- Date : 26/06/2020
- Read: 5 mins
Here’s how your savings can help in India’s growth
The financial growth of any family is directly proportional to the money it saves. The more you save, the more you are able to invest. The more you invest, the more your family’s finances grow. It is a matter of great pride, specifically when it is your savings that have contributed significantly to this growth.
It becomes a matter of even greater pride when you realise your savings are also responsible for boosting the economy of your country.
Money saved is money earned
We invest our savings and build wealth through options such as fixed deposits, mutual funds, bonds, stock, property, and gold. Diversifying wisely helps our savings to grow. The more our savings grow, the greater the amount of capital available for investment.
What we often do not realise is that these investments not only help us grow but also help earn money for our country and contribute to its overall economic growth. Let’s take a closer look at how it works:
Banks and financial institutions
Let us first consider our savings in banks and other financial institutions. Most of our household savings are invested in banking and other non-banking financial entities, which are the major sources of investment funding in India.
When we deposit our savings in the bank, the bank lends this money to different business houses for their expansion, which is termed as investment in capital goods. When businesses invest in capital goods, the economy grows.
Assume a company has borrowed money from a bank where you hold a savings account. Let’s also suppose this company is now building a new factory that will increase its output, creating growth in the economy. It will provide more revenue to other businesses that will now be able to expand as per their needs.
New jobs mean more earnings
When new jobs are created, workers will open new savings accounts (if they do not already have one) to deposit their wages. Banks use these deposits to start another round of lending, thereby increasing economic growth further. So your savings and investments play a definite part in boosting the economy of your country.
Stock exchange and real estate
Even the money we invest in stocks (as shares or debentures), is used by companies for trading and raising cash, whereby people are motivated to invest more money. This again helps increase the growth of the economy.
Besides these, nearly three-fourths of household savings in India is invested in real estate and properties. Our household investments thus form a chain of investments to fuel economic growth. Savings give us an idea of how much the people of a country can invest – when savings increase, so do investments.
According to India Ratings and Research report, in the five years (FY12-FY17), household savings have contributed an average of 60.93% of the economy's total savings, which is more than half the total amount of savings in the country.
Fall in household savings
Unfortunately, in the last few years, India’s overall household savings, the biggest contributor towards the economy, has seen a drop. According to a report by India Ratings and Research, titled Arth Samvaad, it fell from 23.6% to 16.3%. The impact of demonetisation and GST affected the household sector as investments from MSMEs took a hit.
Household investments took a back seat between FY12 and FY17 due to this fall in household savings. One of the key reasons for this decline was tighter financial conditions. As per the latest reports, the GDP growth has fallen to 7.1% from 8.2%. If this decline continues, the GDP growth and macroeconomic stability of our country will face a grave risk. We need to boost our savings, and for this the access to finance for households has to improve nationwide. Our savings have to move from physical to financial assets to generate better returns.
Related: Understanding your savings account
Make your country stronger
The power of savings is at the heart of economic growth and enables the production of capital goods. The amount of a country’s economic investment depends directly on the amount of savings available for investing in funds. Household savings growth hit a historic low of 3.7% during FY12-FY17.
Just as we have a responsibility to ensure the financial well-being of our family, we have an even bigger responsibility towards our country. And the economic growth of our country depends directly on our savings and investments.
The saving and investing habit will better our financial position, which in turn will improve the financial position of our country, and this will only enrich our lives. Just as it takes every drop to make an ocean, our savings can boost India’s investment and GDP growth.