National saving

Saving is simply income left over after expenses. A country has 3 kinds of saver, so it has 3 kinds of saving.

Households save, and that is personal saving. Companies keep back profits they do not pay out, and that is corporate saving. Governments can save too, which is public saving — though in practice they usually run deficits instead.

Add the 3 together and you have national saving.

One more point, and the workbook is firm about it: saving is not the same thing as investing. Money set aside does nothing for the economy until it is channelled into productive use.

The 3 constituents. Section 5.3.2 works from the 3 groups the workbook has already named in the economy — individuals, corporates and government. Savings, "defined as income over expenses," are computed for all 3 separately: personal savings for individuals, corporate savings for corporates (their undistributed profits), and public savings for government.

The workbook adds a dry parenthesis on the last of these: public savings are "rarely there; governments generally run budget deficits."

The 2 groupings. Individuals and corporates may be clubbed together as private savings. And "economists arrive at National Saving by summing savings of these 3 constituents — personal, corporate, and public savings."

Saving is not investment. The workbook is explicit: "savings does not mean investment." Savings have to be channelled towards productive venues — given to corporates or government to invest and generate further earnings. When savings turn into investments they take the shape of a financial instrument: equity, bonds, government securities and others, which transfer funds from savers to the users who issue those securities.

What the conversion needs. Government and central bankers focus continuously on facilitating that conversion by building efficient and effective financial markets — the workbook names 6 features: a wide range of products, ease of conversion, simplicity in transactions, safety in dealing, low cost, and transparency in operations.

The verdict. "Higher levels of savings and higher conversion of those savings into investments are considered good for an economy."

On figures. Section 5.3.2 gives no numeric savings rate for India or anywhere else. The savings rate appears in 5.2 only as a name on the list of macro variables.

Illustrative — the workbook gives no figures for this section. An economy in one financial year.

Private savings = Rs 32 lakh crore + Rs 12 lakh crore = Rs 44,00,000 crore. National saving = Rs 44 lakh crore minus Rs 9 lakh crore = Rs 35,00,000 crore.

The negative public figure is the workbook's own point made arithmetically: a government running a deficit is a dis-saver, and it pulls national saving below private saving.

Now the second half of the section. Suppose Rs 6,00,000 crore of that household saving sits in gold and idle cash. It is saving by the definition — income over expenses — but it has not been channelled into equity, bonds or government securities, so it funds nothing. Only the remaining Rs 29,00,000 crore reaches issuers who can deploy it. That gap between saving and investment is precisely why the workbook says policy makers focus on the conversion and not just on the savings rate.

Chapter 5.3.2 (Savings and Investments) is short and definitional, which makes it a clean source of recall questions.

The 3 that come up are: which 3 constituents are summed to reach national saving; what the savings of each constituent are called; and the distinction between saving and investment, which the workbook states as a rule rather than an observation. The 6 features of an efficient financial market are also listable and therefore examinable. Note that 5.3.6 connects back to this — a government running a large fiscal deficit is the negative public-savings case, borrowing the private sector's savings and pushing interest rates up.

• This is national saving in the macroeconomic sense, not a savings product. It has nothing to do with the National Savings Certificate or any other small savings instrument — those are investments an individual buys, not an aggregate of an economy.
• Private savings is 2 constituents; national saving is 3. Personal plus corporate gives private; adding public gives national.
• Corporate savings means undistributed profits, not cash on the balance sheet.
• Public savings are usually negative. The workbook says governments generally run budget deficits, so assuming a positive public contribution is wrong.
• Saving is not investment. The workbook states this directly. Money in a locker is saving that finances nothing.
• Higher saving is good only if it converts. The workbook's verdict has 2 halves — higher savings and higher conversion into investments.