1. TRENDS AND CHANGES IN THE PATTERN OF
SAVINGS AND INVESTMENTS IN INDIA AND ITS
EFFECT ON INDIAN ECONOMY

2. 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.

3.  Savings is the income not spent, or deferred
consumption. Methods of savings include
putting money aside in a bank or using some
other kinds of other investment plans.
 It plays a vital role to increase the amount of
fixed capital available, which contributes to
economic growth.

4.  However , increased savings does not always
correspond to increased investment . If
savings are not utilized properly , or
otherwise are not deposited into the financial
intermediary such as bank, there is no chance
for those savings to be recycled as
investment by business. This means that
savings may increase without increase in the
investment which may lead to recession
rather than economic growth.

5.  In economic theory or in macroeconomics,
Investment is the amount purchased per unit
time of goods which are not consumed but
are to be used for future production.
 Investment is often modeled as a function of
income and interest rates, given by the
relation,
 I = f (Y, r )

6.  An increase in income encourages higher
investment, where as a higher interest rate
may discourage investment as it becomes
more costly to borrow money. Even if a firm
chooses to use its own funds in an
investment, the interest rate represents the
opportunity cost of investing those funds
rather than lending out that money for
interest.

7.  Indian economy has been
showing a steep increase in
the domestic savings as a
percentage of GDP, driven
by increases in savings by
the households, corporate
and government sectors.
This ratio has gone up by
about four times, from a
meager 9.3%in 1950-51 to
as high as 37.7% in 2007-08.

8.  The savings at current prices in 2008-09 had
gone up to Rs 18,11,585 crore from Rs
18,01,469 crore in 2007-08.
 In respect of household sector, the rate of
saving has remained at the same level of 22.6
per cent in 2007-08 and 2008-09.

9. People’s reaction to the current economic
condition
 In the first six months of 2011, the nominal savings
growth declined to 9% compared with the same period
in 2010.
 Households are focusing only on two asset classes—
gold and bank deposits. In terms of value, gold is up
51%, bank deposits 20%, and property 14%

10.  Households seem to be searching for yield and
safety, which is a distinct shift from 2010. Overall, it
seems the low real rates have hurt the appetite for
financial assets, with savings down 2.9% (in the first
half of 2011 compared with 2010), as opposed to
physical assets, which were up 39%.

11.  Interestingly, the country's gross domestic savings
has fallen to 32.5 per cent of GDP at market prices in
2008-09 as against 36.4 per cent in the previous
year. The fall in the rate of gross domestic savings
has been mainly attributed to the fall in rates of
savings of public sector (from5 per cent in 2007-08
to 1.4 per cent in 2008-09) and private corporate
sector (from 8.7 per cent in 2007-08 to 8.4 per cent
in 2008-09).

12.  Over a 20 year period when Indian capital markets
have grown tremendously on many parameters,
very few households have ventured too far beyond
their bank, insurance agent, mandatory retirement
funds and small savings. In fact, since 2000,
household exposure to the capital market has
crossed 7% only once, in 2007-08

13.  Why does this happen? A SEBI-sponsored
household survey provides some
informations.The study estimated that India has
approximately 227 million households, of which
only 24.5 million invest in equity, debt, mutual
funds, derivatives and other instruments in the
capital market. That represents about 11% of the
household sector. The remaining 89% are also
likely to be net savers, but rely on non-risky
avenues such as banks, insurance or post office
savings instruments.

14.  Among the households that did not invest in the
secondary market, nearly 41% felt that they had
inadequate information about financial markets
and lacked investment skills.This perception
was prevalent across various income groups and
education categories. In addition, 16.5% of the
most educated and 16% of the upper middle and
upper income groups thought that investments
in the secondary market are not safe.

15.  For educators, trainers and industry associations, the
challenge is to increase public awareness of the importance
of financial planning while informing potential investors
about the risks and returns of different investments.
 For finance professionals, it is a signal to develop products
keeping in mind the inherent risk-averse nature of Indian
households.

16.  In 2010-11, gross household financial savings was
estimated at Rs.10,43,977 by the RBI. That is
approximately $220 billion. If we could spur savings by,
say, 10%, and attract that towards corporate debt or
equity, then we have an additional $22 billion
domestically available and flowing into our capital
markets. That, incidentally, is more than the $17 billion
that FIIs brought in during 2011-12. For a country that is
starved of savings to fund its current account deficit, it
would be wise to spur domestic savings as well as attract
foreign inflows.

17. THANK YOU

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