Prof. K.S Chandrasekar
From the classical days, saving has been considered as one of the determinants of growth. In the Indian economy, the household sector contributes the lion’s share of the total savings. In the household sector, rural households have tremendous saving potential which has not been considered seriously by the policy makers and hence, measures have not been chartered to mobilise these huge savings.
Jammu and Kashmir is projected to grow at 7.06 per cent in real terms, while the nominal Gross State Domestic Product (GSDP) is expected to rise by 11.19 per cent in 2024-25, according to the Economic Survey Report (ESR) for 2025. The per capita income (PPP) of Jammu and Kashmir (J&K) for 2024-25 is estimated to be ?1, 54,703 below the national average but at the same time, it is found that the rate of savings is very high. There are various factors influencing the saving behaviour of the rural household sector in Jammu and Kashmir.
Level of income, income inequalities, value of assets and level of education of the head of the household positively influence savings whereas number of male children, number of earners and dependency ratio has an influence. Among the occupational groups, households engaged in non-farm sector have higher propensity to save. This fact is supported by studies highlighting lower labour productivity and investment rates in the agricultural sector compared to the non-farm sector.In the era of increasing international financial integration, the high saving potential in the rural household sector should be mobilised by proper policy measures to give stability to the economy. Identification of determinants of savings will help in framing policies accordingly.
As per Digit Insurance, a single person can live comfortably in India with an income of ?40,000 to ?50,000 per month. In Jammu and Kashmir, this would likely be more than sufficient to cover accommodation, food, transportation, and utilities with some leftover for other expenses.Cost of Living in Jammu itself is 18.0% lower than in Delhi (excluding rent) as per Numbeo. Aggregate savings in any economy depends on a number of interdependent variables. In the Indian economy, the household sector contributes a lion’s share of the total savings and hence, to step up savings in the economy, saving rate of the household sector should be stepped up both in the rural and urban sectors. In the Indian economy, rural sector is of great importance due to the limits set by this sector to the growth of other sectors. Since there is an assumption that the rural saving capacities are very low, the policy makers have not considered seriously about the mobilisation of savings from this sector. The Debt and Investment Surveys have shown that the rural households in India have made an average capital expenditure worth Rs.154 in 1961-62, which increased to Rs.1700 by 1991-92 to about Rs.8900 by 2018-19.
In J&K, in spite of lower per capita income, compared to other states, the rate of savings is very high. The share of investment in non-farm business has been greater in J&K. The act of saving is influenced by several variables like the perception of saving of those who save, their assessment of its costs and benefits, their age, family size and structure, objectives or motivations for saving, environment etc. Different rural households perceive saving differently. For some, saving is money reserved for future needs, whereas for some others it is surplus of income over expenditure and for still others it is purchase of land, construction of buildings, consumer durables or other household goods. When saving is perceived as money reserved for future needs it implies a deliberate decision behind saving, rather than being a residue. This deliberate decision on the part of the households to save for meeting the future needs depend on many factors namely, the determinants of saving which includes the factors that affect both the ability to save and the will to save.Demographic factors like dependency ratios, age of the head of the household, size of the family, number of male and female children in the family influence the household savings either through their impact on the ability to save or through their impact on the will to save.
