Saturday, November 9, 2013

India's savings chart of the day

Few graphs can present a more striking illustration of the distortions in Indian economy as this one showing how Indian households allocate wealth along different asset categories.

india household savings clsa gold
Land and gold together make up 71% of all household assets. Given the limited market for housing mortgages and gold funds, these savings contribute very little to our investment needs. The share of equity and other non-bank financial investments is marginal. This is in sharp contrast to global trends, where a major part of savings are invested directly in financial assets.

We seem to be entrapped in a low-level equilibrium. Problems of access, volatility in equity markets, limited liquid enough fixed income savings instruments, and a grossly under-developed insurance market, have served to keep investors away from financial markets. Further, the inflation tax has been a big disincentive to investing in financial assets. In contrast, thanks to recurrent booms, land and gold have appeared to be relatively attractive investment options. Its allure is amplified by the attraction of being safe conduits to stash away black money as well as avoid taxes. In turn, this self-reinforcing savings-investment channel is a formidable deterrent to the emergence of a deep and broad financial market.   

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