Savings is the difference between Income and Expenditure. A high level of savings helps the economy to progress on a continuous growth path since Investment is mainly financed out of savings. Given the importance of savings there have been extensive studies on the behavioral and other factors, which influence savings. Savings is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan saving also includes reducing expenditures, such as recurring costs.In terms of personal finance, saving specifies low-risk preservation of money, as in a account, versus investment, wherein risk is higher. Saving represents the excess of current income over current expenditure and it is the balancing item of the income and expenditure accounts and use of disposable income account of producing enterprises and households, government administration and other final consumers. For preparation of the estimates of domestic saving, the economy has been divided into three broad institutional sectors, which are:- 1.Public Sector 2. Private Corporate sector 3. Household Sector. The Former Patterns of Indian Household Savings Gross Domestic Savings in India has shown a steady and substantial rise from the 1950s along with the rise in income. As per Indian National Accounts, Gross Domestic Savings includes current transfers from Indian emigrants and net factor income from abroad. The overall savings period in India is roughly divided into five phases based on the careful identification of the distinctive phases starting from the year 1950.The household sector which is comprised of the pure households, non corporate enterprises in agriculture, trade and industry and private non profit making trusts, has retained a high savings rate in comparison to public sector savings and private corporate sector savings in all the phases. The savings rate overall and the household savings rate took a sharp upturn in the 1970s, marginally increased thereafter, and then again took an upturn from the 1980s. A thought suggests that the rapid expansion of banks, after their nationalization in 1969, ontributed to increased savings of people by lowering the transaction costs of saving. Another contributing factor was the remittances from the Indian expatriates from the Gulf countries. Moreover, the Green Revolution in the late 1960s substantially contributed to increase in rural incomes. The second expansion from the mid 1980s to present can be attributed to the Economic Reforms initiated in 1985 and thereafter accentuated from 1991. 1984-85 to 1995-96 was a remarkable phase of growth of the Indian economy.The jump in savings rate only substantiated the hypotheses that, economic liberalization did promote savings through economic growth. Factors Affecting The Indian Household Savings The Keynesian theory explains that the prime determinant of saving is income that has withstood the test of time, while empirical evidence does not corroborate the ability of other variables like interest rates, inflation and tax rates to influence savings. A. Income Gross Domestic Savings in India has shown a steady and substantial rise from the 1950s along with the rise in income (GDP).There is a correlation between the rise in income and the rise in national savings. This proves that the Keynesian theory of income being the primary determinant of saving holds true in India also. Moreover, it was permanent income, which was the critical determining factor rather than transitory income. In the initial stages of development, the level of income is an important determinant of the capacity to save. B. Economic Liberalization GDP Growth and Savings Rate Economic liberalization measures initiated in mid 1980s (accentuated from 1991) had contributed to GDP growth rate (average growth rate 5. %) and the savings rate (17%),we observe that the GDP has continued to rise, albeit at a fluctuating rate, but the savings rate has continued to rise regularly, without any fluctuations. This only enforces the fact that income is the prime determinant of savings and Economic liberalization helps to raise savings by raising income. In fact from independence to mid 1980s the Indian economy was characterized by a slow growth rate of 3. 5% p. a. which changed from the mid 1980s. C. Interest ratesFinancial liberalization initiated in the 1980s gathered momentum after 1991. Presently, all interest rates, except those on all small savings schemes of Post Office, Provident funds, Government of India Bonds and schemes for Senior Citizens (the instruments with sovereign guarantee), are market determined. In post 1991 period there has been a steady decline in the interest rates in the economy. But overall household savings increased from 17% of GDP in the 1980s to 25. 5% of GDP in 2002-03 and 26. 6% of GDP in 2003-04.The transformation from an inefficient and sheltered economy to an efficient and a market determined economy have made people more insecure and prompted them to accumulate savings to guard against future job losses, giving limited importance to interest rates. The insecurity prompted to increase the savings rate. Another fact considered by retired people who were pensioners was that since interest rates had gone down to maintain the same income flow they had increased the volume of savings, to the extent possible So it can be concluded that interest rates do not influence savings much. D. Tax incentivesThe Government of India, till March 2005, offered tax incentives. All these tax rebates were available from instruments backed up by State Guarantee, barring ICICI Bank. People invested heavily in these instruments because of the double benefits of tax. The funds raised from these instruments continued to feed the Deficit of the Government of India. The underlying logic behind all these changes is to make it compulsory for people to arrange for their own retirement needs (which the bankrupt exchequer cannot provide) in line with the global trends and gently nudge people towards the