Insufficient investment by the private sector, especially in manufacturing, has been a major cause of worry for policy makers in India. Not only does such underinvestment affect macroeconomic growth negatively, but it also affects job creation adversely which is a serious concern for a country like India with a growing working age population. This paper studies the impact of economic policy uncertainty on underinvestment by Indian manufacturing firms. Economic policy uncertainty is found to encourage underinvestment by Indian firms significantly, but the relationship is not linear. Further, underinvestment by firms improves firm performance in the short run but only when EPU is low.