Saturday, June 27, 2009

The mystery behind the high savings rate


Here is an interesting article on New York times on high savings rate in China.
Why Do Chinese Save? Boys Want to Marry
The high Chinese savings rate has been one of the wonders of the world. The household savings rate, as a proportion of disposable income, is 30 percent, and has been rising rapidly in recent years. That figure is twice as high as the highest rate ever recorded in the United States....
Source: The New York Times

The article writes about a working paper written by two economists-Shang-Jin Wei of Columbia University and Xiaobo Zhang of the International Food Policy Research Institute. This working paper concludes that the primary reason for the high savings rate is the gender imbalance, where families of males save more parents want their sons to marry, and they figure that girls are more likely to want to marry rich boys.
India too has a savings rate of 28%. I don't see the evidence of above in India.
I understand cultural differences do explain differences in behaviour of individuals to an extent. However, I don't think we can term cultural differences as the primary driver for such an economic behaviour.

Savings rate, according to me, can be primarily explained by the following:
1. Uncertainty-
Income (through a job or through unemployment benefits)
Inflation

2. Less support from government-
No social cover
Health insurance
Pensions

Given that China and India are expected to grow at 8-11% in the next few years, it will be interesting to see whether the savings rate remains that high. I expect it to lower to around 20-25%.

Wednesday, June 24, 2009

FDI inflow in India

India receives US$ 2.34 billion FDI in April 2009
The foreign direct investment (FDI) inflows in April 2009 stood at US$ 2.34 billion, compared with US$ 1.96 billion in March 2009, registering a growth of 19.3 per cent. This signals confidence in India’s economy by foreign investors amid the global financial crisis.
In the last fiscal, India attracted a total of US$ 27.30 billion FDI—due to robust trends in the first six months of 2008-09—as against US$ 24.5 billion in 2007-08. Further, cumulative FDI from April 2000 to March 2009 stands close to about US$ 90 billion.
Experts believe that the foreign investment inflow is expected to improve further with the revival of the domestic stock markets.

Source:IBEF

This is great news. Not many people are taking not of this progress. This robust inflow of FDI is reflective of the confidence that foreigners have in India

Tuesday, June 23, 2009

8% growth rate for India in 2010- WB

The World Bank has projected an 8% growth for India in 2010, which will make it the fastest-growing economy for the first time,overtaking China’s expected 7.7% growth.
The multilateral lender has revised upwards the growth rate for the Indian economy this year to 5.1% from an earlier projection of 4%, according to its Global Development Finance Report released on Monday. India has consistently outperformed growth forecasts by the World Bank in the past.

Source: Economic Times

Couple of interesting points-
1. Clearly, predictions of WB are really off. I had in my earlierpost mentioned how it was being pessimistic in its prediction
2. WB has revised its prediction from 4% to 5.1% in just a couple of months. Now the questions is that what has changed in the last couple of months for India?
FDI has been flowing in regularly. However, I am still not sure how/why have they changed the prediction in a couple of months
3. The prediction looks very pessimistic for 2009 and overly optimistic for 2010

50th Post!!!