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Business News/ Money / Personal-finance/  31.1%—ratio of India’s gross domestic savings in 2014
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31.1%—ratio of India’s gross domestic savings in 2014

Indian saving ratio is high primarily due to high household savings

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The ratio of India’s gross domestic savings in 2014 according to World Bank data is 31.1%. What this number means is that if the GDP is Rs100, then the total savings of the country are Rs31.10.

This ratio varies from minus 50.5 for Liberia to 76.3 for Equatorial Guinea. China is at 48.9, the US at 16.9, South Africa at 18.5, Brazil at 18.1, Russian Federation at 27.7 and Pakistan at 8.5. Afghanistan is at minus 21.4 and Zimbabwe at minus 12.2.

The savings ratio says many things about a nation. A negative ratio is generally associated with countries that are in extreme political distress, are dictatorships or otherwise failed nations.

A negative savings ratio means that the country is consuming more than it is producing; this can only happen through external borrowings or due to foreign aid, as in the case of Liberia.

A high savings ratio, especially when this is due to household savings, usually points to lack of government run social security, which then encourages citizens to save for the future.

High household saving ratios are also an indication of financial repression, where the government channels household savings towards itself, while offering back a low real return.

Indian saving ratio is high primarily due to high household savings.

In India, this money goes predominately into gold and real estate, thereby causing a drag on the balance of payments due to the gold that has to be imported to meet this demand, and stoking the black economy, based on real estate investments that are made in cash.

The country is now gradually beginning the process of channelising its household savings towards financial assets.

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Published: 22 Nov 2016, 04:43 PM IST
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