India's savings rate to drop to 34%

India's savings rate which has shown a sharp jump in the last few years is expected to decline to 34 per cent in FY'09, the Centre for Monitoring Indian Economy said in its monthly review.

India's savings rate has increased impressively from less than 24 per cent in FY'01 to 34.8 per cent in FY'07 and is estimated to have reached 36 per cent in FY'08.

"We expect this savings rate to decline in FY'09 to 34 per cent largely because of an expected fall in the savings of the private corporate sector and the public sector," CMIE said.

Savings of the household sector are believed to be rising in response to rising incomes. This is evident from the rising deposits with banks.

CMIE expects the share of household savings in FY'09 to remain a shade higher compared to the levels seen in the past two years.

The gross capital formation, at 37.3 per cent of GDP in FY'09 would be higher than domestic savings. The gap would be financed by the current account deficit, which is expected to be 3.3 per cent.