Private Savings: Trend Analysis and Determinants

Abstract

This paper examines the evolution of private savings and its components that is household savings in physical assets, financial household savings and corporate savings since 1991 in India. The study is an attempt to measure the impact of government initiatives to encourage household savings, specifically on financial household savings. It further examines the effect of changing economic conditions on private savings. The trend in private savings is checked from 1991–1992 to 2015–2016. This sample period is divided into three phases thatis from1991-1992 to 2000–2001, from2001-2002 to 2007–2008 and from 2008–2009 to 2015–2016. Interactive dummy model is used to analyse the trend. The growth in private savings and financial household savings is observed to be stagnating in the second phase whereas dwindling significantly in the third phase. Increase in private corporate savings is offset by decrease in household savings in physical assets in the second phase whereas both decreased in the third phase. Multivariate regression is applied to determine if macroeconomic variables like inflation rate, real interest rate, dependence ratio, per capita income and private domestic credit affects private savings significantly. Per capita income, real interest rate and inflation rate have been observed to be significantly affecting private savings.