Shri Ram College of Commerce Econometrics Project

Econometrics Project
Macroeconomic Forces of India’s Gross
Domestic Savings: An Empirical Study

Presented to: Ms. Tejas Vineeta

Presented By: Sirjan Preet Kaur 22BA146
Paridhi Gupta 22BA159
Shri Ram College of Commerce Econometrics Project

Abstract

This paper presents an empirical analysis of the macroeconomic determinants of gross domestic
savings in India. Gross Domestic Savings (GDS) represents the amount of income that households,
businesses, and the government save after meeting their consumption needs (expenditure).

This pool of savings is often used for investment and capital formation, which is essential for
economic growth. Robust growth in Gross Domestic Savings is crucial for India’s economic
development, as higher levels of savings in the domestic economy reduce dependency on external
sources for investments, infrastructural development, and other capital-intensive purposes.

Using data from the World Bank’s data bank, a multiple linear regression model was employed to
examine the impact of five independent variables, namely, domestic credit to the private sector by
banks, lending interest rate, households and NPISHs final consumption expenditure, taxes on income,
profits, and capital gains (% of revenue), and inflation, on Gross Domestic Savings. The findings
indicate that a majority of these variables have a significant effect on gross domestic savings.

Specifically, domestic credit to the private sector by banks, households and NPISHs final consumption
expenditure, and inflation, significantly impact gross domestic savings, while lending interest rates
and taxes on income, profits, and capital gains (% of revenue) do not have a significant impact on
GDS. The degree to which each variable affects gross domestic savings is further discussed in the
paper. A correlation analysis under Stata has also been performed and the results are discussed in
the further parts of the paper.

The results have implications for policymakers and politicians in India, highlighting the importance of
considering these macroeconomic determinants in policymaking, to be aimed at promoting higher
levels of domestic savings for Indians.

Introduction

Savings are one of the most important aspects of finance taught to Indians from childhood itself, and
the values of saving and spending less than what we earn (financial prudence) to save and invest for
the future and keep some for any potential emergencies are deeply ingrained in Indian culture and
society. This savings figure for the entire country can be seen through an approximation measured by
the Gross Domestic Savings, published by the World Bank national accounts data and OECD National
Accounts data files, and calculated as the difference between the GDP of the nation and the final
consumption expenditure (total consumption).

Specifically, we examined the impact of domestic credit to the private sector by banks, lending
interest rate, households and NPISHs final consumption expenditure, taxes on income, profits, and
capital gains (% of revenue), and inflation, consumer prices (annual %) on gross domestic savings
using data from the World Bank’s data bank under their World Development Indicators (WDI)
Database and Stata for computing Multiple Linear Regression and Correlation tests on procured
secondary data.

A country can never be too dependent on foreign aid for investments and must inculcate the values
of sensible budgeting and financial literacy to encourage more households to save and make better
use of their earnings. India has seen rapid growth in banking services with the advent of
revolutionising factors such as UPI (Unified Payments Interface) and QR codes, which have
completely changed the spending habits of Indians, especially Gen-Z.
Shri Ram College of Commerce Econometrics Project

Literature Review

Horioka and Yin (2009) used multi-country data to analyse the determinants of differences among
countries in household savings rates, with an emphasis on social safety nets and the age of the
populations, along with the borrowing and lending constraints. Their findings suggest that age
structure and borrowing capacities of people were the major determinants of household savings
rates (HHSR). They performed their regression analysis on OECD member countries.

Masson et al. (1998) used both time-series-based and cross-sectional analysis on possible
determinants of private domestic savings from a large sample of industrial and developing countries.
Their results identified several ways in which growth influenced savings, and they reported a direct
positive association between GDP growth and private savings, although they also noted they could
not conclude whether they had a causal relationship in either direction.

In their study, Tang et al. (2020) investigated the determinants of private savings in Malaysia using
annual data from 1980 to 2016. The authors used cointegration and variance decomposition
methods and reported that private savings are positively related to private disposable income,
modified dependency ratio, and the development of the financial sector of Malaysia. On the other
hand, the female-male sex ratio and macroeconomic uncertainty were found to harm private savings
in Malaysia. Their study also showed that disposable income, sex ratio, financial sector development,
and macroeconomic uncertainty are relatively more important than other variables in determining
Malaysia's private savings.

