Saving And Flow Of Funds Analysis: A Tool For Financial Planning In India

Overall balance between expected available resources and planned investment is not sufficient to ensure development with stability. Imbalances and inflationary pressures could develop as a result of inconsistencies between sector‐wise investment structure and the sector‐wise structure of saving. This means that the dichotomy between real and financial planning needs to be eliminated not only at the national level but at the sectoral levels as well, so that the sector‐wise investment pattern is consistent with the emerging structure of saving and the flow‐of‐funds. This presents an analysis of the structure of saving and flow‐of‐funds in India, shows how it is actually used for the purpose of financial planning, and attempts to derive a formalized technique of financial planning. Analysis of the structure of saving in India during 1954–1955 to 1967–1968 indicates the importance of the household sector as the net lending sector to the borrowing sectors, the government and the private corporate sectors. On the basis of the feasible sectoral rates of growth in income and the past trends in sectoral saving‐income ratios and household saving pattern with such modifications as are necessary in the light of expected changes in various policies, sector‐wise saving structure and the pattern of household sector saving are projected for the Fourth Plan period (1969–1974). Then a flow‐of‐funds matrix is prepared to derive sector‐wise investment estimates as are consistent with the estimated structure of saving and the likely changes in the lending policies of the financial institutions. A formalized technique of financial planning based on the Indian planning experience is presented in the last section of the paper.