Directions (Q.No.1 - 10): Read the following passage carefully and answer the given questions. Certain words are given in bold to help you to locate them while answering some of the questions.
Gross Domestic Saving (GDS) plays a vital role in the economic growth of a country as it facilitates to provide requisite financial resources to undertake various developmental and welfare programmes. A high level of savings helps the economy progress on a continuous growth path as the savings are the source for investment. GDS is one of the most important economic indicators to measure financial regulation and soundness of the country. Absence of required savings rate may lead to external dependence, which may jeopardise the interests of the Nation. Savings habit is an in built culture of the Indian system and it has been growing consistently from 10% in 1950 to 33.70% in 2010, which is one of the highest globally. It is interesting to note that while savings rate is on the increase, marginal decline is observed under household sector i.e. 72% to 70% during 1950 to 2010. Corporate sector witnessed increase from 10% to 24% while the share of public sector has come down to 6% from 18% during the said period.
Despite the fact that the household savings have been gradually moving from physical assets to financial assets over the years, 49.79% of household savings are still wrapped in physical assets. Hence desired capital formation has not been taking place, which is a matter of serious concern. Unlocking physical assets is the need of the hour as substantial scarce financial resources are blocked in unproductive assets such as gold and real estate at a time when the country is in dire need of funds to channelize into productive sectors to achieve desired GDP and economic growth. Normally, the public keeps a portion of its savings in the form of currency to meet its day-to-day emergency requirements and the balance of savings will be held in the forms of investments. The last decade of increased adoption of debit and credit cards and electronic payments expected significant shift in currency holdings. Contrary to the expectations, the currency holding with public has increased from 10.60% in 1990 to 13.30% in 2011 which calls for a detailed debate. The major reasons for high currency holdings may be on account of increased economic activity with limited access to banking - 5.66 lakh unbanked villages coupled with hoarding of unaccounted money in the form of cash to circumvent tax laws.
Historically, bank deposits seemed to be the preferred choice as these have inbuilt safety, security and liquidity features. Traditionally, the Household sector has been playing a leading role in the landscape of bank deposits followed by Corporate and Government sectors. However, Household sector lost a share of 13.60% while Corporate and Government sectors gained by 8.60% and 6.70% respectively during the last two decades. This calls for in-depth analysis as it is an indication of skewed distribution of income across various segments.