The study of dynamic relation between savings and investment has received considerable attention in recent years especially in emerging economies like India. The role of savings and investment in promoting economic growth of India has been given paramount importance since independence. Savings and investment have been considered as two critical macro-economic variables with microeconomic foundations for achieving price stability and promoting employment opportunities thereby contributing to sustainable economic growth.
Over the last three decades, Indian economy has emerged as one of the fastest growing economies of the world. Apart from registering impressive growth rate, India’s growth process has been almost stable. The role of savings and investment in proving the fundamental growth impulses in the economy is one major factor for the progress of the country.
What the economists have to say???
A long-standing view of the macro-economic dynamics of the growth process was that increasing savings when transformed into productive investment would help achieve an economic “take-off”.
(Harrod, 1939; Domar, 1946; Lewis, 1954; Solow, 1956). Solow (1970) state that the increase in the savings rate boosts steady-state output by more than its direct impact on investment because the induced rise in income raises savings, leading to a further rise in investment. Bacha (1990) and Jappelli and Pagano (1994) also claim that savings contribute to higher investment and higher GDP growth in the short-run.
Structure of Savings in India ;
In India domestic savings originate from three principal sectors namely: (i) household sector, (ii) the private corporate sector and (iii) Public sector. (i) The household sector comprises of individual, non-corporate business and private collectives like temples, educational institutions and charitable...