Savings Rate
The Central Statistical Organisation (CSO) has defined savings as the excess of current expenditure over income and is a balancing item on the income and outlay accounts of producing enterprises and households, government administration and other final consumers. In simple words, savings are the excess income over expen¬diture of the economic units. For the purpose of estimating domestic savings, the economy in a closed set up has been divided into three sectors: household sector, private corporate sector and public sector.
The savings at household sector, which account for the bulk of savings, are measured by the total of financial savings and savings in physical assets. The savings in financial form include savings in currency, bank deposits, non-bank deposits, life insurance funds, provident and pension funds, claims on government, shares and debentures, units of UTI and trade debts. Of these, currency and deposits are voluntary savings and motivated by transactions and precautionary motives and are governed by interest income and other incentives. The savings in life insurance, provident and pension funds are contractual savings governed by precautionary and contingency motives. The claims on government are compulsory deposits, tax credits and investments in government bonds, etc.
The savings in the form of units, shares and debentures etc. are all voluntary savings and are used for investment in the business sector, directly or indirectly. The above are the gross savings against which should be set off the financial liabilities such as borrowings by them from the government, business sector and other sectors of the economy. The flow of net savings in financial form is a relevant variable for influencing the growth process in the economy. The foreign sector is the fourth sector in an open economy contributing net savings
The gross savings of the household sector constituted around in 20% of the GDP in recent years. Of these more than two-fifths is in physical assets and three-fifth in financial form. The savings in physical form include agricultural implements, tools, tractors, consumer durables, gold, silver etc. among the rural households, and such items as real estate, buildings, durable goods, gold, silver etc. among all households. The savings in physical form are less productive, while savings in financial form are more productive in various degrees depending on the efficiency of their use.