Households everywhere have a desire to improve their balance sheets. And as Andy Mukherjee, Asia economics columnist at Reuters Breakingviews in Singapore, says, they do so by acquiring financial assets, which are supplied by the corporate sector, the state or by the rest of the world.
Mukherjee says: “Dealing with the rest of the world requires foreign currency, which has to be earned by exporting goods and services. India has a sixth of the world’s population, but does not yet have an industrial base to sell many useful things other than computer software to the remaining five-sixths. That leads to a current account deficit, which means that households have to lean harder on domestic sources to accumulate wealth. If companies don’t make new investments and even cancel existing ones, the stock of private domestic financial assets held by households will shrink. This is, at the present, the case in India; investment demand has slumped and a cyclical recovery is taking longer than expected.” Read More