Savings and Investments Trend in India and Its Relationship with Growth

Topics: Investment, Capital accumulation, Economics Pages: 23 (8051 words) Published: January 17, 2011
Analysis of growth in savings and investment since 1980-81 and its relationship with economic growth.


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 foundations. The saving can be held in the form of increases in (a) Liquid assets like currency bank deposits and gold (b) Financial assets like shares, securities and insurance policies and physical assets. (ii) The corporate sector includes joint stock companies in the private business sector, industrial credit and investment corporation etc., and cooperative institutions. Saving of the corporate sector is represented by the retained earning of this sector. (iii) Government sector consists of the central and state government, the local authorities and various government and department undertakings, hence the saving of this sector relates to the budgetary surplus on current account of the central government, state government, local authorities, the current surplus of various government departments and retained projects of government undertakings.

The proportion of these three components of National saving throws more light on the structure of saving in India. The table given below provides the figure of sector wise saving in India in the year 1980-81 to 1998-99.

Table 1
Volume of Savings in India
Sector 1980-81 Percentage 1990-91 Percentage 1998-99 Percentage Household saving 21848 75.9 109623 84.4 325456 82.7 Private saving 2284 8.0 14940 11.5 67573 17.2 Public saving 4654 16.2 5436 4.2 572 0.15 Total saving 28786 100.0 129999 100.0 393601 100.0

Source: Economic Survey 1999-2000

The above table reveals that household sector saving provides the bulk of national saving. The share of total household saving to total National...
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