Investment slowdown in India – an assessment

Sitikantha Pattanaik, Harendra Behera, Rajesh Kavediya and Arvind Shrivastava

Macroeconomics and Finance in Emerging Market Economies, 2022, vol. 15, issue 2, 109-124

Abstract: The contraction of investment activity in India in 2019-20 has generated an anxious search for possible drag factors, both cyclical and structural. This paper finds statistically significant sensitivity of investment activity in India to changes in interest rates. It highlights that the extent to which lower interest rates could be ensured through monetary policy to stimulate investment activity is bounded by constraints. Lower interest rates to spur investment activity that involves tolerance of higher inflation relative to the inflation target becomes particularly ineffective and counterproductive.

Date: 2022
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DOI: 10.1080/17520843.2020.1865650

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