India's savings, investment on a higher trend, says SBI report (2024)

A research report from the State Bank of India's Economic Research Department, SBI Ecowrap, says the investment and savings data for the past decade reveals interesting points, adding that all the numbers are as a percentage of GDP.

Gross capital formation (GCF) by the government touched a high of 11.8% in 2021-22, up from 10.7% in 2020-21. This also had a domino effect on private sector investment that jumped from 10% to 10.8% over the same period, according to a latest calculation by the SBI's research team.

In fact, the research report said that the trends in GCF to gross output ratio or the plough back of funds for creation of fresh capacity shows that for public administration the ratio attained fresh peak in 2021-22 owing to the emphasis on capital expenditure in recent budgets.

At the aggregate level, gross capital formation is supposed to have crossed 32% in 2022-23, the highest level since 2018-19, said SBI Ecowrap.

Gross savings

In 2021-22, gross savings have risen to 30% from 29% in 2020-21. The ratio is supposed to have crossed 31% in 2022-23, the highest since 2018-19.

The household savings increased sharply during the pandemic period on account of sharp accretion in financial savings such as deposits. While household financial savings have since then moderated from 15.4% in 2020-21 to 11.1% in 2022-23, savings in physical assets have grown sharply to 11.8% in 2021-22 from 10.7% in 2020-21.

On ICOR, GDP growth

Prima facie, a careful analysis by the research team shows that Incremental Capital Output ratio (ICOR), which measures additional unit of capital (investment) needed to produce additional unit of output, has been improving. ICOR which was 7.5 in FY12 is now only 3.5 in FY 22. Clearly, only half of capital is now needed for next unit of output.

Such reducing ICOR in the current years reflects a relative increasing efficiency of capital, said SBI Ecowrap. The talk on ICOR becomes relevant and shows that the economy is on a sound footing.

The report added that the potential growth of Indian economy (a global phenomenon) is now lower than earlier. “From that point of view, future GDP growth rates even at 7% could still mean a decent number by any standards," it said.

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