The uncertainties of the future faced by households are aggravated by the profligate and predatory state, which furiously taxes the same hapless households both as direct taxes and also recently as service taxes. This grabbing of savings by households by the state is an old “socialist” paradigm that needs to be completely reworked to give primacy to the education and health needs of communities, especially the senior citizens.

IN THIS fifth part we focus on the nature and structure of savings by the household sector and the changing composition of the same. In the government data pertaining to national savings, partnership and proprietorship (P&P) firms are included under the household sector. The savings rate of the economy — Gross Domestic Savings expressed as percentage of Gross Domestic Product at market prices — has gone up from 12 per cent in the 1960s to nearly 24 per cent in the late 1990s. More than 90 per cent of this savings is from the household sector consisting of consuming households and mixed income households, namely partnership and proprietorship activities. The share of the P&P sector is estimated to be more than 40 per cent of the gross domestic savings.

The household sector savings consist of physical and financial savings. Net additions to the physical assets of the households comprising investment in fixed assets of construction and machinery and equipment, and change in stocks, are taken to constitute households’ saving in physical assets (NAS, Sources and Methods, 1989). Savings in the form of financial assets are currency, bank deposits, shares and debentures, small savings represented as net claims on the government by households, life insurance funds and provident and pension funds.

There is no generalised social security system in our country. Actually, nearly 90 per cent of our population is not covered by any social security system for old age. This has been highlighted by the OASIS (Old Age Social and Income Security) Report, of the Ministry of Social Justice and Empowerment in the year 2000. From this point of view, India is the only private market economy where the role of the state from the point of social security is negligible. Contrast this with developed economies such as the US, Germany or Japan, where the old age pension is provided by the state to all its citizens and is currently being ” reformed” with a noisy social and political debate.

In our context, individuals have to depend on their own savings and/or on joint family support in the old age. Hence, there is a dire necessity for families to save in the context of increasing life expectancy and decline in joint family system. Not only that, the family has to save for the education of children (which is very expensive and, in a perverse way, inversely related to the level of education, like kindergarten is more expensive than post-graduate), for their healthcare needs (which is more expensive than in the UK), and for expenses connected with birth, marriage and death — all part of the samskaras of an average Indian.

Where do the savings of households go? The Government is a large grabber of the savings of the households. The Table lists the components of household savings from 1950-51 to 2000-2001. In the early 1950s the physical savings constituted the bulk of savings and the trend began to reverse from the 1960s, wherein the role of financial savings increased significantly to reach nearly 50 per cent in the late 1990s. It also reveals that the capital formation in the household sector can easily be undertaken by the savings of that sector and that it provides substantial amount of its savings to the government and the private corporate sector.

In 2000-01, the gross domestic saving was of the order of Rs 4,92,000 crore of which Rs 4,54,000 came from the households and nearly Rs 2,18,000 crore was financial savings of which Rs 1,94,000 (89 per cent) was invested in, bank deposits, small savings (net claims on government), life insurance funds, and PF/pension funds all invested in government agencies. In spite of all discussions about stock market being the barometer of the economy, only Rs 6,200 crore (3 per cent) was invested through stocks and bonds

The government has been a very inefficient user, which provides on average a return that is not capable of covering the inflation rate. In other words, households are earning a negative or marginally positive rate of return that is supposed to help them educate their children, meet health needs, take care of old age expenses, and so on. This grabbing of savings by households by the state is an old “socialist” paradigm which assumes that the state knows best which in our context is laughable but for its tragic undertones. For instance, had household savings been prudently used by parents’ associations, we would have had better schools and more accountable teachers.

The same is the case with hospitals. The uncertainties of the future faced by households are aggravated by the profligate and predatorily corrupt state, which furiously taxes the same hapless households both directly and recently on services.

For instance, of the aggregate income-tax of Rs 1,54,956 crore during 1998-99 the share of household category was 55 per cent of which 40 per cent came from the P&P sector (All India Income Tax Statistics, Directorate of Income-Tax, New Delhi). Actually, in the absence of any social security cover, the Government should not be taxing the non-government, non-corporate employees/proprietors at all.

It should also have given full tax credit for education and health expenses plus other ceremonies like birth/marriage and death as these are part of our cultural roots. But the cosmopolitan elite, which decides taxes and allocation of savings, may not even know about samskaras of the commoners Other than the taxes by the state, the ever-present corruption also takes away substantial portion of earnings of households. The community is alienated from the state and looks upon it as a nuisance for collecting taxes and bribes. The flow of funds accounts prepared by Reserve Bank of India (RBI Report, August 2000) in a time series fashion for 1951-1952 to 1995-1996 reveals that the household sector is a major source of funds to the activities of both the Government and private corporate sector in the last two decades. Large part of the savings has also gone to the private corporate sector through banking and insurance channels owned by the government.

Actually the bank nationalisation of the late 1960s facilitated the process. Now the private corporate sector wants to give a double whammy to households by trying to make them part of a “consumerist culture”. The slogan of the Western economy is “shop-till-you-drop” which is also the motto in the malls of Dubai or at the Changi airport of Singapore. The growth is stimulated by “consumer spending,” and the offtake by Wal-Mart shoppers is eagerly monitored in the US as an indicator of “growth”. Buy and buy more is the slogan of the day, with “shopaholics” being feted and dined.

The major equaliser in the Indian situation between the haves and others is education which has become very expensive in the last two decades. Education of two children and health- care benefits for the family could take away nearly quarter of the aggregate life earnings and samskaras take away another 25 per cent. What is left is used for current consumption. We are talking of the 90 per cent of the households, namely those of P&P, which are not part of the government or the private corporate sector, and who have not heard such exquisite words as “perquisites and reimbursements”. All savings done by households for education is to enhance the ” equaliser” quotient on an inter- generational basis.

It is based on the attitude of “let my child be in a better profession/have higher earnings than me.” Hence any attempt to lure people to ” Shop till you drop” will aggravate social tensions and it is imperative we stress the traditional virtues of frugality and thrift to safeguard the social cohesion and welfare of families in the future. We need to urgently look beyond the hackneyed 19th century dogmas of “socialism” and “market will solve all” mantra and evolve mechanisms to make our communities solve the problems of education and health using their own phenomenal savings. This needs a closer examination of the tax system, capital formation, the credit delivery mechanisms, and the level playing field for the P&P sector.