The authors caution, however, that the second option has adverse implications on the exchange rate, with effects counter to the export-driven development that India sees to achieve. Therefore, they reason that mobilising internal savings both by fiscal consolidation and efficient capital allocation by the intermediary banking sector is likely to yield robust saving rates to finance long-term growth.

“Insofar as the favourable demographic structure (that is, falling age-dependency ratio) will further buttress household saving rates, it is another positive variable in ensuring growth can be financed by indigenous capital.”

The book cites insightful statistics such as that Indian households invest just half of their savings in bank deposits, and that our banks lend only 61 per cent of their deposits, roughly half the G-7 average. And the remainder of bank deposits, around 33 per cent, gets channelled in Government securities, even as the corporate bond market is still nascent, at 2 per cent of GDP.

“Thus, further financial-sector reforms will increase the size of India’s financial system, which is so vital in ensuring that savings are allocated efficiently and quickly,” argue Guruswamy and Singh.

Interestingly, they find that India’s corporate and public-sector savings are considerably lower than the corresponding numbers in China, whereas Indian households save more than their Chinese counterparts. “In fact, there is a wide 15-18 percentage point difference between enterprise saving in China and private corporate saving in India, which accounts for bulk of the difference in the aggregate saving between the two countries.”

Recommended read.