Monday, February 21 2005 17:24 Hrs (IST) - World Time -

Foreign Investment was not - it is even now not - just an obsession with our economists and policy makers. It is an obsession accompanied by inferiority complex. We feel inferior to China because we get less, far less foreign investment than do the Chinese.

Not just our policy makers and Ministers, even economic columnists and editors feels ashamed that we are not attracting as much dollars and euro as investment as do the Chinese. This has almost turned into a national mourning, an unceasing one.

Until about a year ago, some of our policy makers even reduced economics into arithmetic and asserted that for achieving 8 percent GDP growth we need to generate an investment equal to 32 percent of GDP.

As our saving rate is only 24 percent - that was the figure then - we need to bring in balance as foreign investment to bridge the gap between national savings and investment needed to grow the economy fast.

One influential expert even said that to grow at 8 percent we need to get $ 10 billion as foreign investment every year.

But the Indian economy repeatedly disproved such expert formulations. Last year 2003-4 our GDP grew at 8.6 percent!

But the FDI was less than a third of what the expert had asserted that we need to achieve this growth. It was less than $ 4 billion. Yet our experts' cry for, foreign investment is far from over. Editorial writers still keep inflicting an inferiority complex on the nation for not receiving the same attention from foreign investors as China does.

Here comes an interesting disclosure. The national savings last year, 2003-04, was not 24 percent as we had been told, but 28 percent plus. The previous year, 2002-03, also it was more, 26 percent plus. The highest recorded savings until then in national history was 25 percent, in 1995-96.

So, as they started earning more, Indians have started saving more, more than they ever did in the past. This is despite all efforts to make them spend.

So, the theory that Dr Jagdish Bhagwathy expounded in his written advice to the Government of India in 1993 that Indians save wastefully and so they should be persuaded to spend did not work in here.

Dr Bhagwathy found the Indian women too frugal and advised Dr Manmohan Singh, who was the Finance Minister then, to expose them to glittering foreign goods, cosmetics and all, so that they turn spenders, and cease to be wasteful savers! But the Indian women, who control the households, clever as they are, enjoyed all the attractive ad songs and scenes of MNCs products, but refused to buy more than their needs!

So Indians save. If their incomes increase, they save more. They spend, but their savings are always more than their expenditure. This is because they provide for their old age and bad days. They are not dependent on the Government largesse. In contrast in the West, the people have very little incentive to save, as the Government looks after them in their bad days and old days.

The Government of India should be lucky to have a population that looks after itself and not knock at the doors of the Government in their old age. That is why Indians save, and that is why they should be allowed to save. Dr Bhagwathy's advice, despite his being Indian in origin, is because of his experience in the United States.

Here too we Indians have broken all economic laws that govern savings. The economic laws say that if the interest rate is more, people save more, and they save less if the rate of interest is less. Look at the interest rates on savings and bank deposits in the last two years. The interest rates have almost halved since five years ago. But, instead of the savings reducing and spend increasing, as economists expected, savings have increased! So, like Japanese who save religiously even without interest on their savings, the Indians also save.

So, with a populace trained to save, if the Government wants more money for investment, it should encourage them to save, not spend. Instead, the Government approach is to encourage people to spend and to beg for foreign investment to bridge the gap between national savings and investment needed to achieve desired growth.

Do you ask how will national savings turn into dollars if we want foreign technology and imported machines for national development? The answer is simple. We do not know what to do with our idling foreign exchange reserves.

Allow Indian businessmen to bring foreign technology and import the latest machines to set up business so that foreign exchange is used productively.

With huge foreign exchange reserves and high national savings, what is the need to cry for foreign investment? It is like crying for idlis with dough for making idlis in our hands. Moreover, we have not been able to use our savings fully for investment. Our national investment in 2003-4 was 26.3 per cent while savings was 28.1 percent. That is, we have not been able to invest fully what we have saved.

Yet, we weep over the absence of China like foreign investment in India. It is time we stopped crying for foreign investment. If it comes it is okay. If it does not come, let us not cry.

Will we stop being obsessive about it? Are our experts listening?