The Hindu Editorial Summary

 Editorial Topic : Household Savings in India

 GS-3 Mains Exam : Economy

Revision Notes

Question : Explain the concept of Fisher dynamics in the context of India’s post-COVID economic scenario. How do increasing interest rates and debt-to-income ratio affect household financial savings?

• Issue: Drastic fall in household net financial savings to GDP ratio during 2022-23.
• Reason (Government’s Stance): Shift in savings composition – More borrowing to finance higher physical savings (investment).
• Rebuttal:
  • Net financial savings to GDP ratio declined by 2.5% points.
  • Physical savings to GDP ratio increased only by 0.3% points.
  • Household borrowing to GDP ratio increased by 2% points (much higher).
  • Gold savings remained unchanged.
  • Overall household savings to GDP ratio declined by 1.7% points.
• Actual Reason :
  • Lower net financial savings & higher borrowing reflect increased interest payment burden due to:
    • Higher interest rates.
    • Higher debt-to-income ratio.
    • Financial distress of households.
• Not Addressed: Positive nominal growth in savings doesn’t hide the significant decrease in net financial savings.

Interest Payment Burden:

• Increasing interest rates and debt-to-income ratio lead to a higher share of interest payments in household income.
• Both factors have risen sharply in recent times.

Debt-Income Ratio:

• Two factors influence debt-income ratio:
  • Net borrowing-income ratio (difference between borrowing and interest payments).
  • External factors like interest rates and nominal income growth.
• Higher interest rates or lower income growth increase the debt-income ratio (“Fisher dynamics”).
• India’s post-COVID era reflects these dynamics, with a lower nominal income growth rate.

Macroeconomic Challenges:

• India’s debt servicing ratio is lower than many countries, but Fisher dynamics pose unique challenges:
  1. Narrowing the gap between interest rates and income growth to slow debt-income ratio rise.
  2. Preventing a downward adjustment of aggregate demand due to high interest payments and debt.
• Consumption to GDP ratio decline in 2023-24 suggests households might be curtailing spending.

Conclusion:

• Additional macroeconomic policy targets are needed to stimulate and support household income growth.

Additional Information

Topic-1 : Fisher dynamics

Fisher dynamics, named after economist Irving Fisher, refers to a feedback loop in the economy where:

• Deflation (falling prices) leads to consumers delaying purchases, expecting prices to drop further.
• This drop in demand leads businesses to cut back production and investment.
• Reduced production leads to lower wages and job losses, further weakening demand.
• This cycle of falling prices, weak demand, and declining economic activity can become self-perpetuating.

Example: Imagine a housing market downturn. People delay buying houses hoping for lower prices. This reduces demand, leading builders to decrease construction, impacting jobs and wages. This can spiral into a broader economic slowdown.

Topic-2 :

A decline in the savings to GDP ratio in India signifies that a smaller proportion of the country’s total economic output (GDP) is being saved by households. Here’s a breakdown:

• Savings to GDP Ratio: This ratio represents the percentage of a country’s Gross Domestic Product (GDP) that is saved by households and businesses. It indicates the amount of money available for future investments.
• Decline in Savings Ratio: When this ratio falls, it means people in India are saving a smaller portion of their income compared to the past. This could have several implications:
  • Reduced Investment: Lower savings translate to less money available for businesses to invest in new projects, infrastructure development, and job creation. This can potentially slow down economic growth.
  • Increased Consumption: A decline in savings could also indicate that people are spending more of their income. This might be due to factors like rising disposable income, easy access to credit, or a sense of economic optimism.

Example in the Indian Context:

Imagine India’s GDP is ₹100 lakh crore (100 trillion rupees) and the savings to GDP ratio is 20%. This means that in a year, households and businesses save ₹20 lakh crore (20 trillion rupees).

Now, if the savings ratio falls to 15%, it signifies that only ₹15 lakh crore is being saved. This decrease could be due to various reasons:

• Rising Interest Rates: Higher interest rates might encourage borrowing instead of saving, as people see better returns on investments.
• Increased Debt: Higher debt levels (e.g., personal loans, car loans) could leave households with less money to save.
• Lower Income Growth: Stagnant or slow income growth might force people to spend a larger portion of their income on basic necessities, leaving less for savings.

Impact on the Indian Economy:

A sustained decline in the savings to GDP ratio could have both positive and negative consequences for India’s economy:

• Positive: Increased consumption can stimulate economic activity in the short term.
• Negative: Lower savings can lead to a shortage of funds for long-term investments, impacting future growth and development. It can also make the economy more vulnerable to external shocks.

Topic-2 : World Health Assembly (WHA) to Address Pandemics

The Hindu Editorial Summary

 Editorial Topic : World Health Assembly (WHA) to Address Pandemics

 GS-2 Mains Exam : Health

Revision Notes

Question : Discuss the significance of the upcoming World Health Assembly (WHA) meeting as a pivotal moment for global public health. Explain the key agenda item of amending the International Health Regulations (IHR) and its importance in the context of global health governance.

Context: The WHA meeting next week will be a landmark moment for global public health.

Key Agenda Item: Amending the International Health Regulations (IHR)

About the IHR:

• Adopted in 1969 by WHA, last revised in 2005 (196 countries are party to it).
• Aims to improve international cooperation on public health emergencies while minimizing travel and trade disruptions.
• Defines countries’ rights and obligations regarding cross-border health threats.
• Protects travelers’ rights regarding data privacy, informed consent, and non-discrimination.
• Legally binding international law.

International Health Regulations (IHR):

• Require countries to have strong surveillance systems for:
  • Early detection of public health emergencies.
  • Reporting to WHO of potential international concerns.
  • Responding to health risks and emergencies.
• Aim to limit spread of health risks and prevent unnecessary travel/trade restrictions.
• COVID-19 highlighted areas for improvement.

Global Consensus on Preparedness:

• Broad agreement on strengthening IHRs reflects global commitment to better pandemic preparedness.
• This process runs alongside development of a potential new pandemic agreement.

Complementary Tools:

• Amended IHRs: Focus on national capacity building for early detection and response.
• Potential Pandemic Agreement: Focus on coordinated international response with equitable access to resources (vaccines, treatments, diagnostics).

Overall Goal:

• Improved international instruments to protect people from future pandemic threats.