Current Upturn In Investment Cycle Estimated To Last Up To 2022-23 Says RBI Paper

The Reserve Bank of India recently placed on its website a Working Paper titled "India's Investment Cycle: An Empirical Investigation" under the Reserve Bank of India Working Paper Series. The Paper is authored by Janak Raj, Satyananda Sahoo and Shiv Shankar. The paper estimates the duration of the investment cycle and examines the determinants of investment activity in India.

As per the findings of the paper, the real investment rate in India followed a three-year cycle during the period from 1950-51 to 2017-18. There were broadly nine episodes of contraction/ upturn of two years and above. The decline in investment activity from 2011-12 to 2015-16 was caused by both trend and cyclical components. Decomposition of investment activity suggests that while the trend component has consistently moderated from 2011-12 onwards, the cycle component has turned from 2016-17.

 

The current upturn in the investment cycle is estimated to last up to 2022-23 when the investment rate could rise to 33% from the current rate of 31.4%. The study also finds that GDP growth, real interest rate and bank credit are the major determinants of investment activity in India. The gross fiscal deficit crowds out investment activity.

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