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Reviving Private Investment in India: Determinants and Policy Levers


  • Ajay Chhibber

    (George Washington University)

  • Akshata Kalloor

    (National Institute of Public Finance and Policy, New Delhi)


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.

Suggested Citation

  • Ajay Chhibber & Akshata Kalloor, 2017. "Reviving Private Investment in India: Determinants and Policy Levers," Working Papers 2017-5, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2017-5

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    References listed on IDEAS

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    Cited by:

    1. Honey Karun & Hrishikesh Vinod & Chakraborty, Lekha S., 2020. "Did public investment crowd out private investment in India?," Working Papers 20/312, National Institute of Public Finance and Policy.
    2. Jagannath Mallick, 2019. "The effects of government investment shocks on private investment: Empirical evidence from the developing economy," Indian Economic Review, Springer, vol. 54(2), pages 291-316, December.

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    More about this item


    Private Investment; GDP growth; Public investment; Real Exchange rate; Credit to Private Sector; Non-performing loans (NPL’s); Fiscal Deficit; Public Sector Borrowing Requirement;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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