Working Paper No- 441
Majority of the existing literature has focused on examining the determinants of investment behaviour and the factors responsible for its slowdown at an aggregate level. There have only been a few studies analysing investment behaviour at firm level, and those are confined to the manufacturing sector using static panel models. In this context, we examine the sector specific heterogeneity of investment dynamics in India using firm level investment data spanning the period 2001-19. The study employs dynamic panel models on micro-level data to provide better clarity on the macroeconomic issue of investment slowdown in the country. This paper finds that a variety of factors contributed to the investment decline in India, including slower expansion of profitability and bank credit amounting to the twin balance sheet problem, debt sustainability, higher burden of indirect and corporate taxes, higher policy rates, rising real interest rates and increasing uncertainty related to economic policy.
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Institute of Economic Growth, University Enclave, University of Delhi (North Campus),
Delhi 110 007, India