Chapter-3: Investment and Saving Slowdowns and Recoveries: Cross-Country Insights for India

In the third chapter of volume-1, economic survey argues that “investment slowdowns are more harmful to growth than saving slowdowns” and the priority of the government must focus to revive investment. Key points from this chapter are as follows:

What are survey findings on slowdown in investments and savings?  What are its suggestions?

Currently, as a share of gross domestic product (GDP), Investment or gross fixed capital formation stands around 26.4% while domestic savings stand at 29%. The GCF was at peak in 2007 at 35.6% while domestic savings were at 38.3% in that year. Both of these have slowed down. Survey argues (on the basis of cross country experience) that investment slowdown has more detrimental impact on economic growth than saving slowdowns.

This is for the first time in economic history that investment and savings both have fallen down. The key reasons for this as per survey are reduced private investment; reduced physical savings (including gold) in households etc.

How to revive investments?

The question is – should the government policies focus on boosting investment or savings? While both are crucial in the long run, the issue is about relative importance and urgency. Survey gives more importance to investment and suggests that government in short turn should focus on reviving investment. The key to revive investment is in improving the policy environment around private investment and public investment in its policy.