Jappelli and Pagano's (1994) study analysed the relationship between savings, growth, and liquidity
constraints using a theoretical model and empirical evidence. They conclude that savings are a
crucial determinant of economic growth and that liquidity constraints can significantly reduce savings
rates. Their results also showed that households with higher incomes tend to save more, and
liquidity constraints disproportionately affect low-income households, where liquidity constraints are
relatively less significant for determining the savings rates of higher-income households, but these
liquidity constraints become much more significant in determining the savings rates of lower-income
households. Additionally, they also conclude that the availability of credit can mitigate the effects of
liquidity constraints on savings. They also found a positive relationship between savings and
economic growth, which means that growth in savings rates could lead to higher economic growth.
Overall, their results suggest that policies that reduce liquidity constraints and increase access to
credit could increase savings rates, leading to higher economic growth. They performed cross-
country regressions of saving and growth rates on indicators of liquidity constraints on households.
The results also suggest that financial deregulation in the 1980s contributed to the decline in
national saving and growth rates in the OECD countries. They performed several of these statistical
tests on OECD countries and some non-OECD countries as well (Israel, Malaysia, Taiwan, etc.).

Hussain and Brookins (2001) used extreme-bounds methodology to investigate the determinants of
national saving, including current transfers from abroad. Their study is unique in that they examine
the robustness of the signs and size of several proposed determinants of saving, which has not been
done extensively before using the extreme-bounds methodology. They analysed both cross-sectional
and panel data and found that traditional EBA and restricted EBA tests do not support the commonly
used determinants of national saving, such as demographic variables, income, and financial factors.
However, they also identify four robust determinants of saving behaviour in panel models: public
saving, overall budget balance, agriculture share, and current account balance.
Shri Ram College of Commerce Econometrics Project

Additionally, they reported that alternative methods, such as the significance ratio and cumulative
distribution tests, indicated that real GDP per capita, young-age dependency ratio, income volatility,
and total trade are also robust determinants of national saving.

In Khan's (2018) study on the determinants of gross domestic saving in eighteen Asian countries,
spanning the period 1995-2016, various statistical techniques, including a fixed effect model,
descriptive statistics, and a correlation matrix, were employed. The research revealed that gross
domestic product (GDP), age dependency ratio, broad money, and inflation exerted statistically
significant effects on gross domestic saving. Conversely, tax revenue demonstrated a non-significant
impact. Notably, positive effects were observed for GDP, broad money, and tax revenue, while age
dependency ratio and inflation exhibited negative effects on gross domestic saving.

Research Methodology

The data has been collected and sourced completely from the Data Bank provided by the World Bank
under its World Development Indicators. The data covers 1999 to 2020 and a consequent regression
analysis along with a correlation analysis has been performed on the collected data to identify any
potential relationships and the strength of these relationships between the variables. The regression
analysis is based on a panel data time series-based approach, and both the regression analysis and
the correlation matrix were formulated using Stata.

In order to test the hypothesis, we rely on the following linear model:

Υi = b1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 + ε

where

Υi = Gross domestic savings

X2 = Inflation, consumer prices (CPI)

X3 = Domestic credit to the private sector by banks (DCR)

X4 = Lending Interest rates (LIR)

X5 = Households and NPISHs final consumption expenditure (NPISH)

X6 = Taxes on income, profits, and capital gains (TAX)

The Dependent variable in this regression model is-

Gross domestic savings (current US$)- Gross domestic savings is an economic indicator that
measures the amount of savings generated within a country. It is calculated as the difference
between a country’s Gross Domestic Product (GDP) and its total consumption expenditure. In other
words, it represents the portion of a country’s income that is not spent on consumption and is
instead saved for future investment. This indicator is expressed in current US dollars and can be used
to compare the savings rates of different countries. A high level of gross domestic savings can
indicate a strong economy with a high level of investment, while a low level may suggest that a
Shri Ram College of Commerce Econometrics Project

country is consuming more than it produces. Data on GDS for India has been taken from the World
Development Indicators by the World Bank.

