1. SAVING AND INVESTMENT IN INDIA
&
RESOURCE MOBILISATION FOR
PLANNING
DR. LAXMI NARAYAN
ASSISTANT PROFESSOR OF ECONOMICS
GOVT. COLLEGE FOR WOMEN, BHODIA KHERA

2. LECTURE OUTLINE
 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.

3. SAVING
AND
INVESTMENT
IN INDIA

4. 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.

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

6. THE VICIOUS CYCLE
Economy Trapped in Low
Level Equilibrium

7. THE VIRTUOUS CYCLE

8. 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)

9. GROSS DOMESTIC SAVINGS

12. 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
Where
Net Investment = Gross Investment - Depreciation

13. GROSS DOMESTIC CAPITAL
FORMATION (GDCF)

16. SAVING INVESTMENT GAP

17. INFLOW OF FUNDS FROM ABROAD

18. CAUSES OF LOW RATE OF
CAPITAL FORMATION








Low Level of Savings
Population Explosion
Consumerism
Taxation
Financial System
Interest Rate Structure
Inflation
Infrastructural Bottlenecks

19. 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

20. 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

21. RESOURCE
MOBILISATION
FOR
PLANNING

22. 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
comprehensive programmes for
required resources.
draw a
mobilising

24. SOURCES OF PLAN FINANCE

25. COMPONENTS OF BUDGETARY
RESOURCES

26. IMPORTANT COMPONENTS OF
RESOURCE MOBILISATION FOR
NINTH, TENTH AND ELEVENTH PLANS

27. COMPONENTS OF BUDGETARY
RESOURCES

28. 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
financing after 9th plan.

29. Favourable Impact of
Deficit Financing
 Employment of unutilised resources
 Generates additional resources
 Combats Recession
 Infrastructural Development
 Coping with increased demand for money

30. 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

31. 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

32. REFERENCES
 Jain & Majhi, “Economic
Development and Policy in India”
V.K. Global Publications.
 R.K. Misra & V.K.Puri, “Indian
Economy” Himalaya
Publications.
Ruddar Dutt and K.P.M. Sundaram, “Indian
Economy” Sultan Chand.
Uma Kapila, “Understanding the Problems Of
Indian Economy” Academic Foundation.

33. FAQs
 Discuss the main source of
financing India’s Five Year Plans?
 Explain the role of foreign capital
in financing India’s Five Year
Plans?
 Critically examine the role of deficit financing in
Indian economic planning.
 Do you think present rates of savings and capital
formation are adequate in India? How these can be
improved?
 Critically examine the recent trends in Savings and
investment in India?