How Fiscal Policy Matters: An Empirical Analysis of the "Crowding-In" Effects of Public Infrastructure Investment in India

Venkat Hariharan Asha, Ajay Ojha, Sutharson T and Lekha S. Chakraborty

Economics Working Paper Archive from Levy Economics Institute

Abstract: Using high-frequency data, the paper analyzes the link between public infrastructure investment and private corporate investment in India for the decade ending 2023-24. We adopt the ARDL model to investigate the existence of cointegration and find strong evidence of the crowding-in of private corporate investment both in the long- and short-run analyses. Moreover, long-term real interest rates and foreign direct investment provide higher estimates of crowding-in vis-a-vis short-term real interest rates and foreign portfolio investment, which underscore greater emphasis on systemic and fundamental factors (as compared to transitory factors) and the effectiveness of monetary policy. The recent thrust on deregulation and sustained enhancement in capital expenditure augur well in providing the necessary ambience to boost private investment and economic growth in the medium term.

Keywords: Public Infrastructure Investment; Private Corporate Investment; Crowding-in effects; fiscal policy (search for similar items in EconPapers)
JEL-codes: C32 E62 H6 (search for similar items in EconPapers)
Date: 2025-10
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