The Independent variables and corresponding hypotheses are as follows:

1. Lending Interest rates (%): - As per the World Bank, the lending rate represents the
bank's interest rate tailored to cater to the short- and medium-term financial
requirements of the private sector. These rates typically differ on a subjective basis,
based on the creditworthiness of borrowers and the intended financing goals. Direct
comparisons using lending rates may not be straightforward since there are a lot of
variations in these rates and many factors to be considered.

• Null Hypothesis(H0)- There is no significant relationship between Gross Domestic

Savings (dependent variable) and Lending interest rates (%).
• Alternate Hypothesis(H1)- There exists a significant relationship between Gross
Domestic Savings (dependent variable) and Lending interest rates (%).

2. Inflation, consumer prices (annual %): Consumer price index (CPI) inflation signifies the
annual percentage shift in the expense for the average consumer to obtain a set basket
of goods and services. This basket may have items that remain constant or alter at
specified intervals, typically on an annual basis. In simpler terms, inflation is the increase
in the general levels of prices for goods and commodities all across the board. Higher
levels of inflation for longer durations weaken the economy since it erodes the
purchasing power of a consumer and severely affects demand.

• Null Hypothesis(H2)- There is no significant relationship between Gross Domestic

Savings (dependent variable) and Inflation, consumer prices (annual %).
• Alternate Hypothesis(H3)- There is a significant relationship between Gross Domestic
Savings (dependent variable) and Inflation, consumer prices (annual %).

3. Domestic credit to the private sector by banks (% of GDP): Domestic credit extended to
private sector entities by banks usually refers to financial resources provided to private
sector companies by banking institutions. This includes financial loans, purchasing or
selling non-equity securities, and trade credit receivables, these establish a claim for
potential repayment. This credit mechanism allows businesses to grow and expand their
markets and consumer base, and limited credit facilities hamper the growth of start-ups
and businesses in any country.

• Null Hypothesis(H4)- There is no significant relationship between Gross Domestic

Savings (dependent variable) and Domestic credit to the private sector by banks (%
of GDP)
• Alternate Hypothesis(H5)- There exists a significant relationship between Gross
Domestic Savings (dependent variable) and Domestic credit to the private sector by
banks (% of GDP).
Shri Ram College of Commerce Econometrics Project

4. Households and NPISHs final consumption expenditure (current US$): This is a metric
that refers to the total spending by households and non-profit institutions serving
households (NPISHs) on final goods and services that are consumed during the current
period. This expenditure represents the amount of money that households and NPISHs
spend on consumption activities, such as buying food, clothing, housing, and other
consumer goods and services. This consumption figure is important to consider since
higher consumption will most definitely lead to lower levels of savings for households
and how consumption is affected by other factors and their consequent movements is
considered through the correlation and regression analyses.
• Null Hypothesis(H6)- There is no significant relationship between Gross Domestic
Savings (dependent variable) and Households and NPISHs final consumption
expenditure.
• Alternate Hypothesis(H7)- There is a significant relationship between Gross Domestic
Savings (dependent variable) and Households and NPISHs final consumption
expenditure.

5. Taxes on income, profits, and capital gains (% of revenue): This metric, expressed as a
percentage of revenue, comprises taxes on income, profits, and capital gains. The taxes
on income, profits, and capital gains pertain to levies on individuals' actual or
presumptive net income, corporate profits, and capital gains from assets like land and
securities—whether realized or not. Higher levels of taxes drain excess liquidity from
individuals and companies alike into government coffers in the form of tax revenue. In
the general sense of belief, higher levels of taxes may lead to decreased savings.

• Null Hypothesis(H8)- There is no significant relationship between Gross Domestic

Savings (dependent variable) and taxes on income, profits, and capital gains.
• Alternate Hypothesis(H9)- There exists a significant relationship between Gross
Domestic Savings (dependent variable) and taxes on income, profits, and capital
gains.

