This paper analyzes the impact of deregulatory reforms in India during the 1990s, which eliminated compulsory industrial licensing, on manufacturing firms’ investment decisions. The paper finds an economically and statistically significant positive effect of delicensing on investment. It also shows that firms in states with better credit conditions benefitted more from the removal of licenses. Moreover, the analysis demonstrates that the increase in investment was predominantly driven by smaller firms.
Courtesy: World Bank