The fall in private investment

The decline in private investment as a percentage of GDP is not as huge as it may appear at first glance

There has been a huge fall in private investment in India from 27.5 per cent of gross domestic product (GDP) in 2007-08 to about 20 per cent in 2020-21. Why?

To set the stage, consider some simple economics first. If investment is more than savings, then the interest rate tends to rise. And, if investment is less than savings, interest rate tends to fall, unless it hits the zero or near-zero lower bound. But that has not been the case in India. So, the standard analysis applies here.

Coming to the main analysis now, the GDP growth rate was near 8 per