Among several factors for India's potential growth, saving rate is the most effective one. Do you agree? What are the other factors available for growth potential? (UPSC MAINS GS3 )
Capital formation is the most important factor that drives the economic development of a nation. It is mainly the transfer of savings from households to the business sector that leads to increased output and economic expansion.
A savings rate that refers to the percentage of gross domestic product (GDP) savings by households in a country (Difference between income and consumption). It indicates the financial state and growth of the country, as household saving is the main source of government borrowing to fund public services. Contemporary macro-economic framework revolved around growth models and growth a function of both savings as well as investments. Out of them Investment also largely is determined the level of savings themselves.
In India, savings have contributed a lot in the economic development since the Indian economy took off in 1960s and 70s. In the past few decades, it has been around 33% of GDP. However, high savings rate is a necessary condition but not a sufficient one for economic development.
Many times high savings in isolation does not lead even to capital formation. One also needs sound banking and financial institutions to mobilize the savings of economy. At the same time, presence of entrepreneurship is also critical to convert savings into productive investment.
Some other factors that are essential for growth potential are:
India which is on the verge of reaping the benefits of demographic dividend, must launch skill development initiatives to utilize the young labour force. It should also improve ease of doing business and create a conducive environment for investment, better export performance to improve productivity of the economy.
Topic Covered - Savings and Capital Formation
106 videos|306 docs|135 tests
|
1. What is the importance of savings and investment in personal finance? |
2. How can one start saving money effectively? |
3. What are the various investment options available for individuals? |
4. How can one strike a balance between saving and investing? |
5. What are the potential risks associated with investments? |
|
Explore Courses for UPSC exam
|