The savings rate in India is comparatively higher than various other countries. Interestingly, India’s saving rate has passed through an uneven and substantial growth in the last four decades. The composition in the saving in India has also gone through a considerable amount of change.
If we observe the saving trend in India carefully, we come to know that in the earlier years it was household savings in the physical assets that used to dominate the domestic saving in the country. But the saving trend in India is different now. The recent increase in the saving rate in India is primarily driven by the savings made by the financial household.
This trend partially reflects the relentless expansion of the various branch networks of the financial institutions into the county’s rural areas and partially holds the increasing trend of the easy accessibility of the alternative investment opportunities.
The private corporate saving in India is also experiencing a steady increase in the country for last two decades. However, the private corporate saving in India still remains below the margin of 5 percent of GDP. There are some shortcomings in measuring the saving trends in India. This happens mainly because of some of the weaknesses in the methodology of Central Statistical Office (CSO).
It has been found recently that the traditional instruments of savings like special tax incentives or higher interest rates are not able to increase the rate of private saving rate in the long run. It is also found that the response of saving for the interest rate changes in India was amongst the lowest in the developing countries.
Over past 30 years, the prime two instruments for household long term saving like pension saving and life insurance have come to an idle state. On the other hand, the mutual funds started to become more successful in the early years of 1990s. Considering these two factors, we can conclude two weaknesses of the saving market in India. First, public sector dominates the markets. Second, the allocation of portfolio is under control that makes the low returns from the market developments.
Last Updated on : 3rd August 2013