Disentangling India’s Investment Slowdown

Author/Editor: Rahul Anand ; Volodymyr Tulin
Publication Date: March 24, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 14/47
Subject(s): Investment | India | Interest rates | Economic policy | Economic models

Publication Date: March 24, 2014
ISBN/ISSN: 9781475531183/1018-5941 Format: Paper
Stock No: WPIEA2014047 Pages: 18
US$18.00 (Academic Rate:
US$18.00 )
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