The current upturn in the investment cycle may last for five years, up to 2022-23, when the real investment rate is estimated to rise further to 33 per cent from the current level of 31.4 per cent in 2017-18, according to a Reserve Bank of India study.

Three-year cycle

The study finds that the investment rate in India has followed, on an average, a three-year cycle during the post-independence period.

While the average duration of speed-up (trough to peak) was 1.6 years (seven quarters), the average duration of slowdown (peak to trough) was 1.4 years (five quarters).

“The fall in investment activity from 2011-12 to 2015-16 was led by a decline in both trend and cyclical factors. While the trend investment rate has continued to decline thereafter, there has been a cyclical upturn since 2016-17.

“Empirical estimates suggest that the current upturn in the investment cycle is likely to last up to 2022-23 when the investment rate is estimated to peak at 33.0 per cent,” said the study put together by Janak Raj (Principal Adviser), Satyananda Sahoo (Director) and Shiv Shankar (Assistant Adviser) in the RBI’s Monetary Policy Department. However, the challenge is to reverse the declining trend component of investment activity.

“This will require policy efforts on multiple fronts such as further improving the ease of doing business, expediting resolution of distressed assets, addressing the NPAs problem of the banking sector, and speeding up implementation of stalled projects.

“These measures will help ride the current phase of the investment cycle to its peak; and boost medium-term prospects of investment activity,” the study said.

GDP growth

The RBI study observed that the sharp acceleration in real GDP growth in Q1 of 2018-19, acceleration in bank credit growth, and buoyant stock market augur well for sustaining investment activity, going forward.

However, uncertainties on the global front and financial market volatility, need to be guarded against.

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