India’s Investment Slowdown: The High Cost of Economic Policy Uncertainty


By Rahul Anand and Volodymyr Tulin

India, after witnessing spectacular growth averaging above 9 percent over the past decade, has started to slow in the last few years. The slump in infrastructure and corporate investment has been the single biggest contributor to India’s recent growth slowdown.

India’s investment growth, averaging above 12 percent during the last decade fell to less than one percent in the last two years. What is especially worrisome is that more and more investment projects are getting delayed and shelved, while the pipeline of new projects has become exceptionally thin.

This slowdown has sparked an intense public debate about its causes. Some commentators, including representatives of the business community, argue that high interest rates, which raise financing costs, are the major culprit, dampening investment.  Others maintain that interest rates are only partly responsible for the current weak levels of investment, suggesting that a host of other factors, particularly on the supply side, are at play.

Our new Working Paper seeks to shed some light on the reasons behind this investment malaise. Using a novel index of economic policy uncertainty—an innovation in our analysis—we find that heightened uncertainty regarding the future course of broader economic policies and deteriorating business confidence have played a significant role in the recent investment slowdown. 

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Listening to and Learning from Asia


By Dominique Strauss-Kahn

(Version in 中文,  日本語 and 한국어)

In Daejeon, Korea earlier this week, a remarkable event took place that enabled the world to hear the voice of Asia and to learn how the region has been able to show such great resilience in the face of the worst global financial crisis since the 1930s. On July 12 and 13, more than 1,000 officials, economists, bankers, analysts, and media assembled for a conference titled Asia 21: Leading the Way Forward, hosted by the Korean government and the IMF. I personally learned a great deal about Asia’s growing stake in the global economy—and the global economy’s growing stake in Asia. As the world strives to leave the crisis behind, the economic center of gravity is shifting increasingly eastwards, and Asia’s role is more vital than ever before.

Our objectives with this conference, jointly organized with the superb help of our Korean partners, were three-fold:  Continue reading

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