Trends and Patterns of Savings in India

Akash Singh

Integrated MSc. EconomicsDept. of Economics

Central University of Tamil Nadu

CONTENTS

Definition Factors of Savings Motives for savings Data Sources & Methodology Literature Review Gross Domestic Savings –Status of India & its Composition Household Savings – Overview of Rural & Urban India Graphical comparison of Household savings with its factors China vs. India – comparative analysis Conclusions Limitations References

SAVINGS

Saving means the excess of income over expenditure on consumption. Saving = Income - Consumption - J.M

Keynes

From this definition we are clear about two major components on which savings depend upon – income & consumption.

  Income - The Income of the entrepreneur as being the excess of the value of

his finished output sold during the period over his prime cost.

Consumption – Act of using up of resources, the entrepreneur consumption is

given by (A-A1)[ A is the total sales made during the period and A1 is the total purchase made].

 

FACTORS OF SAVINGS

Culture Differences in saving motives Economic Growth Demographics People in labor force Economic policy

DATA SOURCES &

METHODOLOGY

DATA SOURCES -

Data is acquired from secondary sources only.

Analyzing saving behavior has been one of the most worked upon field in India so data is easily available. Data and statistics are accessed through various publications like -

Report of the Working Group on Savings during the Twelfth Five-Year Plan (2012-13 to 2016-17)’ by Reserve Bank of India (RBI).

  Report of ‘ National Council of Applied Economic Research’ on How

Households Save and Invest: Evidence from NCAER Household Survey-2011 (Sponsored by S.E.B.I)

 

Handbook of Statistics on The Indian Economy by RBI (2012-2013)

  Report of the High Level Committee on Estimation of Saving

and Investment by Ministry of Statistics and Programme Implementation Government of India (MOSPI).

  Sites like ‘trading economics’ also provide valuable data and

graphs.

METHODOLOGY -

We will be analyzing the TRENDS AND SAVINGS PATTERN IN INDIA, which requires going through data available on household savings. Also an attempt has been made to classify the savings into Rural and Urban and understand the changes over the years. To show these variations we have tried to link the change in factors of savings with changing saving rates in India.

MOTIVES FOR SAVINGS

The famous life-cycle model of Nobel laureate FRANCO MODIGLIANI asserts that people save—accumulate assets—to finance their retirement, and they dissave—spend their assets—during retirement. The more young savers there are relative to old dissavers, the greater will be a nation’s saving rate.

  The precautionary motive—that is, the motive to save in order to

be prepared for various future risks—is one of the key reasons people save. Besides the risk of living longer than expected, people save against more mundane risks, such as losing their job or incurring large uninsured medical expenses. 

  The uncertainty of market also encourages savings , as

individuals are not sure about bank rates and fluctuation of stock market ultimately inducing a fear of loss on expected returns .

LITERATURE REVIEW

Sahoo, Nataraj & Kamaiah (2001) asserted that savings serve as the engine of economic growth which they established through examination of casual nexus between savings and economic growth. Mühleisen (1997) also suggested a substantial rise in domestic saving as one of the prerequisites for putting India on high growth . Desai (1981) worked on the incentives to save in his research on rural savings in India. Panikar (1961) analyzed the patterns of savings in rural India. Choudhary (2005) worked upon determination the savings potential of urban and rural households in India. Sinha (2008) also tried to determine the savings in urban India. Krishnamurthy, Krishnaswamy and Sharma (1987) has contributed towards better understanding of saving behavior.

 

GROSS DOMESTIC SAVINGS AND ITS COMPOSITION (India)

INCOME AND SAVINGS IN URBAN INDIA

The top 112 cities account for about 200 million Indians which is more than 60% of urban India. These cities constitute a market of consumers whose combined annual incomes are Rs 13.26 billion. Their combined savings are Rs 3.5 billion which is about 26.5% of income.

