India's high savings rate has been a crucial driver of its economic boom, providing productive capital and helping to fuel a virtuous cycle of higher growth, higher income and higher savings. India's savings stood at a whopping Rs. 9.85 trillion (US $192 bn) as at the end of 2006-07. Since the 1990s, the gross domestic savings rate has risen steadily from an average of 23% to an estimated high of 35% in the 2006/07 fiscal year (April-March). The latter rate compares very favourably not only with developed economies (the US and the UK have savings rates of around 14%), but also with other emerging economies—with a few exceptions such as Malaysia (38%) and Chile (35%).
India's household sector (including some small businesses) continues to account for the lion's share—some 70%—of savings.
Can you identify the reasons for the savings buoyancy in India? Normally, a growing economy is expected to induce more spending and less of savings. But in Indian context, this has not happened. What can possibly explain this?
One reason for this is the woeful inadequacy of India's social-security system. Only around 10% of India's working population is covered by a retirement-benefit scheme. With increased urban migration, the joint family system (where several generations live together) is declining, reducing traditional old-age support from families. Health-insurance coverage is very low.
Many Indians remain averse to taking loans. Personal savings remain vital to meet long-term needs such as home buying, children's education, retirement and healthcare.
source:Indian current affairs
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That is mostly the thing that will take India out of recession.
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