Dwindling Saving and Investment

WHATEVER be one's ideological persuasion, there can be no gainsaying the importance of rising domestic saving and investment for a developing country with massive unemployment and underemployment, such as India. The industrialised countries Which have attained the mass consumption stage can make do with stagnant domestic saving ratios and niggardly rise in domestic investment rates for long periods (with cyclical upswings and downswings). Continuing increases in consumption augment the size of their domestic markets, while continuous improvement in technology improves capital efficiency and helps to make do with relatively less investment They can also withstand the ebb and flow of foreign capital. As the experience of east and south-east Asian countries has shown, the developing countries, particularly when they embark on rapid industrialisation and accelerating economic growth, require rapidly growing rates of domestic saving and capital formation, apart from qualitative improvement in investment accompanied by technological upgradation. Almost all the newly-industrialising countries attained incremental saving to GDP ratios of more than one-third in their early phases of development. This reflected two key characteristics: first, dependence on foreign capital was to that extent minimised; and second, the process of industrialisation was not based on consumerism. For capital-scarce societies, these are almost as the sine qua non of development.