Private investment slowdown in India: an empirical assessment

Ashwani Bishnoi and Sweety Garg

International Journal of Economic Policy in Emerging Economies, 2022, vol. 15, issue 1, 70-85

Abstract: Theoretically, it is well documented that investment plays an essential role in the growth generating process of an economy. Recently, India has experienced a slowdown in investment rate and, the same has invited considerable interests of policymakers in reviving the investment for sustained long-run growth. The present study is an attempt to empirically identify the possible factors causing the slowdown in investment rates of India. For this purpose the study utilised a co-integration approach for a wide range of data spanning from 1981 to 2015. It is found that there is a long-run equilibrium relationship between private investment and economic variables such as market size, infrastructure development, banking soundness, external sector performance and public investment. The study finds that the high interest rate, slowdown in bank credit, fluctuating exchange rate and low quality infrastructure seem to lower the investment rate in India. Moreover, the rising public investment is found to have a crowding-out effect may be due to increased pressure on interest rates and limiting the access of financial resources for private investment.

Keywords: private investment; co-integration; ECM; infrastructure; banking; external sector; demand; equilibrium; granger-causality; India. (search for similar items in EconPapers)
Date: 2022
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