THE DETERMINANTS OF PRIVATE SAVING IN INDIA

This paper examines the determinants of private saving in the process of
economic development, in the light of the Indian experience during the period 1954 -
1998. The methodology involves the estimation of a saving rate function derived within
the life cycle framework while paying attention to the structural characteristics of a
developing economy. It is found that the saving rate rises with both the level and the rate
of growth of disposable income and the magnitude of the impact of the former is smaller
than that of the latter. The real interest rate on bank deposits has a significant positive
impact, but the magnitude of the impact is modest. Public saving seems to crowd out
private saving, but less than proportionately, suggesting that public policy can influence
the national saving rate. Among the other variables considered, the spread of banking
facilities in the economy and the rate of inflation seem to have a positive impact and
changes in the external terms of trade and migrant remittances a negative impact on
private saving.