SAVINGS AND INVESTMENT IN THE INDIAN ECONOMY – Most developing Countries, including India, have achieved high rates of savings and Investment despite their low level of per capita income. They have been able to do this because of changes in income distribution in favor of income groups with a relatively high propensity to save, and the development of institutions and instruments for the mobilization of saving. But high rates of savings and investment have not always resulted in high rates of growth. This suggests that high rates of saving and investment are not an unerring recipe for growth equally important is the efficiency with which they are utilized, or the investment absorptive capacity of the economy. This article analyses the trends in savings and investment in India, and discuss the relationship between savings and investment.
Savings and investment have been central to India’s economic Strategy. Indeed, an arresting feature of India’s Five –year Plans is their optimism Concerning the ability of the economy to mobilize domestic savings. A clear expression of this optimism is to be found in the first five year plan document, which enunciated the long run objectives of planning. The Mahalanobis growth model, which provided the intellectual under plannings for the second Five year plan, gave a further thrust to this of optimism concerning savings. As Bhagwati and Desai put it, the basic premise of the model was “that if you produced capital goods and steel, this increasing the share of investment in GNP, that would automatically meau a higher rate of savings since one cannot eat steel”.
In sum, a sense of optimism concerning savings, and a faith in the ability of the economy to sustain a high investment rate have been central to India’s economic philosophy, India’s record on savings and investment over the past three decades, though it may not have matched the planner’s expectations, appears to vindicate their belief that a low level of per capita income need not be a deterrent to an increased savings and investment effort.
Further, with the exception of the three annual plans during the mid–sixties, the realized rates of savings and investment appear to have approached and in some caes exceeded the rates targeted under the five year plans. As Bhagwati and Desai writing in 1968 remarked, “India’s performance in raising her average rate of domestic savings appears to have been perhaps the most impressive aspect of her economic growth. As the planning commission notes with Pride, it is apparent that the country has achieved a high savings rate despite its low per capita income .In fact, our saving rate is comparable to that of middle–income and even some high–income industrialized countries.