FE Editorial : 8% growth, 100% effort
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The PM outlined some of the basics that needed attending to, and top on this list was petroleum and oil subsidies. With an under-recovery of R86,000 crore in the year's first half, this alone represents a 1.5% of GDP drag on fiscal savings. Add R90,000-1,00,000 crore of annual electricity losses, and we're talking another 1% of GDP that's being wasted and is not available for investments. Fixing this is critical if India's savings rates are to rise. When India was growing at 9% per annum, savings rates were a high 34-36% of GDP—if investments were to rise without savings rising commensurately, this would make the current account deficit rise to unsafe levels. And since household savings and corporate savings have remained a lot more steady, the biggest difference is caused by public sector savings. When these rose from minus 2% of GDP in FY02 to 5% in FY08, overall savings rose from 23.7% to 36.8%; when these fell to 1.7% in FY11, overall savings fell to 32.3%. In the ultimate analysis, the success of the Plan depends upon what's happening to government savings.