Theoretical Framework

Ordinary Least Square Technique:

To investigate the determinants of Gross Domestic Savings, we employ the Ordinary Least Squares
(OLS) method to estimate a linear regression model with six explanatory variables: lending interest
rates, inflation, domestic credit to the private sector by banks, household and NPISHs (Non-Profit
Institutions Serving Households) final consumption expenditure, and taxes on income, profits, and
capital gains. The model posits Gross Domestic Savings as the dependent variable and can be
mathematically expressed as follows:

Υi = b1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 + ε

• b1 to b6 are the parameters to be estimated,

• 𝜖𝑖 is the stochastic error term, assumed to be independently and identically distributed with
a mean of zero and constant variance.
Shri Ram College of Commerce Econometrics Project

The OLS objective is to minimize the sum of squared residuals, which measure the discrepancies
between observed and predicted values of GDS:

Min ∑(𝐺𝐷𝑆𝑖−b1−b2𝐿𝐼𝑅𝑖−b3𝐶𝑃𝐼𝑖−b4𝐷𝐶𝑅𝑖−b5𝑁𝑃𝐼𝑆𝐻𝑖−b6𝑇𝐴𝑋𝑖)2

The assumptions underlying OLS estimation—no perfect multicollinearity, homoscedasticity of

errors, and a zero conditional mean of the error term—are crucial for obtaining unbiased and
efficient parameter estimates. Diagnostics for potential violations of these assumptions and
corresponding corrective measures are considered to ensure the robustness of the model estimates.

The results obtained from the OLS estimation provide the estimated coefficients which quantify the
relationship between each explanatory variable and the dependent variable, GDS. The coefficient
associated with LIR, for example, indicates the expected change in GDS for a one-unit change in the
lending interest rates, holding other factors constant. Similarly, the coefficients for CPI, DCR, NPISH,
and TAX provide insights into how changes in inflation, credit availability, household consumption,
and taxation respectively influence Gross Domestic Savings within the economy.

Upon obtaining the coefficient estimates, the model's goodness-of-fit is evaluated using the 𝑅2
statistic, which measures the proportion of variance in the dependent variable that is predictable
from the independent variables. A higher 𝑅2 value suggests a better fit of the model to the data.
Additionally, the F-statistic is used to test the overall significance of the regression model,
determining whether at least one explanatory variable has a non-zero coefficient. However, the
reliability of the estimates hinges on the adherence to the key OLS assumptions

Classical Linear Regression Model Assumptions:

1. Linear in Parameters: The assumption that the regression model is linear in parameters
means that the dependent variable, Gross Domestic Savings (GDS), is a linear function of the
coefficients. This linearity facilitates the estimation of coefficients using algebraic methods
and ensures that the model remains interpretable and analytically tractable.

2. Expected Mean of Disturbance Term 𝑢𝑖 is Zero: This assumption states that the error term in
the regression equation has an expected value of zero, conditional on the explanatory
variables. This ensures that the errors do not systematically overestimate or underestimate
the dependent variable, thereby providing unbiased estimations of coefficients. It also
implies that all relevant variables have been included in the model, and the omitted variables
do not correlate with the included regressors.

3. Homoscedasticity: Homoscedasticity refers to the condition where the variance of the error
terms (𝑢𝑖ui) is constant across all levels of the explanatory variables. This uniform variance
ensures that the estimates of the coefficients are efficient and the standard errors are
accurate, facilitating valid hypothesis testing.

4. No Autocorrelation: The assumption of no autocorrelation stipulates that the error terms in

the regression model are not correlated with each other across observations. This is
particularly pertinent in time series data where the assumption prevents carryover effects
from one period to another. Autocorrelation can lead to underestimation of the standard
errors, causing overconfidence in the statistical significance of predictors.
Shri Ram College of Commerce Econometrics Project

5. No Multicollinearity: Multicollinearity occurs when one or more of the independent

variables are highly linearly related. While not a violation of OLS assumptions per se, severe
multicollinearity can make the model estimates highly sensitive to changes in the model,
inflate the variance of the coefficient estimates, and make it difficult to disentangle the
individual effects of correlated predictors.

