SAVING AND INVESTMENT IN INDIA
RESOURCE MOBILISATION FOR
DR. LAXMI NARAYAN
ASSISTANT PROFESSOR OF ECONOMICS
GOVT. COLLEGE FOR WOMEN, BHODIA KHERA
Role of Saving and Investment.
Analysing Trends in Saving and Investment
Causes of Low rates of Saving and
Investment and Suggestions to Improve
Plan Financing in India.
Deficit Financing and External Financing.
Saving(S) is the excess of income
flows(Y) over consumption flows(C)
during an accounting year in the
Saving(S) can be increased either by raising the
level of income or by reducing consumption in
In LDCs it should be raised by raising the level
of income because consumption level is already
low and it may dampen the inducement to
Investment is the expenditure
acquisition of production capacity.
Investment enhance production capacity
by adding to the stock of capital.
Investment is funded through saving.
Investment increases income.
THE VICIOUS CYCLE
Economy Trapped in Low
COMPONENTS OF SAVING
A. Household Savings
Savings of the individuals/families.
Savings on non-profit private institutions, serving households Viz.
School, Hospitals, Colleges etc.
Savings of non-corporate business enterprises, referring to small
business establishments like local medicine shops and small
B. Corporate Savings
Savings of the private companies
Savings of the Corporate Banks.
C. Public Sector Savings
Savings of the departmental enterprises(like P&T, Railways).
Savings of the non-departmental enterprises(like AIR, Indian
Airlines etc. which are like private corporations)
INVESTMENT IN INDIA
A. Investment(Capital Formation)
Increase in the stock of capital is called Capital Formation
Investment Occurs when saving is used for purchase of new
machines and tools, or for building of roads, factories,
Capital Formation includes (a) Fixed Capital Formation (b)
Increase in Stocks
Rate of Gross Capital Formation = Gross Investment x 100
Rate of Net Capital Formation = Net Investment x 100
Net Investment = Gross Investment - Depreciation
Financing for Plans
Plan Financing refers to the SOURCES,
METHODS and POLICIES of the government
in regard to financial resources for planned
development of the country.
Planners are required to strike a balance
between the targets of the plans and resources
required to achieve those targets.
For every plan government
comprehensive programmes for
Meeting the revenue deficit of
the Government by issuing
Rational of Deficit Financing
Lack of sufficient voluntary savings
Taxation Socially unwarranted
Deficit financing is discontinued as a source of
financing after 9th plan.
Favourable Impact of
Employment of unutilised resources
Generates additional resources
Coping with increased demand for money
Unfavourable Impact of
Changes in the pattern of Investment
Increase in money supply and Price Level
Increase in Consumerism
Price Rise and Inequality
Increase in the Cost of Planning
Rate of Domestic Saving
Gross domestic Capital Formation
Incremental Capital Output Ratio
External Resource Mobilisation
Domestic Resource Mobilisation
Jain & Majhi, “Economic
Development and Policy in India”
V.K. Global Publications.
R.K. Misra & V.K.Puri, “Indian
Ruddar Dutt and K.P.M. Sundaram, “Indian
Economy” Sultan Chand.
Uma Kapila, “Understanding the Problems Of
Indian Economy” Academic Foundation.
Discuss the main source of
financing India’s Five Year Plans?
Explain the role of foreign capital
in financing India’s Five Year
Critically examine the role of deficit financing in
Indian economic planning.
Do you think present rates of savings and capital
formation are adequate in India? How these can be
Critically examine the recent trends in Savings and
investment in India?