IMF paper sees lower inflation boosting Indian savings

A sustained reduction in inflation in India will help increase household and corporate savings – one of five key areas of policy action needed to return India to a higher growth path, according to research published by the IMF today.

The working paper, Pressing the Indian growth accelerator: policy imperatives, by Rakesh Mohan and Muneesh Kapur, seeks to "demonstrate that [a] return to a sustained high growth path is well within the realms of feasibility for India", but will require "sustained policy efforts".

One area for action the paper identifies is an increase in private savings, something the authors believe can be achieved by reining in inflation, which the Reserve Bank of India is now mandated to do.

"A sustained reduction in inflation that leads to the maintenance of low nominal interest rates, but positive real interest rates, will help in restoring corporate profitability, while encouraging household savings towards financial instruments," the paper says.