Determinants of Manufacturing Investment in India: An Empirical Study

Abstract

This paper analyses the determinants of manufacturing investment in India based on the data from 2001 to 2018. However, current data has also been used for analysis purpose.  It is an empirical study based on secondary data and time series econometrics. Analysis of short-run shows that change in Output & Profit increase Gross Fixed Capital Formation (GFCF) 1% rise from the previous year will give a higher investment done within the current-year, and a past-yr profit by same rate can gives you about nearly 60% raise into active investment. On the other hand, interest rate does not have any significant impact on GFCF in short run as well long-run and it seems to be less influential investment behaviour of emerging market like India. Output is significant in the long-run, but fixed investment only has a relationship with output as its proxy (the coefficient of 0.34 implies that when GFCF rises by 1%/output gap increases by one percentage point). Similar results hold true in various models and highlight the influence of output on manufacturing investment decisions within India. This study can be useful for study the future trend of investment scenario in manufacturing sector in India.