Some Issues concerning Investment and Saving in the Indian Economy

According to most of the existing literature on development and planning, the less developed countries have typically a low rate of saving (usually placed at around 5 per cent of the national income to begin with) and one of their main problems is to raise it sharply within a short period to achieve higher rates of growth. The data for saving and investment in these countries, together with the recorded rates of growth of income in recent years, seem also to indicate that the average and marginal capital-output ratios realised in them (between 2·5 : 1 and 3 : 1) are significantly lower than observed in the more developed economies (where it has been generally anywhere between 3·5 : 1 and 5 : 1). Growth and planning models constructed for the less developed countries are therefore generally based on the assumption that much higher rates of saving can and should be realised (by fixing the marginal rate of saving to be achieved at not less than 20–25 per cent of the increases in national income) and that the relatively low capital-output ratios apparently characteristic of these economies can continue to be realised if not improved upon.