Understanding the Indian Economy from the Post-Reforms of 1991, Volume II

CHAPTER 11

Capital Formation: Savings and Investment

To increase production, investment is considered as the crucial determinant; and capital formation has to be backed by the appropriate volume of savings. Increase in savings, use of the increased savings for increased capital formation, use of the increased capital formation for increasing savings, and use of the increased savings for a further increase in capital formation constituted the strategy behind economic growth. Investment rate is the most important driver of growth in gross domestic product (GDP). In India, the biggest source of savings is the household sector, followed by the private corporate sector and the public sector. A household is a heterogeneous group and includes resident ...