Regression results and Discussion

Interpretation Of Results

The R Square value of 0.934 tells us that approximately 93.4% of the variations in the dependent
variable (GDS) can be explained by the variations in the independent variables.

This helps to conclude that the model is a good fit for the data.

The Adjusted R Square considers the number of independent variables used in the model and
accordingly adjusts to better fit the model. In this case, the value of 0.9196 suggests that the model
output generated is reliable and there is a good fit between the dependent and the
independent variables.
Shri Ram College of Commerce Econometrics Project

Inflation, consumer prices (annual %)

The p-value associated with inflation and GDS is 0.265 is statistically insignificant at the 95%
confidence level. If the p-value were to be smaller than 0.05, then the relationship would be
determined to be significant. Based on the p-value analysis, the null hypothesis [H0] is not rejected
and there is no significant relationship between Gross Domestic Savings and Inflation, consumer
prices.

Domestic credit to the private sector by banks (% of GDP)

Shri Ram College of Commerce Econometrics Project

The p-value for the variable "Domestic credit to the private sector by banks (% of GDP) is 0.625,
which is more than the conventional significance level of 0.05. This suggests that the coefficient for
this variable in the regression model is statistically insignificant.

Based on the regression results, we find that the null hypothesis [H4] cannot be rejected since it
doesn’t meet the desired level of confidence.

Consumer and business behaviour also play a role. Some individuals may choose to borrow and
spend, while concurrently maintaining or increasing their savings. Businesses might use credit for
investment purposes while also maintaining healthy cash reserves. The correlation may be
influenced by economic cycles. During periods of economic expansion, both domestic credit and
gross domestic savings may increase. Conversely, during economic contractions, both could
decrease. This just goes to show how truly interconnected and complex the relationship between
these metrics is in the economy.

Lending Interest Rate (%)

As per the regression results, the relationship between GDS and lending rates does holds significantly
at the 95% confidence level since the p-value is at 0.026 ( below the desired 0.05 level). Based on the
p-value analysis, we can reject the null hypothesis [H2]. This implies that there is sufficient evidence
to reject the null hypothesis in favour of the alternate hypothesis [H3]. Therefore, we find significant
support for the alternate hypothesis at the chosen level of significance.
Shri Ram College of Commerce Econometrics Project

Attached alongside is the predictor vs residual plot for LIR.

Households and NPISHs final consumption expenditure (current US$)

Shri Ram College of Commerce Econometrics Project

Households and NPISHs final consumption expenditure has a p-value of 0.00 which is very small and
is below the required level of significance at 0.05.

This helps us to reject the null hypothesis [H6] in favour of the alternate hypothesis [H7] and observe
that there is a statistically significant relationship between gross domestic savings and final
consumption expenditure of households and NPISHs. This suggests a strong negative linear
relationship between gross savings and NPISH.

Attached alongside is the predictor vs residual plot for NPISH.

Taxes on income, profits, and capital gains (% of revenue)

Shri Ram College of Commerce Econometrics Project

With the p-value standing at around 0.766, it is not lower than the desired 0.05 level of significance
and hence the relationship between gross domestic savings and taxes on income, profits, and capital
gains is not statistically significant according to the results of the regression. Thus, we fail to reject
the null hypothesis.

The non-significant p-value implies that, within the context of the regression model, the observed
relationship may not be statistically robust. In other words, while there is a correlation, the
relationship might not be reliably captured by the regression model due to variability or other
factors.

Histogram for explanatory variables

Methodology- Stata syntax- histogram ui, normal

Shri Ram College of Commerce Econometrics Project

Tests for CLRM Assumptions

1. Homoskedasticity- We had earlier assumed that the variance of the residuals is constant
(assumption of homoskedasticity). If the errors do not have a constant variance, they are said
to be heteroscedastic.
a. Breusch-Pagan and Cook-Weisberg test
Null Hypothesis(H0 )= The error variances are all equal(The model is homoscedastic)
Alternate Hypothesis(Ha )= Error variances are a multiplicative function of one or more
Variables(The model is not homoscedastic)
Methodology and Result- Stata syntax: estat hettest

Interpretation: p value (0.1330>0.05)- This implies that the null hypothesis that the
model is homoscedastic is not rejected. Therefore, we can conclude that the problem of
heteroskedasticity does not exist in the model.

b. White’s General test

Null Hypothesis(H0 )= The error variances are all equal(The model is homoscedastic)
Alternate Hypothesis(Ha )= Unrestricted heteroskedasticity is present in the model
Methodology and Result: Stata syntax- estat imtest

Interpretation: p value (0.6067>0.05)- This implies that the null hypothesis that the
model is homoscedastic is not rejected. Therefore, we can conclude that the problem of
heteroskedasticity does not exist in the model.

