Essay About Private Investment And Public-Capital Accumulation

Report on Relation Between Interest Rates and Investment
Interaction between Public and Private Investment in India (1950-2012)With our analysis, we attempt to answer the debate on the relationship between public-capital accumulation and private investment in India. The implication that we get from the results out of the data used here is that while private investment got crowded out due to public expenditure in India over 1950-2012, it would have been the other way round if we restricted the sample post 1980 or conduct a quarterly analysis since second quarter of  1996. In that situation, the change can most likely be attributed to the policy reforms which started during early 1980s and gained momentum after the 1991 crises, which was a direct consequence of the momentous LPG era.Data usedThe data we have used is the annual Indian data on GDP, public and private sector gross fixed capital formation for 1950-2012. The courtesy goes to National Account Statistics as published by the Indian Central Statistical Office. All the variables are measured in real per capita terms (in 2004-05 prices).ResultsOverall, the results over the whole sample, 1950-2012, we found out that:Public capital accumulation crowds out private investment in the short run. Furthermore, we do not find any significant differences if we focus our attention only on public investment in infrastructure.This may be because large investment efforts of the public sector over the last three decades were concentrated on infrastructure capital in areas such as agricultural irrigation, transport, etc. There is nothing surprising about these findings, as India relied on a state-led, inward-oriented growth strategy for more than three decades post-independence. A key element of this stance was rapid industrialization based on capital-intensive industries, guided by the central plans of government. The licensing of firms’ entry, expansion and diversification plans; reservation of certain sectors for the state; barriers to foreign trade and protectionist policies of government to guard domestic production from external competition; and mandatory credit allocation schemes imposed on the banking system were key components of this plan.