Long Run Saving - Investment Relationship in India.

This paper revisits the Feldstein-Horioka puzzle for the Indian economy. Unlike the observed weakening of the association between saving-investment rates before the global financial crisis of 2008-09, the post-crisis period has witnessed a relatively stronger correlation between them. This outcome has implications in terms of the role of domestic saving in financing the investment requirement of the economy. The study finds that frictions in global financial markets, which manifest in the form of periodic financial crises, trigger shifts in saving-investment relationship. Besides raising the saving rate in the economy, it is also important to enhance the efficiency of the domestic financial system to improve allocation of resources and channelise savings for capital formation. [ABSTRACT FROM AUTHOR]