Measures to raise induced investment

Measures to raise induced investment

1. Low rate of interest
2. Tax reduction
3. Public expenditure (government expense)
4. Price policy
5. Promotion of research
6. Economic planning

1. Low rate of income:

Since inducement to invest depends on MEC and rat of interest, it is obvious that under the given state of MEC, lowering of the rate of interest would enhance the probability of investment. Thus, it is suggested that the rate of interest should be lowered down by the monetary authorities to encourage private investors.

2. Tax reduction:

Direct and corporate should be lowered so that the disposable income of the community increases. Again a reduction in profit tax would increase corporate saving which may induce more investment.

3. Public expenditure:

Public expenditure may be of two types:

a.       Pump-priming and ii)   Compulsory spending

Deliberate public expenditure undertaken by the government with a view of initiating recovery by injecting the circulation of new money into depressed economy is called pump-priming.

Public expenditure designed to compensate the deficiency in private investment is referred to as compulsory expenditure.

A little expenditure by the government in the form of pump-priming encourages private investment.

4. Price policy:

Instability in private sector investment is caused by price fluctuations which cause variations in the expected rate of profitability. Price stability is an essential condition. A host of Keynesian and post Keynesian economist believes that a rising price policy has favourable impact on investment and growth.