . 2 2 4S h a r e s 1 . 7 0 . 1 1 . 1
C o n t r a c tu a l 3 1 . 1 2 7 . 6 2 6 . 3
T o ta l 1 0 0 1 0 0 1 0 0
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0 1 0 2 0 30 40 5 0
Cur rency
Govt.claim
Contrac tua l
Com pos it ion of Financ ial S a vi
2002 -03 2003 -04 2004 -0
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1.8 Composition of household
financial assets (% to total)
Bankdep LIC PPF SSC Shares
1990-91 3.2 9.5 18.9 13.4 8.4
1991-92 2.6 10.3 18.4 7.1 10.0
1992-93 3.7 8.8 18.4 4.8 10.2
1993-94 3.3 8.8 16.9 6.3 9.2
1994-95 3.8 7.8 14.7 9.1 9.3
1995-96 3.2 11.2 22.0 7.7 6.9
1996-97 3.2 10.2 19.2 7.4 4.2
1997-98 4.3 11.3 18.8 12.9 2.6
1998-99 3.8 11.3 23.4 13.6 2.5
1999-00 3.5 12.1 22.8 12.3 6.5
2000-01 3.8 13.6 19.3 15.7 4.5
2001-02 3.9 14.2 16.8 17.9 3.3
2002-03 4.0 15.5 14.3 18.6 2.1
2003-04 4.3 14.9 13.0 17.7 1.8
i i f h h ld
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1.9 Composition of householdfinancial assets (% to total)
0 .05 .0
10.015.020.025.0
199
0-91
199
2-93
199
4-95
199
6-97
199
8-99
200
0-01
200
2-03
Percentto
total
Ban kdep L IC PPF SSC Sha re s
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1.10 Trend of GDI as % of GDP Trend of Investment
0.0
5.0
10.015.020.0
25.030.0
1 3 5 7 911
13
Years since 1990-91
As%o
fGDP
Pvt.Corp Public Total
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1.11 Composition of sectoral GDI (%)
1990-91 2002-03A. Agriculture & allied 8.4 8.9
B. Industry 53.0 46.9
C. Services 38.5 44.2
--Trade, hotels 3.9 0.6
--Transport, comm. 11.7 10.8--Finacial sectors 14.4 13.6
-- Govt,social,personal 8.5 19.2
D. Total GDI 100.0 100.0
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.Sectors
Item Mar-96 Mar-98 Mar-04
1.No.of foreign banks 33 42 33
2.New private banks 9 9 103.Gross NPA ratio 24.8 16.0 7.2
4.Net NPAs ratio 10.7 8.2 3.0
5.Op. profits ratio 1.6 1.8 2.7
6.Net profits ratio 0.2 0.8 1.17.CRAR (Capital adequacy ratio) No. of Banks
-- Below 9% 31 6 2
-- 9 to 10% 10 16 1
-- Above 10% 43 71 87
8.Number of banks 84 93 90
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.Sector
Items 1999 2004
1.No.of public insurers in life ins. 1 1
2.New private insurers in life ins. 0 13
3.No.of public insurers in non-life ins. 5 6
4.New private insurers in non-life ins. 0 8
5.Insurance penetration 1.9 3.3
(premium as % of GDP)
6.Market share of private cos. (%)---- Life insurance 0 22
---- Non-life insurance 0 20
7.Annual GR of premium (2000-05)
---- Life insurance 35.1%---- Non-life insurance 14.4%
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.insurance
in India and China in 2003
Items India Rank China Rank
1.Share in global life
insurance premium
-Share in total business
0.81
78.5
18 1.94
69.2
8
2.Insurance density -US$
-Life
-Non-life
16.4
12.9
3.5
74 36.3
25.1
11.2
71
3.Ins. penetration (%)-Life
-Non-life
2.882.26
0.62
54 3.332.30
1.03
44
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2. Factors affecting savings
and investment
a) Macro-economic
Fundamentals
b) Sound capital Market
c) Inflation and interest rates
d) Demographic transition
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2.1 MacroeconomicFundamentals
Macroeconomic stability and efficient capitalmarkets depend on each other.