2. Autocorrelation- Autocorrelation represents the degree of similarity between a given time

series and a lagged version of itself over successive time intervals. Autocorrelation measures
the relationship between a variable's current value and its past values.
a. Durbin Watson test
N(number of observations)= 29
K(Number of variables)= 5
Computation of dU and dL using DW table
Shri Ram College of Commerce Econometrics Project

dU=0.855 , dL=1.611

Computation of D from stata- stata syntax: estat dwatson

Decision: Since the d value lies between dU and dL, we cannot draw any conclusion
about autocorrelation from the model. (Indecisive)

3. Multicollinearity- The model was formulated with the assumption that there is no
perfect multicollinearity- no linear relationship among the five explanatory variables
involved. The detection of the presence of and severity of multicollinearity gives a
quantitative measure of the statistical validity of the model.
a. Examination of R2 and t ratios:
R2 = 0.9340
Significant t ratios can be seen for Lending Interest Rate and Households and
NPISHs Final Consumption Expenditure, out of the total five explanatory
variables.
Shri Ram College of Commerce Econometrics Project

Interpretation: An R2 greater than 0.8 and few significant t ratios in the model
point towards presence of multicollinearity, however, it does not warrant it and
requires further testing.

b. Pairwise Correlation of Explanatory Variables:

Variable pairs with pairwise correlation greater than 0.8: TAX and LIR, TAX and
DCR; and DCR and NPHISH

Interpretation: There are 3 pairs of variables for which the value of pairwise
correlation exceeds 0.8. This implies that there is possibility of some serious
collinearity.

c. Partial Correlation:
Partial Correlation against TAX: Value of DCR’s partial correlation with TAX is
0.8420.

Partial Correlation against DCR: Highest value of partial correlations with DCR is
for TAX variable (0.8420), followed by NPISH (-0.5975).

Interpretation: This signifies linear relationship between TAX and DCR and DCR
and NPISH.
Shri Ram College of Commerce Econometrics Project

d. Variance Inflation Factor:

VIF values come out to be greater than 10 for TAX and DCR.

Interpretation: These high VIF values indicate that the variables are possibly
redundant. Because this implies that tax and DCR could be considered as a linear
combination of other independent variables. Hence, multicollinearity arises in
the model.

All the tests conducted for Multicollinearity point towards existence of a degree
of linear relationship among explanatory variables in the model.

4. Specification Bias: Specification bias occurs when a model is incorrectly specified

either by omitting important variables, or including irrelevant variables. This bias can
lead to inaccurate conclusions and estimates, as it distorts the true effect of the
variables of interest on the dependent variable.

Ramsey Reset test:

Null Hypothesis (H0) = The model has no omitted variables (there is no specification
bias)
Alternate Hypothesis (Ha) = The model has omitted variables
Methodology and Result: Stata syntax- estat ovtest

Interpretation: P value is 0.000 (<0.05). This results in the rejection of null hypothesis
that the model has no omitted variables. This implies that the model is potentially
fraught with specification bias.

Limitations and Potential areas of research

Further research could, for instance, examine the effect of social and cultural factors on the savings
behaviour of Indian households since these factors are known to influence financial decision-making
in society and also analyse how government policies such as tax incentives and subsidies affect
domestic savings in India since these policies are often used by policymakers to encourage
households and businesses to save. Hence, implying lack of inclusion of dummy variables in the
model.
Shri Ram College of Commerce Econometrics Project

It is also important to note that the present study has certain limitations that must be taken into
account when interpreting its results.