Stock Market.The Composition of Indian Household Savings In the post independence era, Indian financial system was characterized by poor infrastructure and low level of financial deepening. Savings in physical assets constituted the largest portion of the savings compared to the financial assets in the initial years of the planning periods. While rural households were keen on acquiring farm assets, the portfolio of urban households constituted consumer durables, gold, jewelry and house property. Strengthening of the cooperative credit institutions, taking over of the banks associated with the former princely states and transferring them into he public sector (1954), strengthening and consolidation of the banking system in India (1950s and 1960s), nationalization of the insurance companies, establishment of Unit Trust of India , major term lending institutions for agriculture and industry (1964) and nationalization of the major scheduled commercial banks (1969/1970) in India, had a cumulative effect in raising the financial savings in the country (RBI, 1998). The household financial assets include broadly currency, deposits, net claims on government, share and debentures, insurance, pension funds and provident fund.The share of financial saving in the total saving increased from 23. 7 per cent in early seventies to 44. 5 per cent in late nineties. During the same period, there has been a downward drift in the share of physical saving from 48. 4 per cent to 33. 3 per cent, which resulted in a corresponding rise in the share of financial saving from 51. 6 per cent to 66. 7 per cent. Within household sector, bank deposits turned out to be the most popular abode of saving, whose share improved from a 8. 1 per cent in early seventies to 16. per cent in late nineties. During the same period the share of shares and debentures also increased from just 0. 8 per cent to 3. 9 per cent in late nineties. Similarly, the share of contractual savings increased during the same period from 10. 3 per cent to 14. 5 per cent of the total gross domestic saving. An instrument like deposits has been a preferred instrument largely by fixed income households since the three types of deposits, current, saving and fixed deposits combine the various advantages of liquidity as well as returns.In the recent years, with the development of capital market, there has been an increasing preference by households for saving in market-related instruments, such as equity or shares. Such instruments offer the possibility of higher returns, however, with an element of risk attached to it. More importantly, claims on Government, which comprise Government bonds and small savings, such as saving in National Saving Certificates (NSC) have emerged as the most secure or safest instrument by households given the state backing to these instruments.Contribution Of Household Savings In Securities Market The share of financial savings of the household sector in securities (shares, debentures, public sector bonds and units of UTI and other mutual funds and government securities) is estimated to have gone down from 22. 9% in 1991-92 to 3. 9% in 1997-98, which increased marginally to 4. 3% in 1998-99. The disenchantment of household sector with securities is confirmed by the SEBI-NCAER survey, which found that only 2. 8% of investment of all households were in securities (1. 4% in equity shares, 1. % in mutual funds and 0. 4% in debentures), while the remaining 97% in non-securities, indicating low priority of investor for securities. Despite the expansion of the securities market, a very small percentage of households savings is channelised into the securities market. What worries further is the intention revealed in the survey that majority of existing shareholders are unlikely to invest in the securities market in the next year. 56% of urban and 72% of rural households are unlikely to make fresh investments in equity shares.This trend indicates lack of confidence by the existing investors in the securities market. Though there was a major shift in the saving pattern of the household sector from physical assets to financial assets and within financial assets, from bank deposits to securities, the trend got reversed in the recent past due to high real interest rates, prolonged subdued conditions in the secondary market, lack of confidence by the issuers in the success of issue process as well as of investors in the credibility of the issuers and the systems and poor performance of mutual funds.The lack of awareness about securities market and absence of a dependable infrastructure and distribution network coupled with aversion to risk inhibited non-investor households from investing in the securities market. The fall in private savings after 2001 was mostly a result of the decline in macroeconomic vulnerabilities- While the economy was growing fast, the positive impact of income growth on savings was overridden by an acceleration of private consumption stimulated by the increased availability of credit, fall in interest rates and previously postponed consumption.As the economy normalized and interest rates and inflation declined, so did household precautionary motives for saving. Eventually, however, continued economic stability and implementation of reforms discussed below should encourage saving by raising incomes. Considerable amount of savings are kept “under the mattress”, mostly in the form of gold- Informal instruments of saving include gold, cash and foreign currency, as well as loans to family/friends and businesses.The micro level data shows that about 30 percent of households have bought gold, jewelry or watches in the past year. Participants of focus groups also declared to have a significant amount of saving, mostly in the form of gold, “under the mattress”, which does not enter the banking system and thus affects the financial market. Now, Policies have started to stimulate savings and to attract savings into the financial sector.