5.economic trends 5 june 2012

7/31/2019 5.Economic Trends 5 June 2012

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OBJECTIVE OF THE LECTURE

Meaning and concept of saving and

investment

Saving performance in India

Investment Trends

Investment performance in India


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SAVINGS

SAVINGS

Savings refer to the part of ones income which is

not spent. It is a fact that most of the individuals

do not spend the whole of the income earned by

them. Therefore, the amount which is not spent

by them becomes savings and Sources of

Investment.


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INVESTMENT

Investment : DEFINTION

AInvestment is an expenditure on

increasing the Nations Stock of Capital

goods like Building, Machines, Tools, Dams,

Rail, Road etc.


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INVESTMENT

Investment refers to what has been added

to the stock of capital goods in a year.

Investment does not include the purchase of

existing paper securities, bonds, debentures

or equities etc, because they are only the

mere transfer and do not add to the stock of

capital goods.


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Difference between

Saving and Investment


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Capital means the total stock of capital goods in

existence while on the other hand investment

refers to what has been added to the Stock of

Capital goods in a year. As such investment is the

amount by which Stock of capital of an Economy

increases and it does not include the purchase of

existing paper securities , bonds, debentures or

equities etc.

Difference between



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Relationship Between



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Savings and investment both make a

singular process that is known as Capital

Formation. Higher is the level of savings,

higher will be the level of investment in the

economy.

Relationship between



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When the savings are used in the further

production, that is the investment it is known

as Capital Formation. In this same way, when

the consumption in a country is less than the

production, (both in aggregates) the surplus of

production i.e, savings , than it is used in

further production as Investment .




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Let us represent the following terms

symbolically,

Y = INCOME

C = CONSUMPTION

S = SAVINGS

I = INVESTMENT




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It is a fact that in an economy, the total

income will be equal to consumption plus

savings and in this way the first equation

may be

Y = C + S




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The income will be equal to the expenditure

made on consumption goods and the

expenditure made on investment. So the

second equation will be

Y = C + I




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Y = C + S (I)

Y = C + I (II)

In the above two equation C is the

common factor therefore it can be said

that

S = I




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It can be concluded that if the savings are

higher then there will be higher level of

investment in the economy and vice versa.

Each and every country particularly

developing , try to raise its level of savings so

that there must be higher level of investment to

build up its capital sector.




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SAVING PERFORMANCE

IN INDIA


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SAVING PERFORMANCE

IN INDIAGross Domestic Savings : Overall Trend

The Gross domestic savings (GDS) rate rose from

around 9% in early 50s to 22% by end of 80s. The

GDPs has continued to rise after liberalization. It rose

from above 20% of GDP in the late 1980s to above

24% in recent years, it has further increased to 32.4%

in 2005-06, as it is clear from the following table.


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SAVING PERFORMANCE IN INDIAGROSS DOMESTIC SAVINGS (AS % OF GDP AT CURRENT MARKET PRICES)

YEAR GROSS DOMESTIC SAVINGS

HOUSEHOLD

SECTOR

(2)

PRIVATE

CORPORATE

SECTOR

(3)

PUBLIC

SECTOR

(4)

TOTAL

(2+3+4)

1950-51 6.2 0.9 1.8 8.9

1960-61 7.3 1.6 2.6 11.6

1970-71 10.1 1.5 2.9 14.61980-81 13.8 1.6 3.4 18.9

1990-91 19.3 2.7 1.1 23.1

1999-00 21.1 4.5 -0.8 24.8

2000-01 21.0 4.3 -1.9 23.4

2001-02 21.8 3.7 -2.0 23.5

2002-03 22.7 4.2 -0.6 26.4

2003-04 23.8 4.7 1.2 29.7

2004-05 21.6 7.1 2.4 31.1

2005-06 22.3 8.1 2.0 32.4


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SAVING PERFORMANCE IN INDIAGROSS DOMESTIC SAVINGS (AS % OF GDP AT CURRENT MARKET PRICES)

YEAR GROSS DOMESTIC SAVINGS

HOUSEHOLD

SECTOR

(2)

PRIVATE

CORPORATE

SECTOR

(3)

PUBLIC

SECTOR

(4)

TOTAL

(2+3+4)

1950-51 6.2 0.9 1.8 8.9

1960-61 7.3 1.6 2.6 11.6

1970-71 10.1 1.5 2.9 14.61980-81 13.8 1.6 3.4 18.9

1990-91 19.3 2.7 1.1 23.1

1999-00 21.1 4.5 -0.8 24.8

2000-01 21.0 4.3 -1.9 23.4

2001-02 21.8 3.7 -2.0 23.5

2002-03 22.7 4.2 -0.6 26.4

2003-04 23.8 4.7 1.2 29.7

2004-05 21.6 7.1 2.4 31.1

2005-06 22.3 8.1 2.0 32.4


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INVESTMENT TRENDS

Investment Trend

The investment is divided into Private and Public .

Private investment is further separated into

corporate investment and Household investment.

Most of the infrastructure investment is pubic

investment because this is either a natural or legal

public monopoly.


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The public infrastructure investment include

Agriculture

Construction

Electricity And Gas

Communication, Railways

Transport

INVESTMENT TRENDS


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The relationship between public and

private investment is complementary.

Infrastructure deficiencies hold back both

private production and private investment.

INVESTMENT TRENDS


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Public investment :

Pubic Investment is different economic activities is

expected to yield differential rate of return. Investmenton health, education, nutrition etc. are not expected to

generate any return in the immediate future. The

benefits of these investment would be felt on the

overall productivity of economy in the long run.

INVESTMENT TRENDS


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INVESTMENT

PERFORMANCE IN INDIA


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INVESTMENT TRENDS

IN INDIATHE PUBLIC INVESTMENT (GROSS DOMESTIC CAPITALFORMATION IN PUBLIC SECTOR) AS A PERCENT OF GDP

AT CURRENT MARKET PRICES INCREASED FROM 2.8%

IN 1950-51 TO 8.2% IN 1965-66.

PUBLIC INVESTMENT SLUMPED IN 1999-00 TILL ABOUT

2003-04 BUT PRIVATE INVESTMENT CONTINUED TOBOOM STABLIZING THE TOTAL. AFTER LIBERALIZATION

TOTAL INVESTMENT INCREASED FROM 26.3% IN 1990-

91 TO 33.8% IN 2005-06


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PRIVATE INVESTMENT INCREASED IN THE

SAME PERIOD FROM 14.7% TO 23.6%

INVESTMENT TRENDS

IN INDIA


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SAVING PERFORMANCE IN INDIAGROSS DOMESTIC CAPITAL FORMATION(AS % OF GDP AT CURRENT MARKET PRICES)

YEAR GROSS DOMESTIC CAPITAL FORMATION

PUBLICSECTOR

PRIVATESECTOR

ADJUSTEDTOTAL

1950-51 2.8 7.7 8.7

1960-61 6.9 7.8 14.4

1970-71 6.4 9.4 15.4

1980-81 8.4 10.3 20.3

1990-91 9.3 14.7 26.3

1999-00 7.1 16.1 24.3

2000-01 7.1 15.8 24.0

2001-02 6.3 16.1 23.72002-03 5.4 17.3 24.8

2003-04 6.5 18.9 27.2

2004-05 7.1 21.3 31.5

2005-06 7.4 23.6 33.8


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SUMMARY

5.economic trends 5 june 2012

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