This study relies on a relatively simple regression model which may not have adequately captured
the full complexity of the relationship between the variables. Demographic factors and regional
variations in savings behaviour may also be important determinants of gross domestic savings that
have not been considered in the model and thus provide room for further research.

Statistical models also have some limitations, such as the problems of multicollinearity and
autocorrelation. These can distort the true relations between the variables, and such limitations
should be kept in mind while interpreting the results of these models and software.

Conclusion

This study has provided important insights into the major determinants of gross domestic savings, a
critical component for economic growth and stability. The regression and correlation analyses
revealed several key findings:

1. Inflation was found to have a statistically insignificant negative relationship with GDS (p-
value = 0.265). However, CPI holds importance for encouraging household savings. This
implies that the relationship between CPI and GDS is not linear and straight forward but
influenced by many other variables.

2. The relationship between lending interest rates and GDS was statistically significant (p-value
= 0.026) within the regression model, a strong negative correlation was observed. This
suggests that when interest rates are high, people tend to save more and spend less.

3. Domestic credit to the private sector by banks (as a % of GDP) exhibited a positive and
statistically insignificant relationship with GDS (p-value = 0.625). . This suggests that the
impact of domestic credit to private sector on savings decisions is much more complex and
may be influenced by other factors.

4. Household and NPISH final consumption expenditure had a highly significant negative
association with GDS (p-value = 0), underscoring the inherent trade-off between
consumption and savings.

5. The relationship between taxes on income, profits, and capital gains (as a % of revenue) and
GDS was not found to be statistically insignificant (p-value = 0.766), despite the observed
positive correlation.

“The curious task of economics is to demonstrate to men how little they know about what they
imagine they can design.”

~Friedrich August von Hayek

As Hayek aptly reminds us here, the complexity of economic systems means that policymakers and
speculators must exercise caution and humility when attempting to "design" optimal savings
Shri Ram College of Commerce Econometrics Project

outcomes. Unforeseen shocks, such as the COVID-19 pandemic, or escalating tensions between
countries and many more such scenarios can dramatically alter the savings and investments
landscape. Therefore, a balanced approach that accounts for both empirical insights and the inherent
unpredictability of economic forces over time is essential for crafting policies that can effectively
promote national savings and, ultimately, sustainable economic growth for India.

References

Horioka, C. Y., & Yin, T. (2009). Household savings rates and social benefit ratios: Country comparisons.
In Effects of Social Policy on Domestic Demand: Annual Conference (Vol. 2010, pp. 63-75).
Hussain, M., & Brookins, O. T. (2001). On the determinants of national saving: An extreme-bounds
analysis. Weltwirtschaftliches Archiv, 150-174.
Jappelli, T., & Pagano, M. (1994). Saving, growth, and liquidity constraints. The quarterly journal of
economics, 109(1), 83-109.
Loayza, N., Schmidt-Hebbel, K., & Servén, L. (2000). What drives private saving around the world? (Vol.
2309). World Bank Publications.
Masson, P. R., Bayoumi, T., & Samiei, H. (1998). International evidence on the determinants of private
saving. The World Bank Economic Review, 12(3), 483-501.
Sinha, D. (1996). Saving and economic growth in India.
Tang, C. F., Tan, E. C., & Chua, S. Y. (2020). What Drives Private Savings in Malaysia?. Emerging Markets
Finance and Trade, 56(2), 275-285.
Japelli, T., & Pagano, M. (1994). Saving. Growth, and Liquidity Constraints, Quarterly.
Khan, M. I., Khan, M. K., Rehan, M., & Abasimi, I. (2018). Determinants of Gross Domestic Saving: An
Evidence from Asian Countries. Economic Research, 2(10), 1-14.

Bibliography
https://www.ceicdata.com/en/indicator/india/gross-savings-rate
https://www.indiabudget.gov.in/economicsurvey/doc/stat/tab19.pdf
https://economictimes.indiatimes.com/definition/gross-domestic-saving
https://www.ceicdata.com/en/indicator/india/gross-savings-rate
https://databank.worldbank.org/ [data source]
Shri Ram College of Commerce Econometrics Project