High birth rates and dependency ratios particularly in the case of underdeveloped countries, may entail a sub optimal allocation of resources due to physiological and institutional rigidities. That is, children are born to parents who might prefer not to have them born, but, who are thereafter committed to supporting them. These dependents absorb a large portion of the resources potentially available for increasing the stock of physical and human capital. As per Leff, dependency ratio has a negative effect on the savings of the households. Friedman has suggested that birth rates should be inversely related with a country’s saving potential.The inverse relation between savings and dependency ratios is because children increase the need for expenditure which is considered as consumption expenditure in the standard income accounting framework. Hence a high dependency ratio imposes a constraint on the society’s potential for savings. This hypothesised link between high dependency ratios and low savings is direct. But this does not mean that larger families save less than smaller families
In India, female children are considered as big burden, by the households. The savings of the households are supposed to be positively related to the number of female children. But the number of male children in the household is likely to have a negative effect on the saving of the household. This is because male children serve the function of an economic asset or are regarded as such. Households with more male children are likely to have a lower demand for other forms of wealth. Male children look forward to higher rates of labour force participation and higher lifetime earnings while females require huge expenditure for marriages and related activities. Male children are expected to support parents in old age. They can be regarded as long term assets which, to some degree, might satisfy the household desires for wealth accumulation. This substitution effect is likely to be stronger for households with older heads, who might more nearly depend on grown sons for support; also, for lower income households, with lesser opportunity for investment in alternative assets. As per Sample Registration System (SRS) data from 2018-20, the sex ratio at birth in Jammu and Kashmir has risen to 921 females per 1,000 males, up from 918 in 2017-19. In 2023-2024, Jammu and Kashmir’s rural areas had a child sex ratio of 976 females per 1000 males. indiaGraphy.com says the rural sex ratio was 910/1000, while the urban sex ratio was 847/1000. This means there were more girls than boys in the child population in rural areas of Jammu and Kashmir. Though modest, this trend indicates a gradual shift in both societal and healthcare-related attitudes towards the girl child.
The occupation of the head of the household is a factor affecting the saving differentials between households. Occupation has proved to be a good classificatory variable for estimating permanent income. In fact, households do not consider the source from which income comes when it is taken for consumption decisions. In traditional analysis, income is divided on the basis of occupation into two sources namely profit and wages. Profits and marginal saving rates may be positively correlated with levels of permanent income. Self-employed households, whether in non-farming or in farming, save a higher fraction of income than the wage earners. The saving income ratio of salary earning group is on a par with that for the self-employed.The ability to save of a household depends on the income of the household and income is considered as the most important explanatory variable of the savings of the household. In theory, income is conceived differently by different theories namely, absolute income, permanent income, relative income and life cycle income. These different concepts give different explanations for consumption behaviour of households and thus to the saving behaviour. The lower income groups are likely to be at the biological or social minimum level of consumption. People near subsistence level of consumption will have lower average saving rates than richer people as the share of their income available for consumption is lesser. The Economic survey indicated that J&K wasestimated to achieve a compound annual growth rate of 4.89% in its real Gross State Domestic Product (GSDP) from 2019-20 to 2024-25 in comparison to 4.81% growth rate recorded from 2011-12 to 2019-20.It is also predicted that the real GSDP of J&K is expected to grow at 7.06% and the nominal GSDP was expected to grow at 11.19% in 2024-25. The distribution of income is an important determinant of saving. If saving propensities differ among households, aggregate saving will vary depending on how income is distributed among households. Over the years family budget data have shown that saving income ratios of upper income groups are higher than those of lower income groups implying that an unequal distribution of income promotes savings. Wealth has been thought of as a key determinant of consumption or saving as permanent income is assumed as a stream of income from total wealth. The ascendance of the permanent income and life cycle theories, has given additional theoretical support to this idea. For any economic unit, wealth reflects the net result of accumulated savings, revaluation of assets and capital transfer ever since the unit came into existence. Assets are accumulated to spread income over time. The desired level of assets is a direct function of permanent income and is acquired only over a fairly long period of time. The propensity to save in the rural household sector in J&K in spite of low per capita income is very high. Saving is deeply embedded in the rural culture of J&K, with a strong emphasis on planning for the future, especially for events like weddings, education, and healthcare.Traditional practices like community-based savings and pooling resources further encourage savings behaviour and are continuing. As this agrarian economy, they face economic vulnerabilities due to factors like climate change, fluctuating market prices, and the impact of natural disasters, which further motivate them to save and the impending need to save to invest in agricultural inputs like seeds, fertilizers, and equipment.
In addition the various social security schemes proposed by the government agencies, it easier for rural households to save and access credit when needed. That is why even with limited income, rural households prioritize saving a portion of their earnings for future needs, potentially due to various factors like a strong culture of saving, the need to invest in agricultural assets, or the influence of social norms and continue to propel the economy and emerge stronger in spite of the aggression by the neighbour and resolve to grow further.
(The author is Vice Chancellor, Cluster University of Jammu)
