Exploring the Causal and Co integration relationship between Savings, Capital Formation and Economic Growth in India – An Empirical Analysis Pujari Sudharsana Reddy Research Scholar, Department of Commerce, Sri Venkateswara University, Tirupati, Andhra Pradesh Dr. Mamilla Rajasekhar Research Guide, Department of Commerce, Sri Venkateswara University, Tirupati. Andhra Pradesh Dr. Muthu Gopalakrishnan Associate Professor, Department of Commerce, Christ University, Bangalore ABSTRACT There is a lot of discussion on the factors which influences the growth rate of an economy over the past few years. Theoretically, economists propounded that domestic savings as one of the vital factors for rapid economic development of a nation. Empirically, it is proved in some of the countries that domestic savings is the prime engine for the robust growth of the economy. Lot of research work has been done on the role of gross domestic savings in the economic growth of India in the past, but the results are ambiguous and confusing. That motivated to undertake the present research study to understand whether there is any role for domestic savings in the economic development in India or not. If there is a relationship, what would be nature and strength of that relationship? Whether domestic savings causes the growth rate or growth rates causes the domestic savings. These are the fundamental questions to be examined. After conducting statistical analysis, it is clearly proved that there is a bidirectional relationship between gross domestic savings and gross domestic product in the short run, and there is long run co integration relationship between these variables also. But when it comes to capital formation and gross domestic product, a bidirectional relationship existed, but lacked long run co integration relationship. The period of the data is from 1950-51to 2017-18. Keywords: Domestic Savings, Capital Formation, Economic Growth, Co integration 1. INTRODUCTION Since the beginning of the 1990’s most of the developing economies has been focusing on the ways to enhance the growth rate of the economy, India is not enough among the countries. There is a lot of debate and research on the economic development of the nation since then. The researchers and policy makers finally came to the conclusion that three major factors which will become the engine for the growth of the economy, they are domestic savings, capital formation and foreign capital. In the initial growth stage, any economy ought to rely on domestic capital for a reasonable period. If the economy is sustained in terms of economic development, then foreign capital will come and supplement to the domestic savings. Both will create capital formation. We can say that, higher the savings, higher will be the investment in terms of capital formation and that leads to higher growth rate in the economy. Hence, the pillar for the economic development of any nation is domestic savings, that will be transformed into investment (capital formation) and that gives ignition to the economic growth to any economy. Theoretically, it is supported by Neoclassical economists Harrod (1939), Domar (1946), Solow – Sown (1956), Ramsey (1928), Cass (1965) and Koopmans (1965), Frankel (1962), Romer (1986) laid emphasis on domestic savings, capital formation and foreign capital which play a central role in the progress of the economy. All the Neoclassical economists strongly supported domestic savings as the pivot of economic growth for any economy during the initial stage that will be converted into capital formation like fixed assets of the nation. These Journal of Xi'an University of Architecture & Technology Volume XI, Issue XII, 2019 ISSN No : 1006-7930 Page No: 1844