Financial Sector Liberalization and Household Savings in India

Abstract

This paper examines the impact of financial sector liberalization measures on household sector saving rate in India by constructing a continuos time series financial sector liberalization index. The impact of the index, along with the other determinants of household sector savings in India are estimated using a general model. The results suggest a significant negative impact of the index on household saving rate, which gives an indication of the increased credit availability due to financial sector liberalization leading to increased consumption rather than savings. Among the other determinants, absolute income is the major significant and positive determinant of household sector saving rate in India in the period of study.

Keywords: Financial sector, Liberalisation, Household savings, financial sector liberalisation index, savings rate