Both promote savings, investment and effectiveallocation of resources.
Capital markets provide basic infra-structure toaccess savings and promote investment.
Both the real sector and financial sector arecrucial to promote overall economic growth.
Sound macroeconomic policies are the first
defense against any financial crisis.
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2.2 Capital Market andMacro-economic Variables
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
1 3 5 7 9
11
Ye a r s s in c e 1 9 9
Inde
xwith1993-
94=100
B S E N -In d
M S E -M .C a
G D P
M 3G D I
G D S
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2.3 Comparative development inIndia, China, Japan, USA in 2001
C o m p a ra t iv e d e v e lo p m e n t in I n dia , C h in a , JI te m s U S A C h in a J a p a n I n d ia
P P P A d ju s te d G N P ($ B n )9 7 8 1 5 0 2 7 3 2 4 6 2 9 1 3
M a rk e t C a p ($ B n) 1 3 8 1 0 4 6 3 2 2 5 2 1 3 1
M a rk e t C a p (% o f G D P )1 3 7 4 5 5 4 2 3
T u rn o v e r R a t io (% ) 2 1 0 8 6 8 1 2 2 6
N o . o f lis t e d C o m p a n ie s6 3 5 5 1 2 3 5 2 4 7 1 5 6 5 0
P C G N P ($ ) 3 4 2 8 0 8 9 0 3 5 6 1 0 4 6 0
F E R ($ B n ) 1 3 0 2 2 0 4 0 2 4 9
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2.4 Factors influencing capitalmarket
(a) Sound macroeconomic management,
(b) Sustained economic and industrial growth,
(c) Strict fiscal prudence & monetary discipline,
(d) Control of inflation rates,
(e) Liberalisation of Industry, Trade, Investment,
(f) Liberal policy of FDI and portfolio investment,
(h) Gradual convertibility on capital account,
(g) Successful management of external sector,(g) Control on short-term external borrowing.
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.Nominal Interest rates (per
cent)
Inflation DR-3yr DR-3yr+ PLR Margin
1990-91 10.3 9.5 11.0 16.5 6.3
1991-92 13.7 12.0 13.0 16.5 4.01992-93 10.1 11.0 11.0 19.0 8.0
1993-94 8.4 10.0 10.0 19.0 9.0
1994-95 12.5 11.0 11.0 15.0 4.0
1995-96 8.1 12.0 13.0 16.5 4.0
1996-97 4.6 11.5 12.6 14.5 2.4
1997-98 4.4 10.8 11.8 14.0 2.8
1998-99 5.9 10.0 11.0 13.0 2.5
1999-00 3.3 9.0 10.3 12.0 2.4
2000-01 7.2 8.8 9.8 11.5 2.3
2001-02 3.6 8.0 8.3 11.5 3.4
2002-03 3.4 5.3 5.8 10.8 5.2
2003-04 5.5 4.6 5.4 10.3 5.3
2004-05 6.4 4.6 5.4 10.3 5.3
2005-06 6.5 4.6 5.4 10.3 5.3
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2.6 Trends of Inflation andNominal Interest rates (per cent
0.0
5.0
10.0
15.0
20.0
1990-9
1992-9
1994-9
1996-9
1998-9
2000-0
2002-0
2004-0
Perce
Inflation DR-3yr DR-3yr+
PLR Margin
2 7 T d f R l I t t
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2.7 Trends of Real InterestRates and Bank Margins (per
cent)
1990-91 -0.8 0.7 6.2 6.3
1991-92 -1.7 -0.7 2.8 4.01992-93 0.9 0.9 8.9 8.0
1993-94 1.6 1.6 10.6 9.0
1994-95 -1.5 -1.5 2.5 4.0
1995-96 3.9 4.9 8.4 4.0
1996-97 6.9 8.0 9.9 2.4
1997-98 6.4 7.4 9.6 2.8
1998-99 4.1 5.1 7.1 2.5
1999-00 5.7 7.0 8.7 2.4
2000-01 1.6 2.6 4.3 2.3
2001-02 4.4 4.7 7.9 3.4
2002-03 1.9 2.4 7.4 5.2
2003-04 -0.9 -0.1 4.8 5.3
2004-05 -1.8 -1.0 3.9 5.3
2005-06 -1.9 -1.1 3.8 5.3
2 8 Trends of Real Interest
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2.8 Trends of Real InterestRates and Bank Margins (per
cent)
-5.0
0.0
5.0
10.0
15.0
199
0-91
199
2-93
199
4-95
199
6-97
199
8-99
200
0-01
200
2-03
200
4-05
Percent
D R -3yr D R -3yr+ PLR Marg in
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2.9 Number of 60+ People in India
Year Million Ratio
1951 20 5.4%
2000 77 7.6%
2025 168 12.7%
2050 326 20.6%
