Savings and Investments Trend in India and Its Relationship with Growth

India’s economy is booming! With large decreases in poverty, increases in literacy and GDP, India is continuing to make its way out of the third world and into the first. India is predicted to surpass even China in growth by 2050. A competitive private capital market has instilled Indians with a low cost high quality mentality and has resulted in some of the highest return rates for any country. India has been averaging 6% growth compared to China’s 9.5% with half the investments. India capital efficiency is one of its strongest economic benefits.

The Indian economy following the 1991 crisis swiftly moved away from central planning economy towards market-based economy with the government having less intervention and control. As a result, companies were operating in what is called emerging

An increase in the savings function will also in effect lead to an increase in the amount of savings. A sustained rise in private investment spending will lead to a rise in the equilibrium income.

What defines a nation’s way of life and standard for living depends entirely on its ability to function economically. In addition, the rate at which a country saves is the key to determining its prosperity from a long term perspective. More businesses with more facilities and more equipment equal a greater degree of productivity and greater income for employees. This formula transfers to show greater income for consumers and proves clear relationships between national saving rates and terms in which we measure economic well-being. In addition to the large scale national example, there is also an obvious connection between increased savings and families who

The impact of savings rate in an economic has become a very conflicting issue in research and among economist all over the world. This may be due to the importance of savings generally to the economic growth and development of any nation. However, the structure of every economy cannot be generalised by a particular economics’ variation because various countries have different social security and pension schemes, and different tax systems, all of which have an effect on disposable income. In addition, the age of a country’s population, the availability and ease of credit, the overall wealth, and cultural and social factors within a country all affect savings rates within a particular country. Therefore,

In the long run, the higher saving rate leads to a higher level of productivty and income, but not to higher growth in these variables.

In this paper I would like to examine the impact of inflation, interest rate, and the Gross Domestic Product on the economic growth of India. The ability of expanding the production of products and services will be reflected by the economic growth of the country. Economic growth can be defined by the growth in the GDP (Gross Domestic Product) of that country. Inflation factor will be typically balanced by the Nominal Gross Domestic Product (GDP) in order to reflect the real GDP. In macroeconomics interest rate is one of the growth factor. The up and down volatility of the interest rates is directly related with the inflation rates. This study is a contribution to the existing literature on the real growth applied to India’s economy; it will examine the impact of inflation, Interest rate, and Gross Domestic Product on the Economic growth rate (Saymeh & Orabhi, 2013).

In 2013 the total exports for India was at $313.2 billion whereas the import stood at $467.5 billion (CIA, 2014). India followed the Adam Smith model producing only what it was efficient at and imported the rest. There started a reversal in capital inflows which hit the export demand and posted a crunch in the domestic markets leading to a decline of more than 2% in India’s GDP in the fiscal year 2008-2009 (Kumar & Vashisht, 2009). In 2008 India was already experiencing a high inflation rate, which reduced expenditure in the country. To address the crisis and its affects the Indian government and the banks introduced fiscal stimulus and relaxed monetary policies in order to boost domestic demand. The market interest rates increased to 20% and above suddenly. India had received a fiscal stimulus of $80 billion injected into the economy to ensure liquidity. India was loosing badly on FDI’s and remittances. During 2008, India’s FDI inflows experienced a negative growth of 2% (Kumar & Vashisht, 2009). Remittances also are a major part of the capital inflows of the country, in 2008 the remittance inflow declined by more than 29% (Kumar & Vashisht, 2009) as every country first wanted to protect jobs of its home citizens and there was a severe lay off. Exports to USA is a major component of India’s GDP. After a sharp decline in the demand from the US, India had to lay off more than 300,000 workers instantly. There was a decline in exports of India by

The economy of India is a creating blended economy. It is the world's 6th biggest economy by ostensible Gross domestic product and the third-biggest by obtaining power equality (PPP). The nation positions 141st in per capita Gross domestic product (ostensible) and 123rd in per capita Gross domestic product (PPP). After 1991 financial progression, India accomplished 6-7% normal Gross domestic product development every year. The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy.

Saving refers to the income of a household, firm or government that is not spent but set aside for future consumption or investment. It is vital to an economy because it provides finance for capital

Investment is an element that allows investors to grow in aggregate wealth. The terms saving and investments are closely related because without increasing aggregate saving, investment cannot increase.

Arguably, investment is one of the key drivers of economic growth. Economists have developed models to analyze the effect of policy changes on investment behavior and how these changes in investment impact on growth. One of such models is Tobin’s (1969) q model of investment. Based on the key assumption that firms face adjustment costs on their capital stock, Tobin’s q is defined as “the ratio of the market value of installed capital to the replacement cost of capital.”

Another definition of the current account balance indicates that it is the “difference between the national (both public and private) savings and investment” (Ghosh and Ramakrishnan, 2006). Hence, it can be inferred that a deficit takes place when there is a higher level of investment compared to the level of savings in the state. In particular, this type of behaviour is apparent in countries which enjoy increasing GDP growth rate, leading to the boom in consumption power.

As we have seen in the Solow Model, the savings rate of a country is an important determinant of country’s long-term growth. The spending and the saving habits of the people over-time contribute to the country’s savings rate. In a macro-economic sense, the savings rate is the percent of present income invested for future production as:

India is one of the fastest economic growth countries in the world; it is also one of the world’s top ten economics. According to the global purchasing power parity data from the IMF, India is the third largest economy country of the world. As the US dollar to be the monetary unit, India is the seventh largest economy with high speed increase rate. Therefore, many economists forecasting that until 2050, India will become the No.3 largest economy country which just behind US and China. As the growth speed side, the GDP increase rate of India was 7.3% in 2014-2015 fiscal year, It is exceed China to become the fastest economic growth