Determinants of Household Savings in India : An Empirical Analysis Using ARDL Approach

Abstract EN

Indian economy witnessed significant transformations in the postreform period both in terms of change in policy paradigm adopting greater market orientation and overall macroeconomic performance with development of a broad-based financial market and increasing global integration.

Guided by the fact that domestic savings play a critical role in augmenting capital accumulation and contributing to achieve and sustain high economic growth, an attempt to review and reassess the role of various factors influencing domestic savings under the changed environment is quite relevant for sustaining the growth momentum.

In this backdrop, the present study empirically analyzed the role of various determinants of household savings in India with the latest available data.

It employed ARDL approach for this purpose due to its suitability for estimating an equation with a mix of stationary and nonstationary variables of order I(1) and address potential endogeneity problems.

The estimated results revealed that GDP, dependency ratio, interest rate, and inflation have statistically significant influence on household savings in India, both in the long run and short run.

As regards policy implications, we suggest that ensuring price stability and avoiding any disruption to the growth process will be useful for augmenting savings and sustaining the savings-growth spiral in India.