Disentangling India’s Investment Slowdown
March 24, 2014
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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.
Subject: Corporate investment, Financial services, Gross fixed investment, Inflation, National accounts, Prices, Prime rates, Real interest rates
Keywords: activity growth, Corporate investment, Global, Gross fixed investment, India, Inflation, inflation expectation, investment, investment activity, investment outlook, investment project, investment slowdown, Investments, nominal interest rate, Policy Uncertainty, prime lending rate, Prime rates, real interest rate, Real interest rates, WP
Pages:
18
Volume:
2014
DOI:
Issue:
047
Series:
Working Paper No. 2014/047
Stock No:
WPIEA2014047
ISBN:
9781475531183
ISSN:
1018-5941
