The current trend could pose risks to future capital formation and macroeconomic resilience...

 Saving is a cornerstone of economic development, serving as the essential fuel for capital formation (investment). Capital formation, in turn, drives productivity, job creation, and long-term economic growth. In India, gross domestic savings are typically composed of contributions from the household sector, the private corporate sector, and the public sector (government). A high savings rate generally leads to a high investment rate, reducing dependence on foreign capital and fostering self-sustained growth. Analyzing the trends during the UPA (2004-2014) and NDA (2014-2025) eras reveals distinct patterns in India's savings landscape and their impact on capital formation.

Savings and Capital Formation: 2004-2014 (UPA Government)

The period from 2004 to 2014, under the UPA government, was characterized by a buoyant trend in the aggregate savings rate, especially during the first five years (2004-2009).

Peak Savings Rate: India's gross domestic saving rate reached a historic peak of 37.7% of GDP in 2007-08. The aggregate savings rate consistently remained high, often exceeding 34% until 2011-12.

Component Contributions:

Household Savings: Remained relatively stable and were the most prominent component, averaging around 23-24% of GDP.

Private Corporate Savings: Showed a significant upsurge, nearly doubling from about 4.6% of GDP in 2004 to 9.4% in 2008, driven by a "Capex boom".

Public Sector Savings: Showed a remarkable turnaround, moving from negative to positive territory from 2003-04 onwards, contributing positively to the overall high rate.

Capital Formation: The high savings rate facilitated a corresponding increase in investment (gross capital formation), which also peaked at around 37-38% of GDP during this period. This high investment was primarily driven by the private sector, specifically the private corporate sector, which saw substantial increases in its share of capital formation.

Savings and Capital Formation: 2014-2025 (NDA Government)

The period from 2014 to 2025, under the current NDA government, has witnessed a noticeable decline and stagnation in the national savings rate compared to the peak years of the UPA era.

Declining Aggregate Savings: The gross domestic savings rate fell from a high of 34.6% in 2011-12 to approximately 30.7% in FY24 (and as low as 29.7% in FY23, a near four-decade low).

Component Shifts:

Household Savings: The most significant change has been the steep decline in household savings, particularly financial savings. Household financial savings as a percentage of GDP dropped from 11.5% in FY21 to 5.1% in FY23, while physical savings increased, suggesting a shift in portfolio allocation.

Rising Household Debt: Concurrently, household liabilities have risen significantly, reaching near 17-year highs (6.4% of GDP in FY24), partly due to increased borrowing for consumption, housing, and education.

Public Sector Capital Formation: While household savings dipped, the current government has focused on increasing public sector capital formation, with the public sector's gross fixed capital formation increasing substantially, from ₹6.4 lakh crore in 2011-12 to significant higher figures in recent years. Market borrowings surged to finance increased government expenditure, including capital formation.

High levels of domestic savings are crucial for sustainable, long-term, self-financed economic growth. The current government's performance on fostering a high national savings rate, a key source for capital formation, has attracted criticism. The primary criticism is the significant drop in the household savings rate, which traditionally forms the bedrock of India's savings pool. Critics argue that government policies and macroeconomic factors have eroded the ability and incentive for households to save. High inflation has eroded real incomes, reducing disposable income available for saving. Low real interest rates on traditional financial instruments like bank deposits have made them less attractive, pushing households towards physical assets or consumption. Some economists point to the "twin shocks" of demonetization and the initial implementation of the Goods and Services Tax (GST) as factors that particularly impacted the unregistered micro, small, and medium enterprises (part of the household sector), potentially hindering their savings capacity. The rising household liabilities are seen by some as a potential risk of a debt-driven consumption bubble, which is a less stable foundation for growth than savings-led investment. While the government has boosted public capital expenditure, the overall decline in the aggregate savings rate, largely driven by household behavior, remains a major concern for policymakers aspiring to achieve higher sustained growth rates without excessive dependence on external financing.