Aspects of savings behavior in rural India

Household saving behavior in rural India is analyzed. Data demonstrated that household saving rates increased with the income level of the household. The marginal propensity to save out of transitory income was found to be higher than the propensity to save out of permanent income. The elasticity of savings with respect to permanent income is close to unity at subsistence levels, less than unity at intermediate levels, and increased to unity at high levels of permanent income. It has been generally believed that the propensity to save is higher out of agricultural incomes, compared to other income sources, since these incomes represent an entrepreneurial or investment effect. The Indian survey data, to the contrary, indicate that the entrepreneurial distinction for the farming population is improper since these households derive income from both capital and pure labor. Furthermore, the relationship observed by other researchers may be spurious since ratios of agricultural income tend to be positively related with levels of total income. A useful way to interpret different propensities to save is in terms of permanent and transitory components of the respective sources of income.