I was browsing the Economic Survey when my eye fell on a footnote in the Tables on savings and investment: adjusted for errors and omissions.

That was strange, I thought; why did one have to adjust for errors and omissions? All one has to do is to give the actual errors in an additional row.

Reserve Bank of India does this all the time in the balance of payments figures, which it does not reconcile even after 50 years; why did the finance ministry have to do it differently? So I began investigating, and a number of skeletons stumbled out of its cupboard.

The ratio of tax revenue to GDP fell from 9 per cent in 2000-01 to 8.1 per cent in 2001-02; the Survey expects it to jump to 9.6 per cent in 2002-03. This is of a piece with the ministry's eternal optimism.

In Yashwant Sinha's time, revenue was routinely overestimated. He always planned to bring down the fiscal deficit. But the plans were all in the air; revenue was always lower than budgeted, the deficit was always higher, and the debt went up.

How much up? Sinha was cautious in the first three years; the ratio of central debt to GDP went up from 51.1 per cent in 1997-98 to 52.7 per cent in 1999-2000. (I suspect he kept it down by passing on the burden of small savings to the states.) Then he became reckless: the ratio went up to 61.4 per cent by 2002-03.

The East India Company introduced a single-entry system of book-keeping in the 18th century, which records only current cash flows and ignores assets and liabilities. Our government conveniently sticks to it in the 21st century. So the debt does not enter the budget; only interest on it does.

And the government kept the ratio of interest to GDP from rising by reducing interest rates. It could do so because the rising foreign exchange reserves removed its fear of a payments crisis, and it could bring down the average interest rate on the debt by 1.1 per cent between 1999-2000 and 2002-03.

The debt-GDP ratio rose faster because the government stopped doing any net savings. When Sinha took over, government savings were 1.7 per cent of GDP; in 2001-02 they were minus 2.5 per cent. In other words, it was taking away 2.5 per cent of private savings and blowing them up on consumption.

Private savings, in the meanwhile, showed an enormous increase from 21.5 per cent of GDP in 1996-97 to 26.5 per cent in 2001-02. Corporate savings changed little; but non-corporate savings went up from 17 to 22.5 per cent of GDP. Non-corporates' financial savings rose little -- from 10.4 to 11.2 per cent of GDP.

These financial savings continued to finance government investment, and less and less, corporate investment. But non-corporates' physical savings went up from 6.7 to 11.3 per cent of GDP.

Physical savings mean savings directly used to buy houses, plant, machinery etc. An increase in them must be reflected in investment. It is: non-corporate investment went up from 6.9 to 12.3 per cent.

Corporate investment fell sharply from 8.7 per cent of GDP in 1996-97 to 5.5 per cent in 2001-02; government investment changed little.

The big change over the six years was that the share of non-corporates in total investment went up from 28 to 52 per cent. Till the 1980s the government pre-empted most of the savings and was the dominant investor.

For a short while in the early 1990s, corporates' share in investment went up. In the late 1990s we have an unprecedented phenomenon -- non-corporates have raised their share of domestic investment to over a half.

Which means that the share of non-corporates' financial savings in their total savings fell -- from 61 per cent in 1996-97 to 50 per cent in 2001-02. Non-corporates -- which means individual and partnerships – have always been passionate investors in bank deposits and government securities, mostly indirectly through government financial institutions.

In the 1990s they acquired a taste for corporate shares. Their tryst with corporate enterprise rapidly soured as companies disappeared with their money; in the late 1990s, they raised direct physical investment.

What were these physical investments? The view of my expert friends is that the non-corporates have been building houses. They point to the rise in cement consumption.

They observe the blossoming of the mortgage loan market, the increase in competition and the shift in banks' preference towards mortgage loans.

They think that Indians have become consumptionist, and luxurious houses are only a part of this consumption boom; they are called investment only by economic convention.

They may be right, but there is also another possibility. While corporates, stuck in traditional industries like steel and textiles, are bleeding, maybe many new entrepreneurs are investing in potato chips, phone shops and private water supply.

In other words, it is possible that the industrial slump after 1996 was not economy-wide, but was confined to the old industry, which had mis-invested in the early 1990s -- and that much private investment continued to flow into new areas.

But it was not corporate investment, it did not pass through any financial institutions, and so we failed to recognise it.

Thus what we see is not so much the failure of investment and growth, but the failure of corporate enterprise. Entrepreneurs used the corporate legal entity to cheat savers on a large scale, and the latter are no longer prepared to trust their money to corporates.

But they have also ceased to be couch potatoes; they have increasingly gone out and set up their own businesses -- except that they do not incorporate and raise capital in the market. They form private limited companies to limit risk -- which is why corporate tax revenue has been buoyant -- but otherwise keep outside investors out of their hair.

The only doubt about this story lies in the mistakes in the statistics -- and they are big -- so big that they throw doubt on the CSO's competence.

They imply that either investment is lower than the detailed figures for government, corporates and non-corporates suggest, or that their savings are higher.

Which is the case? I do not know. But even if the errors were entirely deducted from non-corporates' physical investment, it would still show a large increase. So my story would hold even after correction.

If it did, would it be such a bad thing? The government has so misused its financial institutions that the people have lost faith in them. Sebi has cleaned up the capital market, but there is no one to make corporates more responsible to the investor, so the public has lost faith in corporates as well.

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