Reviving Private Investment in India: Determinants and Policy Levers

Ajay Chhibber and Akshata Kalloor
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Akshata Kalloor: National Institute of Public Finance and Policy, New Delhi

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: Private investment has slumped in India and its revival is vital for accelerating India’s growth rate on a sustained basis. This paper analyzes the determinants of aggregate private investment and its components corporate and non-corporate private investment for the period 1980-81 to 2013- 14. This paper finds that the key determinants of private investment are the size of the public sector capital stock, the real effective exchange rate, the output gap and the availability of credit to the private sector. So, higher public investment would crowd-in more private investment. When we break it down further private corporate investment is significantly explained by the real exchange rate and the availability of credit to the private sector whereas for non-corporate investment public capital stock is the most significant variable- as it crowds in private investment. Real interest rate has no significant effects on investment.

Keywords: Private Investment; GDP growth; Public investment; Real Exchange rate; Credit to Private Sector; Non-performing loans (NPL’s); Fiscal Deficit; Public Sector Borrowing Requirement (search for similar items in EconPapers)
JEL-codes: C32 E22 E27 H54 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Reviving Private Investment in India: Determinants and Policy Levers (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2017-5

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