If we look at four classes of cities(by size), we get the following picture:

Total Income (Rs billions)

Total Savings (Rs billions) Savings/ Income

Ratio

Alpha (Top 10)     5,912  1,296 21.9 %

Beta (11th to 30th)

2,887 931 32.2 %

Gamma (31st to 50th)

  1,774  519 29.3 %

Delta (The balance 62)   2,688  771 28.7 %

Top 112 cities 13,261  3,516 26.5 %

GEOGRAPHICAL STATUS

Total Income (Rs billions)

Total Savings (Rs billions)

Savings/ Income Ratio

EAST 2011 522 25.9 %

WEST 5167 1191 23.0 %

NORTH 2849 797 28.0 %

SOUTH 3233 1007 31.1 %

STATUS OF TOP 10 CITIES

Total Income (Rs billions)

Total Savings (Rs billions)

Savings/ Income Ratio

Mumbai 1608 216 13.4 %

Delhi 1264 289 22.8 %

Bangalore 602 192 31.9 %

Thane (Urban) 569 132 23.2 %

Pune 446 111 24.9 %

Ahmedabad 429 109 25.3 %

Chennai 393 88 22.2 %

Kolkata 350 68 19.3 %

Surat 318 82 25.8 %

Hyderabad 295 87 29.3 %

Savings in Rural India

This implies that there is hardly any possibility of increasing rural saving in the near future unless income registers a much more rapid growth than in the past and reaches a certain minimum level essential for savings to increase

KINGS OF SAVINGS

As a community, Guajarati's are not known to be flashy in their lifestyle even if they may be loaded with cash. You may call it frugality. The fact is they are enterprising, earn a lot of money and yet end up saving a heap to secure their future. That is the reason why banks, insurance companies, financial institutions and stock-broking firms are so keenly eyeing the surplus cash that Gujarati households generate every year.

Former IIM-A director and advisor Adani group Bakul Dholakia, says "It is an established fact that the rich save more than the poor. A rich man may dine in a five star hotel and a middle income man may dine in a dhaba, but the percentage of spending as a proportion of his income will remain lower than that of the latter.“

- 14 Aug 2008,Nimish Shukla & Yagnesh Mehta,TNN

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CHINA VS INDIA

CHINA PERSONAL SAVING RATE VS INDIA PERSONAL SAVNG RATE

CHINA EMPLOYED PERSONS VS INDIA EMPLOYED PERSONS

CHINA ANNUAL GROWTH RATE VS INDIA ANNUAL GROWTH RATE

CONCLUSIONS

It is clear from information we have gone through that instead of savings dependence on multiple macro factors , the saving rate in India has hardly been affected and is growing at an increasing rate.

The condition of savings in Rural India has been pathetic due to lack of proper incentive and poor information.

In Urban India the conditions are comparatively better , even though we will see an heterogeneous behavior oriented towards culture , lifestyle , working population etc.

Factors of Savings have significantly less impact on saving (Household) behavior due to lack of knowledge of the system.

LIMITATIONS

Accuracy of data. Errors are made and corrected on yearly basis making it hard

to bring consistency in conclusions. Black Money – Individuals hesitate to disclose their actual

savings. Dependence of Savings on multiple macro factors is really

challenging to study and conclude upon.

REFERENCES ‘Report of High level committee on estimation of

saving and investment’ by the Ministry of Statistics and Programme Implementation.

‘ Report of the Working Group on savings during the Twelfth Five-year plan (2012-13 and 2016-2017)’by the Planning Commission.

‘Handbook of Statistics on the Indian Economy’ by the Reserve Bank of India.

Income, Consumption And Saving In Urban And Rural India by Uma Datta Roy Choudhary.

Income and Savings in Urban India(2008) by Amit Sinha

‘Savings and Economic Growth in India : The Long Run Nexus (2001)’ by Pravakar Sahoo, Sethanjali Nataraj and B. Kamaiah.

‘Research on Rural Savings in India (1981)’ by B.M Desai (Agricultural Economist , World Bank).

‘Improving India’s Saving Performance (1997)’ by

Martin Muhleisen. http://www.econlib.org/library/Enc/Saving.html - Econlib. Trading Economics

(http://www.tradingeconomics.com) ‘The General Theory of Employment , Interest and Money by

J.M Keynes