Data and Definitions: Underestimating Savings and Investment in an Open Economy

This note clarifies definitions and derives from first principles the relationship between
investment, domestic and foreign savings in order to show that there is underestimation of
investment and foreign savings given conceptual macroeconomic definitions and Indian
practice. Indian national accounts report and use gross domestic savings but the measure of
capital inflows used with it is the one appropriate for gross national savings. The degree of
underestimation is shown using recent data and implications drawn from the errors.