Analysis Macroeconomic in India

March 19, 2009 at 8:26 am Leave a comment

Macro Economic Effects of Changes in Public Investment in India-

A Simulation Analysis

This paper attempts to build a four sector aggregative, structural, macro-econometric model for India. There are significant structural shifts in production from agriculture to infrastructure and services in the Indian economy. The estimated model indicated significant crowding-in effect between private and public sector investment in all the sectors.

Counter factual policy simulations of sustained increase in public sector investment in infrastructure, financed through borrowing from commercial banks, shows substantial increase in private investment and thereby output in this sector. Further, due to increase in absorption, real output in the manufacturing and services sectors also seem to increase, which sets-in motion all other macro economic changes. A 10% sustained increase in public sector investment in infrastructure, which is less than 0.4% of GDP, can accelerate the macro economic growth by nearly 2.5% without causing any inflation. Further, this increase in income will lead to 1% reduction in poverty in India. This shows the potential for achieving the much debated 10% aggregate real GDP growth in the Indian economy.


Fiscal and monetary policies are the foremost policies that are virtually analysed in macro econometric models from their inception.

For more details, look at the conclusion below :This Article attempts macro economic effects of changes in public investment in India. In 1990’s and thereafter, shown slowing down of the economy and there are also significant structural shifts in production from agriculture to infrastructure and services in the Indian economy. This article attempts to address these issues and seek quantitative answers in a macro economic theoretical framework. The tool of counter factual policy simulation, using a macro econometric model, is used for this purpose. Macro econometric modelling, in general, pursues two objectives: forecasting and policy analysis. For any macro econometric model, the selection of sector (commodity) break-up is very important and it determines the over-all size of the model. In this article, we chose a 4 commodity disaggregation for the investment and output of the real sector. These four sub-sectors are (a) agriculture including forestry & fishing (Industry group 1 of NAS), (b) manufacturing including mining (Industry groups 2 and 3 of NAS), (c) infrastructure, which includes electricity, gas, water supply; construction; and transport, storage & communication (Industry groups 4, 5 and 7 of NAS) and (d) services sector, covering all other activities (Industry groups 6, 8 and 9 of NAS). For simplicity of reference these four sub-sectors are called (i) agriculture, (ii) manufacturing, (iii) infrastructure and (iv) services respectively, in the rest of the document. Agricultural output grew by 3%, manufacturing by 6.6%, infrastructure by 6.5% and services sector by 7.2%. Clearly, manufacturing sector has slowed-down secularly, while infrastructure and services have accelerated by about 1-1.25%. Some analysts attribute this slowing down of the Indian economy during post-93 period, to supply related ‘infrastructural bottlenecks’, which perhaps is due to deceleration of investment in this crucial sector. The GDP share of infrastructure remained stagnant around 14-15%.
Public investment in agriculture and Manufacture showed good results since 80an up to 03 years so also in the field of infrastructure and service. At that time investment in this sector to the four very promising of return.

But not so with private investment. 2 of 4 sectors and the stagnant time in 90 years an investment in the private sector go down 3.

Entry filed under: EKONOMI. Tags: .

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