Everything You Need To Know About Investment

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Investment refers to the act of putting money into various vehicles such as bank deposits, stocks, real estate, gold, businesses, or industries in order to achieve a financial return.

For a country to grow and create employment opportunities, it needs to produce more goods and services, and therefore investments in businesses, agriculture, industry, and supporting infrastructure are essential.

Governments may also invest in these areas, but in countries with fiscal deficits (like India, which has a deficit of 5.1% of GDP), private sector investment is also necessary.

The relationship between investment and GDP (gross domestic product) is that GDP is the total expenditure on consumption, government spending, net exports (exports minus imports), and investment, with investment being everything that is left over after these other factors are subtracted. Investment is influenced by income and interest rates: higher income leads to more investment, while higher interest rates lead to less investment. A lack of investment can lead to a lack of growth, resulting in issues like poverty, malnutrition, and unemployment.


Harrod Domar Model: The model suggests that economic development is contingent on policies to boost investment, by increasing saving, and utilising that investment more effectively through technical improvements. It implies there is no inherent need for an economy to experience balanced growth. Essentially, it was a One Sector Model. We were unable to attract investment in India’s consumer goods industry due to a lack of robust capital goods sectors.

  • Solow Swan Model: The neoclassical model was an adaptation of the Harrod–Domar model from 1946 that added a new term: productivity growth.
  • According to the Feldman–Mahalanobis model, a sufficiently high capacity in the capital goods sector increases the production capacity of consumer products in the long term. Consequently, the essence of the model is a shift in the structure of industrial investment toward the development of a domestic consumer goods sector. The Two Sector Model was eventually expanded into the Four Sector Model. Known also as the Nehru-Mahalanobis model.
  • Rao Initiated in 1991 by Dr. Narasimha Rao and Dr. Manmohan Singh, the ManMohan Model is a policy of economic liberalisation and FDI.
  • The infinite labour supply paradigm of economic growth proposed by Lewis.
  • Model of induced investment
  • Leverage Investment Model.
  • Model of growth driven by savings; significance for India.
  • Demand-driven expansion paradigm.
  • Consumption-driven paradigm of economic growth.
  • Aspects influencing Investment Attitudes

Savings Rate.

  • Tax Rate within the nation (Net income accessible following taxation)
  • Interest Rate of Banks.
  • Possible Rate of Capital Return
  • The availability of other production variables, such as inexpensive land, labour, and supporting infrastructure, such as transport, energy, and communication.
  • Market size and consistency.
  • Country’s investment-friendly atmosphere (policies of the government)

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