Disentangling India’s Investment Slowdown

Rahul Anand and Volodymyr Tulin

No 2014/047, IMF Working Papers from International Monetary Fund

Abstract: This paper documents the recent slowdown in investment in India and explores its underlying causes. The sharp investment deceleration has sparked an intense debate about the role of interest rates, as well as business confidence and economic policy uncertainty. Our results suggest that while explaining aggregate investment activity better than nominal interest rates, real interest rates account for only one quarter of the explained investment downturn. In addition, standard macro-financial variables do not fully explain the recent investment slump. Using a new measure of economic policy uncertainty, the results suggest that heightened uncertainty and deteriorating business confidence have played a key role in the recent investment slowdown.

Keywords: WP; investment; real interest rate; nominal interest rate; prime lending rate; investment slowdown; Investments; India; Policy Uncertainty; inflation expectation; investment activity; investment project; investment outlook; activity growth; Real interest rates; Inflation; Gross fixed investment; Prime rates; Corporate investment; Global (search for similar items in EconPapers)
Pages: 18
Date: 2014-03-24
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Citations: View citations in EconPapers (2)

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