Home » Economic Survey 2005-2006 » General Review » Consumption, Savings and Investment

1.43  The increasing trend in gross domestic savings as a proportion of GDP observed since 2001-02 continued, according to the new series of national accounts, with the savings ratio rising from 26.5 per cent in 2002-03 to 28.9 per cent in 2003-04 and further to 29.1 per cent in 2004-05 (Rs. 69,390 crore in 2004-05 (QE) was composed of lower dissavings of public authorities and higher savings from non-departmental enterprises.

1.45  Savings by the private corporate sector – reflecting the high retained earnings from their higher profits – grew rapidly (24.9 per cent) to increase its share in GDP from 4.4 per cent in 2003-04 to 4.8 per cent in 2004-05 (QE). There has been a continuing upward momentum in the savings of the private corporate sector for three years; as a proportion of GDP, it increased steadily from 3.6 per cent in 2001-02 to 4.8 per cent of GDP in 2004-05 (QE). The increase of 0.2 percentage points in gross domestic savings rate between 2003-04 and 2004-05 was considerably lower than the 2.4 percentage point rise in the previous year because of a decline in household savings, in both financial as well as physical assets, relative to GDP.

1.46  Private final consumption expenditure (PFCE), at current prices as a proportion of GDP, after declining from 64.6 per cent in 1999-2000 to 62.9 per cent in 2002-03, fell further to 62.4 per cent in 2003-04 and 60.6 per cent in 2004-05. Among the various components of PFCE, the share of food, beverages and tobacco in total expenditure came down from 46.8 per cent in 2000-01 to 40.6 per cent in 2004-05. The other major item of importance, namely, transport and communication, as a proportion of PFCE, rose from 14.3 per cent in 2000-01 to 18.2 per cent in 2004-05.

1.47  While consumption expenditure, when measured as a proportion of GDP, exhibited a declining trend both in public and private consumption categories, such expenditure continued to dominate the demand side of national income. As a proportion of GDP at current prices, Government final consumption expenditure (GFCE) declined from 12.9 per cent in 1999-2000 to 11.2 per cent in 2003-04. The proportion is estimated to have grown marginally to 11.3 per cent in 2004-05. 

1.48  In line with the rise in the rate of gross domestic savings in 2002-03 and 2003-04, there was an increase in the rate of GDCF or investment (Table 1.3), mainly on account of private investment growing at 19.7 per cent. In the revised series data, a new item “valuables” covering expenditure on acquisition of precious metals and stones as a store of value has been included as a component, separate from public and private, of GDCF on the basis of 1993 System of National Accounts of United Nations.

1.50  GDCF at constant prices (base: 1999-2000) as a proportion of GDP (Table 1.3). But, irrespective of the choice of constant or current prices as the weights, the direction of change from year to year remains unaltered.  The lower values of the change in GDCF as a proportion of GDP at constant prices, particularly in more recent years, may reflect the higher prices of capital goods relative to the general price level, with growing technological sophistication of the production processes in the economy in general and manufacturing in particular.

1.51  At constant 1999-2000 prices, the composition of GDCF for 2003-04 and 2004-05 reveals a faster growth in the public component than in the private.  Furthermore, there is a faster growth in inventories and valuables in the latest two years, with gross fixed capital formation (GFCF) growing at a lower rate than gross domestic capital formation.  This may partly reflect a process of adjustment to the rapid decline in the change in stocks as a proportion of GDP from 2.0 per cent in 1999-2000 to a low of 0.5 per cent in 2001-02 and the progressive liberalization of gold and silver imports.

1.52  In terms of contribution to growth of GDP at current market prices, from the demand side, there was a change in the pattern of PFCE providing the lead (and