Economic Policy Uncertainty and Economic Growth in India

Posted: 9 Apr 2013 Last revised: 2 Oct 2017

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Srinivasan Rangan

Indian Institute of Management (IIMB), Bangalore

Date Written: May 8, 2013

Abstract

Economic and political commentators in India have repeatedly noted their concern about the recent slow-down in the Indian economy. Several recent papers have provided evidence that increase in the economic policy uncertainty (EPU) has played a significant role in the slow-down and the increase in unemployment in the U.S. In this paper we construct a measure of economic policy uncertainty for India and study its impact on the Indian economy. We find Indian GDP and Indian fixed investment are negatively related to EPU in India. More relevant, the economic magnitudes of these relations are quite significant. For example, if the economic uncertainty in India were to decrease today to the level observed in 2005, India’s GDP growth would increase by 0.56%, and fixed investment growth would increase by 1.36%. Additionally, we document a negative correlation between the Bombay Stock Exchange (BSE) index and EPU in India.

Keywords: economic policy uncertainty, India economic growth

JEL Classification: E60, F40, G30

Suggested Citation

Bhagat, Sanjai and Ghosh, Pulak and Rangan, Srinivasan P., Economic Policy Uncertainty and Economic Growth in India (May 8, 2013). IIM Bangalore Research Paper No. 407. Available at SSRN: https://ssrn.com/abstract=2246882 or http://dx.doi.org/10.2139/ssrn.2246882

Sanjai Bhagat (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

Srinivasan P. Rangan

Indian Institute of Management (IIMB), Bangalore

Bannerghatta Road
Bangalore, Karnataka 560076
India

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