Research on rural savings in India

Abstract

Rural savings are determined by both "ability" and "incentives" to save. All except two studies reviewed emphasize "ability," though some qualitatively analyse "incentives." This relative neglect is justified when the positive substitution effect of the "incentives" is off-set by its negative income effect. Such "total" effect does not necessarily arise. "Incentives" variable can be incorporated in both cross-sectional and time-series models, as shown in the two exceptions. Past time-series estimates of rural savings are characterized by reporting, measurement, and analytical weaknesses. Some of these lead to underestimation of these savings. This, however, does not mean that all of the additional savings are mobilizable by the financial institutions. This is because rural households hold their savings in monetized as well as non-monetized forms. Moreover, some of the monetized savings are held in the form of physical assets. Thus, only those monetized savings which are invested in financial assets of the informal rural financial market (RFM) can be considered as potentially mobilizable by the financial agencies. Institutionalization of such savings would improve their efficiency by promoting better allocation among different areas, sectors, economic activities, and also to entrepreneurs. To identify appropriate policies, further literature may be developed by promoting and researching programmes with better rates of return on financial savings, besides those with opportunities to transact other businesses.