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2.10 Share 60+ population in
total population 2000 2050World 10.0 21.1
Asia-Pacific 8.8 22.6China 10.1 29.9
India 7.6 20.6
Indonesia 7.6 22.3Japan 23.2 42.3
S are o 65+
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. S are o 65+population in world 65+
population Region/ Country 2000 2050China 20.9 22.8
Indonesia 2.4 3.5
India 12.0 16.0
Russian Federation 4.3 2.0
Japan 5.2 2.7
Rest of Asia Pacific 11.7 16.0
Rest of world 43.5 37.1
S are o 80+
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. S are o 80+population in world 80+
population Region/ Country 2000 2050China 16.6 26.2
Indonesia 1.6 2.7
India 8.8 12.7
Russian Federation 4.2 2.0
Japan 6.9 4.4
Rest of Asia Pacific 12.4 11.6
Rest of world 49.5 40.4
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2.13 Ratio of WorkingPopulation
Figure VIII: Dynamics of working age population in selected economies
Population aged 15-59 for selected Asia-Pacific economies 1950-2050
China
Asia
Pacific
Japan
Republic of Korea
India
40
45
50
55
60
65
70
1950 1975 2000 2025 2050
Years
Percentage
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2.14 Implications of
population ageing Decline of share of working age population
in Asia from 62% in 2025 to 58% in 2050
Higher consumption
Lower savings, investment and growth
Lower contributions to pension funds, butincrease of number of pensioners
Higher expenditures on pensions, old agehealth care, institutional and social care
Rising demand for medical services for oldage and high medical cost
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2.15 Impact on CapitalMarkets and Insurance
Shift from Pay As You Go pension system to definedcontributory pension schemes
Emergence of pre-funded private and public pensionsystems and insurance schemes
Strengthening of health insurance schemes
Professional and innovative management of pension,provident and insurance funds
On the other hand, lower savings may have adverseeffects on capital and share markets
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2.16 Policy Options Multi-pillar pension schemes- mandated
publicly managed defined benefits scheme,privately managed and funded definedcontribution scheme and retirement provisionson a voluntary basis.
Increase retirement age
Limit early retirement windows Autonomy in the management of pension,
provident and insurance funds
Make pensions portable and improve labour
market flexibility Contributory medical insurance schemes
2 17 Implications for
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2.17 Implications forManagers
World is now a global village- insurance, pensions,provident funds are being opened for foreign investors
There is need for more emphasis on external factors
Knowledge and information technology (IT) are themost valuable assets
Wider choice of resources- domestic/ foreign, debt/
equity/ portfolio etc.Greater Risk- Currency, exchange rate, interest rate,
commodity prices, markets
Emphasis on decentralisation, consultation, and risk
sharing
2 18 T t th S t
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2.18 To strengthen Systemsfor
Management information system (MIS)
Asset-Liability Management (ALM)
Good corporate governance
Adopt international best practices
Performance Audit
Policy Audit
Identification, assessment, monitoring andmanagement of risk
Thank you
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Thank you Have a Good Day
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