Factors Which Are Influencing Investment By Firms In India

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Economic growth is also an important factor which influences investment by firms in India.


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Top Investment Factors  


8 Factors Which Are Influencing Investment By Firm In # India


Investment  Confidence Inflation Economic Growth Interest Rates Productivity of Capital


Interest Rates From saving or by borrowing an investment is financed. That is the only reason investment is influenced by interest rates. Higher interest rates always make it expensive to borrow. It also gives a better rate of return rather than keeping money in your bank. Higher opportunity cost is only due to higher interest rates because you lose out the interest payments.


Economic Growth Economic growth is also an important factor which influences investment by firms in India. Firms invest to meet future demand and if demand falls, then firms will cut back on investment. If economy improves, then firms will definitely increase investment.


Confidence Investment is more risky than saving. Firms will first see the possibilities of positive future cost then only they invest in it. Keynes referred to the ‘animal spirits’ of businessmen as a key determinant of investment. Confidence will be affected by economic growth and interest rates and also the general economic climate.


Inflation Inflation rates in long-term can affect investment. High and variable inflation tends to create more uncertainty and confusion. If inflation is high, firms will be uncertain at the investment. They may also have fear of high inflation which could lead to economic uncertainty and future downturn. Source: https://bit.ly/2NGfl9V


Productivity of Capital Another factor which is long-term changes in technology may influence the attractiveness of investment in India. New technology such as Bessemer steel and improved steam engines meant firms had a strong incentive to invest.


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