Domestic Saving Trends in India (1950-2000)

Almost from the inception of economic planning, the prevailing low level of saving and investment was assessed by the planners and then targeted to achieve a self reliant and self sustaining economic growth by achieving a sharp increase in the saving and investment rates. In the first three plan periods, the increase in saving rate was slow. From 10.4 percent of GDP, GDS rose to 14.5 percent at the end of the third plan. However, during this period, the financial infrastructure was established in the economy. During this period the household sector saving increased from 7.7 percent of GDP in 1950-51 to 9.9 percent in 1965-66. The public sector saving during the period increased from 1.8 percent of GDP to 3.1 percent of GDP, whereas the private corporate sector saving stagnated to around 1.5 percent of GDP. This low rate of domestic saving during the first three plan periods was because of low propensity to save in the agricultural sector, and because of the larger shares of agriculture in GDP. During the annual plans and the fourth plan the saving rate steadily went up to reach 18.4 percent of GDP in 1973-74. This rate of growth in saving was made possible by the increase in household saving with nationalisation of the major commercial banks along with rapid branch expansion and also by the setting up of regional rural banks. With green revolution, the income distribution in the agricultural sector became skewed and with this the propensity to save in agricultural sector increased. The public saving rate declined marginally and the private corporate saving rate stagnated.
The period 1975-70 is considered to be the high saving phase in the Indian economy. The saving rate in the economy increased to 23.2 percent of GDP by the end of the fifth plan. The tremendous growth in the saving rate was achieved because of the higher rate of saving achieved in the household sector and public sector whereas the increase in the saving rate of the private corporate sector was marginal. The special factors that were responsible for the increase in the household saving in this period were the increased foreign inward remittances which enhanced saving in the non-agricultural sector and the expansion in bank deposits as a result of branch expansion by nationalised banks. It was also found out that physical saving also increased during this period.
The sixth plan saw the fall in the GDS from 23.2 percent of GDP at the end of the fifth plan to 18.2 percent of GDP at the end of the sixth plan. This fall in the saving rate was caused due to the decline in the saving rate of all the three sectors. It was found that the growth in consumption lead to dampened household saving. The declining trend of public sector saving rate is on account of the increased dis-saving by the government administration.
There was a recovery in GDS to 22.41 percent of GDP by the end of the seventh plan. This growth rate has been almost steady. The corporate sector saving started showing steady improvements whereas the public sector saving drifted downwards due to the growth of defence expenditure, interest payments and subsidies.
During the eighth plan, the saving rate in the economy reached a new high of 25.1 percent of GDP in 1995-96, a rate comparable to developed European countries and that of the East Asian economies. This increase was made possible by the increase in the household sector’s saving to 20.3 percent of GDP and that of the private corporate sector to 3.9 percent of GDP. The public sector saving was on the downward path because of the dis-saving of the government administration to the tune of 2.4 percent of GDP. In the last year of the eighth plan and in the three years of the ninth plan, the GDS show a falling trend. By the year 1999-2000, the public saving rate has become -1.2 percent of GDP and there is a fall in the corporate saving rate during these years even though the household saving rate has improved marginally.

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