We the losers.

A report by Nomura predicts that savings rate in India will plunge to its lowest level in 10 years by the end of this fiscal. ET, 4 February. " Based on the available investment data, we estimate that savings will plunge even further to a 10-year low of 27% of GDP in FY 13," said Nomura India Economist, Sonal Verma. Domestic savings rate was 36.9% in 2007-08, 34% in 2010-11 and will fall to 30.8% this year. This is bad news because it will push up the Current Account Deficit to at least 5% this year and banks will have less money to lend. With the Consumer Price Index above 10% and the RBI cutting interest rates savers see the value of their money being steadily eroded. To protect their savings against the ravages of inflation people are buying gold which has to be imported from abroad raising the CAD even more. To discourage the purchase of gold the government has increased tax on gold from 2% to 6% forcing people to lose more money. Faced with inflation and a fall in income from savings people have been forced to cut down on spending. This is reflected in the third quarter earnings reports of 362 top companies. Between October-December revenue growth has been 10.6%, the lowest in 2 years, because of poor sales. The low growth in volumes is seen all sectors dependent on consumer demand such as FMCG, automobiles and consumer durables. TOI, 5 February. A survey of 2602 men and women across 10 locations in India carried out by Credit Suisse and reported by wsj.com on 4 February says that income has declined by 3% in urban areas while it has grown 6% in rural areas. There has been zero growth in purchase of cars, fashion apparel, spirits or mobile phones. Spending on food is up from 28% to 32% and people are buying more generic products and unbranded clothes. " People from rural areas are still buying more branded products," the India-specific report said. Numbers expecting the financial situation to improve in the next year is down from 28% to 8% and those who believe that the government is effective in solving problems is down from 50% to 35%. It is surprising that 35% still have some faith in the government because the government is the sole cause of the looming financial disaster. Only 35 million out of a population of 1,200 million pay tax. With so few people paying taxes the only way to finance spending is to raise indirect taxes on all goods and services which only adds to inflation and makes us poorer. Rural people are exempt from all taxes which is why a majority of politicians show their occupation as farmers. Also the government spends humongous amounts on handouts to rural people to buy votes. This is shown in rising incomes and spending in rural areas. However, since these are not based on increased productivity they increase poverty instead. We lose, politicians win.