Industrial Investment Behaviour in India: Regional Level Analysis

ABSTRACT Balanced regional development has remained a central policy agenda across economies, wherein policymakers have underscored the role of productivity‐led economic growth. In this regard, Indian states are actively pursuing their growth‐oriented strategies, especially in enhancing productive capital, as reflected in investment. Despite the policy push, India's investment has remained cyclical in the past two decades. With this background, the study aims to understand the trends and patterns of industrial investment across Indian states and to identify the crucial factors affecting regional investment variability, thereby serving as a basis of policy lessons for states experiencing weak investment rates. The study performs the dynamic panel ARDL approach through MG and PMG estimations over the panel data set of 16 regions of India during 1991–2023. The empirical results find that state‐level growth prospects, industrial productivity and financial liquidity create a positive impact on the investment, whereas the widening state fiscal deficit, skewed bank credit and poor infrastructure facilities appear to be weakening the investment. States, especially Bihar, Madhya Pradesh, Uttar Pradesh, Kerala and West Bengal, can manage these investment drivers for attaining the productivity‐led growth.