Who is doing the saving

A series of articles in your paper ( India's young savers will prove McKinsey wrong - Sunday the 13th May, Macro scan - Who is doingg the Saving and Investing and How countries Compete - a nice crisp extract from books under E- Dimension - Both in today's editon) all have focused on one critical issue of the change in savings and investments patterns in the last few years.

That there is a shift in who is doing the Saving has been acknowledged and is accepted. The challenges for the policy makers are to capture this change, understand the factors behind this change and generate model which can project their impact at the Macro Level together with the key parameters which cause these changes.

Any growth will bring in change inevitably. That the shift is from agro based industries, to ITes and BPOs, industrial establishments is abundantly clear. Hence the savings are not from from agriculturists but from workers, executives and generally the white and blue collared community. This has been encouraged by the governments policy initiatives to make our country "Competitive". This is a welcome change and is accepted by one and all as the way to move forward.

But what should worry the policy makers is the impact this change makes on capital formation at the grass root level of the economy.

Indians are generally known for their thrifty habits and hence saving is prevalent across households. Their savings especially in the rural and semi urban areas are the seed capital of many an enterprise, retail outlets and small shops. These savings have been supporting the active functioning of the small enterprises and any deceleration in the savings growth at this micro level, will seriously erode the capital formation ability.

Given the near absence of institutional support at this level (our major bank's focus is on big ticket investments) unless a dedicated effort is taken immediately to address this issue brought forth in your articles, we may be seriously disrupting our basic economic structure. It is therefore necessary for the policy makers to understand this change and focus on providing substitutional avenues where seed capital can be easily accessed at the micro level.

We are challenging the retailers by bringing in Global players as their competitors and simultaneously also challenging their abilities to access seed capital through our policy initiatives of bringing in modern industries and IT services. We are acquiring their land for our grandiose SEZ's and the parks. While these initiatives bring in a change for the better for some, the policy makers need to appreciate the disruption these changes cause and provide a substitute, alternate mechanism.

As otherwise we may mortally harm the retailers, which in the long run could hurt everyone.