IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v150y2025ics0264999325000914.html
   My bibliography  Save this article

The Great Indian Savings Puzzle

Author

Listed:
  • Ghate, Chetan
  • Gopalakrishnan, Pawan
  • Saha, Anuradha

Abstract

India’s savings rate rose from 13% of GDP in 1970 to 38% of GDP in 2008 before steadily declining to 30% of GDP by 2019. India’s savings trajectory follows a hump-shaped pattern, peaking during the Great Recession (2007–2009). We build a monetary-growth model that highlights the role of declining inflation post-2009 in explaining the hump shape in the savings rate. Falling inflation boosts future wealth, inducing households to increase consumption while lowering future savings. Consumption smoothing and risk aversion lead to higher consumption and lower savings in the initial periods as well. Consequently, household savings are low but rising in the 1990s, peaking alongside inflation in 2008, and declining thereafter. The fit improves when we allow for two types of agents: Ricardian and Rule of Thumb. Our model predicts a dynamic association between inflation and household savings that mimics the hump-shaped savings pattern observed in India and some other economies.

Suggested Citation

  • Ghate, Chetan & Gopalakrishnan, Pawan & Saha, Anuradha, 2025. "The Great Indian Savings Puzzle," Economic Modelling, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:ecmode:v:150:y:2025:i:c:s0264999325000914
    DOI: 10.1016/j.econmod.2025.107096
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999325000914
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2025.107096?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Indian economic growth; Savings rate; Non-linear dynamics; Monetary-growth models; Demographics;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:150:y:2025:i:c:s0264999325000914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.