Investment

It has been observed that the economic growth cycle coincides with the investment cycle in India. It is found that firm-level leverage could provide early signals about the movements in the investment cycle. Furthermore, a firm’s leverage adversely affects its investment activity after a threshold. Regression results, after controlling for firm’s price to book ratio and operational variables, indicate that the adverse impact of high leverage is predominant on low-growth firms. The initiatives to clean up the balance sheets of banks and deleveraging by non-financial corporates should help in the revival of the investment cycle. The results are consistent with the agency cost of debt and trade-off theory of capital structure, wherein firms set targets for leverage by balancing costs and benefits of debt.

A measure of economic policy uncertainty or EPU for India is constructed to study its impact on the economy. It is found that gross domestic product growth and fixed investment are negatively related to EPU in India. For instance, if the economic uncertainty were to decrease to the level observed in 2005, India's GDP growth would increase by 0.56%, and fixed investment growth would increase by 1.36%. Additionally, a negative correlation between the Bombay Stock Exchange index and EPU in India is observed, suggesting that increases in EPU lower expectations of future growth or increase perceived risk of listed stocks. Lastly, it is found that firm-level capital expenditure rates are lowered when EPU increases.

This study analyses the impact of the liberalisation policies on the growth of firms in India. It analyses the inter-firm differences in growth rates over a seven-year period. The basic unit is the firm and the study allows for the entry and exit of firms during the sample period. Further, the authors show that not all firms have benefited from the liberalisation measures. There were gainers and losers. The impact of the determinants on growth has not remained constant over the years but has changed during the process of liberalisation.

Can Singapore with its spare investible resources and expertise in building infrastructure act as a window of investment to eastern India as Hong Kong has been to southern China, making the latter a hub of great industrial activity? Much depends on the political leadership in India, at the centre and in the concerned states.

The `Kerala model' of development has been facing a serious crisis due to low growth, high cost, low productivity, low investment and low employment in the state economy. This paper analyses the performance of major sectors of the state economy, such as agriculture, industry and the financial sector, during the past two decades and brings out the problems they confront. The paper highlights the lack of a development strategy in Kerala for growth and employment generation.