According to the
global financial services major, a recovery in growth could bring more than USD
1 trillion in extra household savings into the financial system over the next 5
years.
“The Prime Minister’s
ambitious plans for growth & prosperity thus hinge on India’s ability to
mobilise enough funds for all this spending,” HSBC said in a research note.
According to the
global brokerage company, the India's national savings rate is nearly 30% of
GDP. To achieve GDP growth of 7 to 8% during Narendra Modi’s first term in
office, investment needs to rise to minimum 35% of GDP.
“Age is on India’s
side. Savings will continue to rise as the number of people entering the
workforce grows. Over the next 5 years, the growing workforce generates up to
USD 44 billion in extra savings,” HSBC said.
HSBC, however, added
that to ensure that a big chunk of this enters the formal financial system,
inflation needs to be contained and financial inclusion improved.
Better public
infrastructure support and easier trade would increase the size of the
corporate sector and therefore the size of the savings generated.
“We estimate that
public sector saving could climb by 0.4 to 1.8% of GDP over the next 5 years if
reforms are implemented,” HSBC said adding that in total, domestic saving could
rise by 2 to 5% of GDP over the next 5 years hardly small change.
The report further
noted that dilution of the government’s stake in banks would enable them to run
on more commercial terms and improve allocative efficiency.
Moreover, sustaining
reform momentum is important to keep equity markets buoyant, thus reducing
corporate leverage & boosting savings, it added.
No comments:
Post a Comment