Investment and growth in India under liberalization: Asymmetries and Instabilities

Surajit Mazumdar ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper makes the case that the growth trajectory of the Indian economy in the post-1991 liberalization period is characterised by an inherent source of instability in manufacturing and industrial growth that distinguishes this period from the 1980s. This instability is a result of an investment-growth asymmetry that flows from a combination of a services-intensive growth pattern and a manufacturing-intensive investment pattern. These in turn reflect the pattern of demand expansion within the domestic economy as well as in external markets and also the reliance on private corporate investment as the driver of the economy’s investment process. In such ircumstances, the maintaining of the balance between capacity creation and demand expansion in the manufacturing sector becomes impossible. Investment is thus prone to a high degree of instability, which through its effects on demand, also makes industrial growth highly unstable. The services-intensive growth trajectory after 1991 is, therefore, more correctly viewed as one which is unable to fully utilize the capital accumulation potential of the economy rather than as a trajectory cheap in the use of capital. Correcting this problem however requires measures that are inconsistent with a liberalized economic policy regime.

Keywords: investment; growth; India; liberalization (search for similar items in EconPapers)
JEL-codes: E32 O11 O53 (search for similar items in EconPapers)
Date: 2008-03
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Citations: View citations in EconPapers (10)

Published in Economic and Political Weekly No. 49.XLIII(2008): pp. 68-77

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