“The mobilisation of resources in India is constrained less by the availability of savings than by their efficient channelling into productive investment.” Critically examine.

Resource mobilisation is essential for sustaining investment-led economic growth. While India generates substantial domestic savings through households, corporates and the public sector, the greater challenge lies in ensuring that these savings are efficiently channelled towards productive investments that enhance capital formation.

• Savings diverted to speculation: The Economic Survey 2024-25 cautions against excessive financialisaton, where household savings flow into speculative activity rather than productive investment, seen in the derivatives market where nearly 90% of individual traders lost money in FY25, about 1.06 lakh crore in aggregate.

India is the world's leading IPO market, reaching a record 1.6 lakh crore in FY26, yet around 58% of proceeds came through Offer for Sale, existing shareholders exiting rather than firms raising fresh capital, so the market is not translating into investment or employment.

• A shallow debt market: The corporate bond market is only about 15 to 18% of GDP against around 80% in South Korea, so long term savings are not efficiently intermediated into long term investment, leaving firms bank dependent.
• Foreign investment poorly channelled: Even foreign capital increasingly comes as short horizon private equity and venture capital, up from 12.2% of FDI in 2009-10 to 75.9% in 2020-21, which buys existing assets rather than creating new capacity, so the challenge is quality of channelling, not just quantity of inflow.
• Volatile Portfolio Capital: Heavy dependence on Foreign Portfolio Investment (FPI) exposes financial markets to external shocks instead of providing stable long-term finance.

But the availability of savings is also under strain

• The savings base itself weakened: Net household financial savings fell to a five decade low of about 5.3% of GDP in 2022-23, and the household sector supplies about 65% of gross domestic savings, so the pool available to channel had itself shrunk.
• Weak corporate and public savings: A small formal corporate base and rising government revenue expenditure keep corporate and public savings low, constraining the total.

Way Forward

• Deepen the corporate bond market and broaden the investor base.

Channel household savings towards long-term financial instruments.

Curb excessive speculative activity through prudent regulation.

Encourage greenfield investments and productive capital formation.

Strengthen financial intermediation and improve the efficiency of capital markets.

While strengthening domestic savings remains important, India's more pressing challenge is to ensure that available savings are efficiently intermediated into productive sectors. A deeper, more diversified and well-regulated financial system is essential to convert savings into sustainable investment, employment and long-term economic growth.