ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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KASHMIR-Partners in Perfidy

the surface is nowhere more obvious than in relation to the performance of the economy in 1994-95. The 8 per cent or so anticipated industrial growth is essentially based on the same factors as the growth in the 1980s - prominently, large borrowing by the central government and the corporate sector. In the external sector, borrowing has to an extent been replaced by portfolio investment. Total foreign portfolio investment (including that through GDRs, etc) in 1993-94 and 1994-95 aggregated more than Rs 21,000 crore. This inflow, which was responsible for the surge in liquidity growth, made it possible for the government to run the highest ever (as percentage of GDP) revenue account deficits in 1993-94 and 1994-95 by resorting to large unplanned borrowing. Commercial banks simultaneously achieved an unprecedented level of investment in government and other approved securities in 1993-94 and very high non-food credit expansion in 1994-95. This liquidity growth was unrelated to any step up in domestic saving. The domestic saving to GDP ratio in fact declined sharply from 23.7 per cent in 1990-91 to 20.2 per cent in 1993-94 and all indications point to a further fall in 1994-95. Aggregate bank deposit growth was substantially lower as were new capital raised by companies in the domestic primary markets and funds mobilised by Unit Trust of India and other mutual funds. While corporate saving may show some rise, the unprecedented revenue deficits of the central government will effectively foreclose any rise in public sector saving. Government policies of permitting import of gold and silver and encouraging upper middle class consumption (rather than saving) will hardly help to raise the saving propensities of the community.

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