economic environment and savings

8/14/2019 Economic Environment and Savings

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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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Economic Situation by Dr Tarun Das 36

Thank you Have a Good Day

economic environment and savings

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