Determinants of private industrial investment in India
PINELL-SILES, A.
This paper analyzes the behavior of private industrial investment in India over time, and some of the factors that have influenced it, such as sales, profitability, taxation, financial resources, and others. Financial data compiled by the Reserve Bank of India (RBI) from large samples of predominantly manufacturing companies for the period 1960/61 to 1975/76 are the basis for the analysis. Financial data are transformed into meaningful economic magnitudes, as illustrated by the transition from the historical cost of fixed assets to their replacement value. The divergence between financial depreciation and economic depreciation as well as its implications for profitability and taxation are also explored. The analysis reveals that there has been a significant deceleration in the rate of growth of the fixed capital stock since the middle 1960s. Contributing to this deceleration are the inadequate growth of industrial demand and the related decline in real rates of return on non-financial assets. The paper briefly discusses recent investment developments and prospects in the light of the previous analysis.
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