a

i
d
n
I
n
i
t
n
e
m
t
s
e
v
n
I
rs
c facto
mi
o
n
o
c
e
ro
c
a
m
f
o
Impact

Planning
Planning

Socialism
Socialism

Government
Government
Control
Control

Regulation
Regulation

Pioneers of
liberalisation in
India

PV Narasimha Rao
Dr. Manmohan Singh

What is
Investment
Investment refers
to purchase of
financial assets

Reasons for
Investment
?
Increase in the value
of the securities or
asset
Regular income

Investments

Types of
Investment

money exchanged
comes from a
governmental
entity such as a
city, state,
country, etc.

Investments made
by private, forprofit
organisations

Public
Investmen
t

Private
Investmen
t

The amount of
money a person
invests in a house,
equal to its sale
price minus any
loan amounts.

Housing
Investmen
t

Gross Domestic
Saving

Households

Gross Capital
Formation

GDP and GCF

Trends
GDP - Pre liberalization

GDP - Post liberalization

GCF - Pre Liberalization

GCF - Post Liberalization

GCF Trends by
Sector

Relation between
Public and Private
Investment
Public-Capital accumulation crowded out
private investment in India over 1950-2012.
The opposite is true when we restrict the
sample post 1980 or conduct a quarterly
analysis since 1996Q2.
This change can most likely be attributed to
the policy reforms which started during early
1980s and gained momentum after the
1991 crises.

Effect of
Macroeconomic
changes
SLR
Repo Rate
Real Interest Rate
CRR
CPI

Types of
Investments
Autonomous Investment
Induced Investment
Financial Investment
Real Investment
Planned Investment
Unplanned Investment

Lag Time between

Interest Rate changes

Fixed
Fixed interest
interest rates
rates
for
for borrowing
borrowing and
and
saving
saving

Starting
Starting Projects
Projects

Temporary/Permanen
Temporary/Permanen
tt change
change in
in Interest
Interest
Rates
Rates

Knowledge
Knowledge of
of
Customers
Customers of
of Interest
Interest
Rates
Rates

Delay
Delay in
in passing
passing on
on
the
the base
base rate
rate cuts
cuts by
by
Commercial
Commercial Banks
Banks

It is estimated interest rate changes take up to 18 months to have the full effect. This
means monetary policy needs to try and predict the state of the economy for up to 18
months ahead

Reviving
Investments in
India
Encouraging financial saving as a means to contain inflation has
kept the interest rates relatively high

A lot of private firms heavily debt burdened, unable to invest

big bucks into the economy at the moment since borrowing
costs are very high
CPI rates have come down from nearly 11% in 2013 to 5.76%
now Despite the multiple rate cuts in the last few months,
there is a scope to further reduce the rates

Should reduce the effective borrowing costs to spur private

investment

Reviving
Investments in
India
Liberal and pragmatic approach to NPAs required especially in infra
sector, firms held up because of difficult business environment and
should be given some leeway

Also need to ensure that the rate change by RBI is transmitted

by the banks to the end consumers

Enhance the PPP model by providing attractive rates to induce

more private investment in sectors such as roads and highways

Reviving investments require government level policy initiatives in

tandem with monetary policy ones

Effect of Interest
rate on Agriculture
Inventory Costs: Interest expenses on holding inventory
could have a significant impact on farm profitability and
associated agribusinesses
Investment: The interest rate if lower or comparable
to rate of return would deter investments in
agriculture which in turn leads to reduced farm
outputs
Increased Rate Risk: Increasingly unexpected and
adverse movement of interest rates is a source of
operating risk for farms and agri-businesses.

Interest rates affect agriculture significantly in three major

ways, costs of holding inventory, effect on investment
decisions such as land, machinery and input purchases and
overall farm business risk associated with possible rising
interest rates.

Effect of Interest rate

on various sectors

Effect of Interest rate

on various sectors

Effect of Interest rate

on various sectors
Cost of borrowing for industries go up with increase
interest rates with construction, machinery, electronics
being the worst hit
Banking sector, insurance companies and technology
companies are more likely to gain from interest rate
hikes.
Stock Market: changes in interest rates can affect the rate
at which investors buy and sell stocks. Higher interest
rates can lead to a slowdown in demand which can affect
the stock market.