Demand, Supply and Savings Constraints in Indian Economy

Demand, Supply and Savings Constraints in Indian Economy Ashima Goyal This paper develops three model related criteria to classify the non-agricultural sector of the Indian economy as demand or supply constrained. The savings behaviour of the economy is then examined and related to these criteria. It is shown that while a short-run dynamic demand constraint held, a longer-run supply or resource constraint dampened investment demand in the late 60s and 70s. High public sector investment from the late 70s helped maintain favourable growth dynamics that has led to financial deepening and increased flow of resources to productive sectors, helping to relax the longer run resource constraint. This, in turn, may make possible innovative fiscal reform, including sale of public sector enterprises, to maintain high new public sector investment, until growth can become self-sustaining.