Use domestic savings effectively to boost growth, business chiefs tell government

According to global business leaders who deliberated on private capital flows at the India Economic Summit on Monday, India needs to mobilise domestic savings more efficiently in addition to relaxing foreign direct investment (FDI) norms to spur investment and sustain growth.

Currently, the bulk of the country's investments comes from domestic savings estimated $400 billion, which is more than a third of the gross domestic product (GDP). On the other hand FDI which is the investments made in the country by foreign companies, is less than 2 per cent of the GDP. The FDI stood at around $15.5 billion in 2007-08, the best year for foreign investments.

According to Ashok Jha, chairman of MCX Stock Exchange, domestic savings should be more productively channelised and if more people were to participate the country could achieve a higher rate of growth. Echoing the sentiment Bank of America Merrill Lynch country head (India) Kevan Watts said that reforms were needed to make the financial system recycle Indian capital more efficiently.

Although the bulk of domestic investments is funded through household savings, foreign capital also plays an important, contributing to the overall funds available for corporate investments. Besides, it also brings in new technology, global management systems and corporate practices.

Barclays chairman and chief executive (Asia Pacific) Robert Morrice pointed to the fact that the percentage of FDI to GDP increased after 2006, the time the economy experienced the fast average growth rate.

Of the domestic savings, the household sector contributes 65 per cent, the corporate sector contributes 23 per cent while the public sector contributes around 12 per cent. To channelise savings into investments, Jim Quigley, global chief executive of Deloitte, US called for providing different investment opportunities for Indian households, from visible assets, bank deposits and real estate they currently favour.