Worried over the slipping domestic savings rate that has touched a nine year record low at 30 per cent of the GDP, leading banks including SBI, PNB, HDFC, ICICI have called for an across-the-board tax concessions on infrastructure lending, corporate bonds, savings and strategies for reducing NPAs in the pre-Budget meet scheduled for Tuesday with the Finance Minister Arun Jaitley.
In the Vote on Account (VoA) in February presented by the UPA in February, direct taxes were untouched as it was outside its ambit. “We also want the Finance Minister to impress on the RBI Governor Raghuram Rajan to bring down the policy rates in the next monetary policy so that we can pass on interest rate cuts and hence enhance credit offtake as well as increase savings in the economy,” CM Vasudev, Chairman, HDFC and former Finance Secretary told The Pioneer.
The Finance Ministry is also concerned over the high NPAs particulalry of the PSBs when compared to the private sector banks like HDFC and ICICI. Even though the provisions fall under the RBI, yet bankers are expecting directions from the FM, particularly after the latters directive to form separate National Asset Management Company to hive off bad loans.
The PSBs have been meanwhile alleging that it was following the Government’s directives to enhance credit to the borrowers despite a weakening economy and hence rising credit defaults, the PJ Nayak Committee has, however, said that the it was the bad governance that was responsible for the poor performance of the PSBs.
As per the Nayak Committee the Government needed to give more autonmy to the PSBS and reduce the Government holding in the PSBS to less than 51 per cent as well as remove Govt appointed nominees and Chief Executive. Efforts to talk to SBI chairman Arundhati Bhattacharya was met with busy in meeting response.
Meanwhile, not only has the household savings rate dropped to a nine year record low but also the quality of composition of the savings has undergone a substanatial downfall. With high inflation and low levels of returns composition of households savings have shifted from that of financial to more of physical like gold and real estate. With this the gross capital formation has declined to 34.8 per cent of GDP in FY13 from peak of 38.1 per cent in FY08. “The concessions asked by us would stimulate savings and hence investments and inturn economic growth,” said Vasudev.
India’s savings and investment rates had peaked at 36.8 per cent and 38.1 per cent of GDP in fiscal year 2008.The overall savings rate dropped to sharply to 30.1 per cent of GDP and the domestic investment rate to 34.8 per cent of GDP. The drastic fall in the savings rate from 31.3 per cent in fiscal 2012 to 30.1per cent of GDP in FY13, was on the back of a 90-basis-point decline in household savings (which comprise 73 per cent of total savings) to 21.9 per cent of GDP in FY13 from 22.8 per cent in FY12.
Meanwhile corporate savings, which comprises of 23 per cent of the domestic total savings, fell to 7.1 per cent of GDP in financial year 2013 from 7.3 per cent in the previous fiscal even as the public sector savings remained constant at 1.3 per cnet of GDP in the same period.