CHENNAI: India’s strength lies in the fact that it is neither a government or budget-driven economy nor a market-driven economy. India’s strength, according to columnist S Gurumurthy, is that it is a bank-driven economy.
Speaking at the inauguration of the Indian Overseas Bank Officers’ Association’s 22nd Triennial Conference here on Saturday, Gurumurthy stated categorically that India’s economic strength and stability come from the fact it remains a bank driven economy, unlike its counterparts in the West, whose economies have come to be driven by the stock market.
“In India, only 1 per cent of our savings go into stock markets. Even when the stock market was at its peak, it was only 5 per cent. Last year it was 1 per cent and it is likely to go up to 2 per cent this year. We are neither a government, budget-driven economy nor a market-driven economy. The strength of this country is that it is a bank-driven economy,” he said.
“The strength of India is not understood. The bulk of this country does not know this,” he pointed out. “The bank deposit to the GDP ratio was 34 per cent in 1991. The figure now is 71 per cent. The banks have been able to command the confidence and trust of the savers of India, which the stock market has not been able to,” he declared.
Rubbishing earlier projections of woe and doom if India would not be able to develop its infrastructure if foreign investment was not brought in, he said that it is now clear that India’s savings are what will drive that development.
“Goldman Sachs came out with a report in 2010 that said that India does not need foreign investment to build infrastructure. Do you know why? Because rising domestic savings, which will grow to 40% and more of the GDP, will be the main channel for funding infrastructure through household savings intermediated through the financial sector. That is the banks,” he declared.
Gurumurthy went on to say that in 1990 we were told that the Indian economy cannot develop, progress, attain the take off stage and achieve 9% growth without foreign investment. But reliable figures of the last two decades showed the opposite.
“From 19%, household savings went up to 29% in 2008. National savings went up to 37% and national investment went up to 40% and that is why we were able to achieve this 9.5% growth rate. But the foreign investment that came to India in this period was shockingly only 1.2% of the total investment in India,” he said. “But this is not the actual perception we have. And the most critical part was played by the banks,” he added.
The event witnessed the honouring of Capt. Mukund Varadarajan’s father and a release of a Compilation of Editorials from AIBOC’s in-house magazine.