B.Com Ist Year Savings And Investments Question Answer Study Notes Study Material Inclusion of all the questions asked in past year of exams. Notes
Savings and Investments
Q.6. Define Savings. What is the causes of slow growth
rate in savings and investment. Give suggestions to raise the savings and investments.
(Avadh, 2014; Bareilly, 2013)
Describe the trends in savings and investment in
India during planning period.
MEANING OF SAVINGS AND INVESTMENT Study Notes
Savings: Saving refers to that part of money income which is not spent on immediate consumption. Most of the individuals do not spend the whole of the income earned by them. Therefore the amount which is not spent on consumption becomes savings. Thus,
S=Y-C (S = Saving, Y=Income, C = Consumption] Investment: According to Prof. Keynes, investment refers to real investment which adds to capital equipment. In other words investment means, investment in the building of new machines, new factory buildings, roads, bridges and other forms of productive capital stock of community, including inventories. It leads to increase in the production and income.
TRENDS IN SAVINGS AND INVESTMENT IN INDIA NOTES
Analysis of economic development of different countries revealed that countries having 20% saving rate can only developed rapidly. Hence to get information about Indian economy, study of trends of savings and investment becomes necessary. With the help of following table trends in saving and investment during plans can be studied:
|Plans||Savings as % G.D.P.||Investment as % G.D.P.|
|Ist Plan (1951-56)||10.0||12.0|
|IInd Plan (1956-66)||12.0||15.0|
|IIIrd Plan (1961-66)||15.0||17.0|
|IVth Plan (1969-74)||14.0||14.8|
|Vth Plan (1974-78)||18.5||18.8|
|VIth Plan (1980-85)||19.6||22.4|
|VIIth Plan (1985-90)||20.4||22.7|
|VIIIth Plan (1990-95)||24.1||25.0|
|IXth Plan (1997-2002)||23.6||24.3|
|Xth Plan (2002-2007)||31.9||32.1|
|XI Plan (2007-2012)||34.8||36.7|
It is obvious from the table that:
(1) During first plan savings and investment rate was 10% and
12% as G.D.P. respectively. There becomes tremendous increase during second and third plans in savings and investment rates. During third plan it rose to 15 and 17-4 percent respectively.
(2) In the period of fourth plan savings and investment rate declines and comes at the level of 14 and 14.8% of G.D.P.
(3) Again rising trend is observed during fifth plan period which also continues in further plans.
In conclusion, it can be said that the savings and investment performance of India has been remarkable in comparison to other low income economies. India has one of the high saving rate among the low income nations. By any standard, it seems to be satisfactory but a paradoxical situation exists in India. Though rates of savings are high but the growth rate of G.D.P. is very less. All this reflects that high rate of saving and investment are not an unerring recipe for growth. The basic reason for a modest growth performance is low efficiency of investment specially in the public sector. The economic reforms since 1991 are aimed at enhancing efficiency and growth in the economy.
REASONS FOR INADEQUATE (LOW) RATE OF
SAVINGS AND INVESTMENT IN INDIA STUDY NOTES
In India, the rate of savings and investment is not low, but in comparison to need it is far from adequate. The main reasons for slow growth rate of savings and investment in India are as follows:
(1) Low per Capita Income: In India, the per capita income is very low. One fourth of population is living below the poverty line. Most of the people spend their income on consumption, therefore no question of savings arises in case of poor persons.
(2) Demonstration Effect : When people acquire certain consumption habits of western developed countries we call it demonstration effect. This problem is particularly serious in mad. Due to increased contact with western countries, consumption of luxurious items have increased considerably in India.
(3) Failure of the Public Sector: In India most of the public sector enterprises are running in huge losses which has adversely affect the process of capital formation.
(4) Lack of Entrepreneurship : There is lack of entrepreneurial ability and due to this problem there is slow rate of capital formation
(5) Lack of Banking Facilities : There is lack of banking facilities, these are not enough to encourage small savings, specially in rural areas.
(6) Low Productivity: There found low productivity and it results in low income and savings. Thus, the rate of investment is low.
(7) Lack of Infrastructural Facilities : Due to lack of infrastractural facilities such as : transport, water, banking, insurance, light etc. industrial development remain poor in India and it is responsible for the low rate of capital formation.
(8) Heavy Tax Burdens: In India, there is heavy tax burdens and so people get little to save and invest. Tax laws in India are discriminatery as there is no tax an agriculture income.
(9) Inflation: Due to high budgetary deficit, there is a problem of inflation which has adversely affected the savings capacity of household seetor.
(10) Lack of Investment Incentives : In India, there is lack of investment incentives and due to it, the people do not get proper incentives to invest their savings.
MEASURES TO RAISE SAVINGS AND INVESTMENT
RATE IN INDIA NOTES
The following suggestion could be brought forth for the encouragement of the investment or capital formation:
(1) Control on the Increasing Price-Rate : It is necessary for encouraging the savings and investment that the check must be held over the increasing price rise. Due only to the price-rise, the saving capacity of people in India is declining.
(2) Increase in Productivity : Indian economy is an agricultural economy. Therefore efforts must be made for increasing the productivity of agriculture and development of agro-based and food processing industries.
(3) Reducing the Non-Developmental Expenditure: Due to non-developmental expenditure, the government is required to seek the help of the deficit financing. By reducing the non-developmental expenses, the money must be invested only in those plans which are helpful in the increase of production.
(4) Expansion of Banking Facilities : In order to raise savings and investment, expansion of banking facilities must be made. The people should be provided the facility of collecting * savings from their families. There must be an expansion of bankin facilities specially in rural areas to encourage small savings.
(5) Proper Taxation Policy : Government must adopt the proper taxation policy so that it may encourage the household to save to the optimum.
(6) Encouragement to Domestic Savings : For increasing the speed of investment, the most important suggestion is to encourage the private savings. For it, various measures could be adopted, for instance, introducing the small savings schemes implementing the compulsory life insurance plans in some spheres and resorting to the expansion of the banking facilities in the rural areas for getting the rural people accustomed to the savings habit.
(7) Increase in the Profitability of Public Undertakings: In India, whatever capital is invested in the public sector enterprises, appropriate profit from them is not coming up. In comparison to the huge investment as capital, the rate of profit is very low. By enhancement in their profitability, the speed of investmentor capital formation too would increase.