SAVING AND INVESTMENT IN INDIA

&
RESOURCE MOBILISATION FOR
PLANNING

 Role of Saving and Investment.

Analysing Trends in Saving and
Investment in India.
Causes of Low rates of Saving and
Investment and Suggestions to Improve
them.
Plan Financing in India.
Deficit Financing and External
Financing.

Saving: Definition
Saving(S) is the excess of income flows(Y)
over consumption flows(C) during an
accounting year in the economy.
S=Y-C
Saving(S) can be increased either by raising
the level of income or by reducing
consumption in the economy.
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 invest.

Investment: Definition
Investment
is
the
expenditure
on
acquisition of production capacity.
Investment enhance production capacity
by adding to the stock of capital.
Expenditure on acquiring capital requires
savings.
Investment is funded through saving.
Investment increases income.
Increased income makes larger savings
possible.

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
grocery outlets.

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)

GROSS DOMESTIC
SAVINGS

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,
powerhouse etc.
Capital Formation includes (a) Fixed Capital Formation (b)
Increase in Stocks
Rate of Gross Capital Formation = Gross Investment x 100
GDP

Rate of Net Capital Formation = Net Investment x 100

NDP

GROSS DOMESTIC
CAPITAL FORMATION
(GDCF)

SAVING INVESTMENT GAP

INFLOW OF FUNDS FROM

ABROAD

Causes of Low Rate of

Capital Formation
Low Level of Savings
Population Explosion
Consumerism
Taxation
Financial System
Interest Rate Structure
Inflation
Infrastructural Bottlenecks

Suggestions to Increase Rate

of Saving and Investment
Increase in Domestic Savings
Expansion of Banking Institutions
Rural Savings
Rational Tax Structure
Reduction in Non-Development
Expenditure
Price Stability
Liberal Policy
Increase in Productivity Standards

Reasons of High ICOR

In India
Western Model of Growth
Predominate Role of Public
Sector
Natural Factors
Lack of Political Will
Lack of Loyalty and
Faithfulness

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 draw a
comprehensive programmes for mobilising
required resources.

Sources of Plan
Finance

Components of Budgetary
Resources

Important Components of
Resource Mobilisation for
Ninth, Tenth and Eleventh Plans

Components of Budgetary Resources

Deficit Financing
Meeting the
revenue deficit of
the Government
by issuing more
currency

Rational of Deficit Financing

Lack of sufficient voluntary

savings
Taxation Socially unwarranted

Deficit financing is
discontinued as a source of

Favourable Impact of Deficit Financing

Employment of unutilised
resources
Generates additional resources
Combats Recession
Infrastructural Development
Coping with increased demand
for money

Unfavourable Impact of Deficit Financing

Changes in the pattern of
Investment
Increase in money supply and
Price Level
Increase in Consumerism
BOP Deficit
Price Rise and Inequality
Increase in the Cost of
Planning

NEW/KEY TERMS
Rate of Domestic Saving
Saving-Invetsment Gap
BCR
ARM
Gross domestic Capital Formation
Incremental Capital Output Ratio
Deficit Financing
External Resource Mobilisation
Domestic Resource Mobilisation