Raising the Rate of Savings

The Government can raise the rate of savings in the country by taxation, deficit financing and by borrowing from the banks and the public. In this way the low level of voluntary savings , which is due to low per capita income , can be raised by forced savings. The increased savings can be used for capital formation. It is wrong to say as is implied in the supply side of vicious circle , that since the under- developed countries are poor, it is not at all possible to increase their savings. In spite of low level of per capita incomes in such countries, there is still a great scope for increasing the rate of savings. There are extreme inequalities in the distribution of income and wealth. Per capita income is only an average income of the country. Actually there are many people whose incomes are far higher. For instance the capita income. But it is seen that in the under –developed countries. The rich people , who can make lot of savings, actually do not do so. They indulge in unproductive investments like jeweler, house building dissipate their resources in costly social ceremonies like marriages or other forms of conscious consumption. That is why the rate of productive investment in such countries is low. Arthur  Lewis, a specialist in economic developments, is of the opinion that the under developed countries are not so poor that they cannot save even 10 to 12 per cent of their income Financial resources can be mobilized by taxing the high income groups and the rate of investment can be raised thereby.