Dynamics of Investment, Economic Growth, and Employment in Contemporary India: Analyzing Patterns and Future Potential

Abstract

Gross Fixed Capital Formation stands as the cornerstone of domestic investment, wielding the power to ignite economic growth and job creation. However, the relationship between investment and economic growth remains a subject of ongoing debate, characterized by a mosaic of conflicting findings within empirical studies. Similarly, the intricate interplay between employment and economic growth remains shrouded in uncertainty. Against the backdrop of these complexities, the Indian economy grapples with a paradox: despite a moderate rate of investment and economic growth, it grapples with a disproportionately high unemployment rate. Seeking clarity amidst this perplexity, our study delves into the contours of investment, economic growth, and employment in India. Guided by data sourced from the MoSPI, the Government of India, and other reputable outlets, our investigation is underpinned by the robust Johansen Cointegration and Vector Error Correction Model (VECM) framework. The crux of our findings reveals the existence of a lasting relationship among these variables, offering a glimpse of bi-directional causality connecting employment and economic growth. Counterintuitively, economic growth emerges as a precursor to investment, challenging conventional wisdom. Ultimately, our study underscores that, in the Indian context, economic growth emerges as the pivotal catalyst propelling investment and employment over the long haul. As we unlock the implications of our findings, a troubling revelation surfaces—jobless growth prevails in the post-economic reform period. To dispel this concerning trend, a concerted effort to engineer a more favorable economic landscape becomes imperative. We advocate for a multifaceted approach involving heightened investments in infrastructural enhancements and diversification of the economy. By bolstering labor-intensive sectors like agriculture and allied industries, we stand to invigorate investment levels, revitalizing the economic tapestry of our nation. In a world where uncertainty often veils the path forward, our study strives to illuminate the intricate relationship between investment, economic growth, and employment in India's postreform era. Armed with insights derived from rigorous analysis, we offer a clarion call for strategic interventions that can reshape the trajectory of our economy, ushering in an era of sustainable growth and equitable prosperity.