The achievement of 8 per cent growth rate is warranted by four factors. This adversely affected productive investment.
It is the private corporate sector which registered a substantial rise in saving rate from 4. It will be seen from Table In our view with around Growth in GDP at constant market prices and of its components for three yearsand according to new series as the base is given in Table Besides, according to it, domestic demand in India is projected to remain strong.
It may be further noted that rapid growth of some new sectors such as Telecom and IT which hardly existed before contributed a good deal too rapid economic growth since It is this significant increase in corporate sector saving that resulted in higher rate of fixed capital formation which contributed to a big jump in annual growth rate to over 8 per cent in these years.
How do we explain the large increase in saving of the private corporate sector? According to IMF, in India Growth will benefit from recent policy reforms, which is a consequent pick-up in investment and lower commodity prices. The recovery from the global crisis of in the advanced economies had been slow and uneven, and a decisive resolution of sovereign debt problem of the Eurozone area had yet to be achieved.
It may be noted that in developing countries like India mere GDP growth in itself is not enough; it is meaningful if it uplifts the poor living below the poverty line and generate gainful employment opportunities for the unemployed. This slowdown in saving rate prevented the Indian economy to grow at a faster pace.
But even then it was well above other countries except China. In also with domestic saving rate equal to With capital-output ratio estimated to be equal to 4, the growth rate of 8 per cent is quite feasible.
Components of saving rate are — 1 household savings, 2 private corporate sector saving and 3 public saving. The macroeconomic situation in India in and improved significantly.
Now, what has caused saving rate in India to rise substantially since ? Difficulties in getting clearances of various investment projects also resulted in lower investment. In while the advanced developed countries were experiencing recession i. As a result, average growth rate of GDP for the four years period rose to over 9 per cent.
Now, the question is how we account for such a high growth rate in GDP from 04 to in India. Thus, the profits of the private corporate sector not only increased faster on account of higher economic growth but also the companies distributed less of them as dividends that resulted in substantial increase of corporate sector saving.
In global financial crisis and consequently global meltdown caused a fall in saving rate to With the saving rate going up to It may be noted that situation regarding saving in the two years and deteriorated, which adversely affected its potential growth rate.
Thus, revenue from corporate tax rose from 1. However, for the reasons explained below ingrowth rate of GDP fell further to 6. The public sector saving which was negative prior to turned positive and rose to 5 per cent of GDP in Besides, high inflation caused the real rate of interest earned on investment in bank deposits and other forms of financial savings that brought down the financial savings of the households who instead used their savings to buy gold, silver, real estate as hedge against inflation.
Whereas growth rate in the whole year 12 fell to 6.Get an answer for 'Describe the relationship between savings, investment, and economic growth.' and find homework help for other Business questions at eNotes. It is also influenced by many factors but one of the pinnacles of economic history is the impact household saving and debt has on economic growth.
Most working papers and journal articles on cross countries studies assume a positive relationship between household saving and economic growth and an adverse relationship between consumer debt and economic growth. saving and economic growth and convergence hypothesis: case study of Thailand‖, was to investigate the causality relationship between the domestic saving and economic growth of Thailand.
The slower growth rate in GDS has mainly been due to decline in household financial saving from % of GDP in to 8 per cent of GDP inprivate corporate saving sector from % of GDP in to % in and that of public sector saving from per cent in to per cent in Read this essay on Link Between Aids and Economic Growth.
Come browse our large digital warehouse of free sample essays. (GDP) savings by households in a country. It indicates the financial state and growth of the country, as household saving is the main source of government borrowing to fund public services. It varies among countries and.
Also, dealing with the relationship between domestic savings and economic growth for various economies with different income levels, Mohan () concluded using cross section data from to and Granger causality methodology, that economic growth rate Granger caused savings growth rate in eight high income countries (HIC)-Sweden, Iceland, Finland, UK, Korea, Japan, Canada, and Norway- .Download