Private Savings and its Influence on Economic Growth in India in the Post Reform Period

Abstract

Neo-Classical growth models show a clear relationship between savings and economic growth and consider savings a prerequisite for faster growth in an economy. Private savings in India have been a major contributor to total savings for several years. In this context, it is essential to investigate the long-run causality relationship between private savings and economic growth. It is also important, for their policy implications, to identify various determinants of private savings and analyse their impact in driving private savings. The study covers the period from 1991 to 2014 and uses the Engel-Granger cointegration test to find the direction of causality. To capture the degree of impact of various determinants on private savings ARDL model has been employed. The results show that growth in GDP and private savings in India are cointegrated and have a unilateral long-run relationship. It was found that changes in lending rates, causes a change in private savings. Other variables do not have a significant impact on private savings in India.