The Saving-Investment Approach: Determination of Economic Growth of India

Abstract

Savings and investment are key requirements for growth and development. Savings and investment have been considered as two critical macro-economic variables with microeconomic foundations for achieving price stability and promoting employment opportunities thereby contributing to sustainable economic growth. Since independence Indian economy has been moved from a moderate growth path of 1950-1980 to a higher growth trajectory since 1980s. Over the last four decades, Indian economy has emerged as one of the fastest growing economies of the world. This paper considers savings, investment and economic growth for India using annual time series data for the period 1991/92 to 2017/18. The study make use of the Autoregressive Distributed Lag (ARDL) approach to test for cointegration and Error correction based Granger causality analysis for investigate the causality between the variables. Data for Gross Domestic Savings (GDS) and Gross Domestic Investment (GDI) were taken from the National Accounts Statistics of India and Gross Domestic Product (GDP) was taken Reserve Bank of India. The study finds that saving explicitly determines investment in both the short and long runs and there is no evidence is found to support the usually accepted growth models in India, that investment is the engine of economic growth.