GDP OF INDIA
Author : Sahil R Gaware
Causal Relationship between Exports and Agricultural GDP in India
This article is an attempt to investigate the causal relationships between agriculture gross domestic product (GDP) and exports in India on the basis of time series data for forty year from 1970-1971 to 2010-2011. The empirical evidence reveals that the null hypothesis that the variables have a unit root is not rejected in the case of all the variables under study. However, the null hypothesis that the first-differences of these variables have a unit root is rejected. Hence we conclude that these variables are integrated of order one (I (1)). On the basis of trace and maximum eigenvalue tests of Johansen technique of cointegration, the study found that agricultural GDP and total exports of India were found cointegrated. The findings of the study have significant implications for India’s economic policy as both the variables have shown a strong long-run relationship. The study further found the existence of uni-directional Granger-causality between the total exports and agricultural GDP of India, which is running from total exports to Agricultural GDP.
Estimation, Analysis and Projection of India’s GDP
Gross domestic product or GDP, tells us the country’s current aggregate production of goods and services. It is often considered the best measure of how well the economy is performing. GDP summarizes the aggregate of all economic activities in a given period of time. In any economy, however, goods and services produced are not homogenous. It is not possible to add, for example, 10 barrels of petroleum with 10 million matric tons of wheat. So, as a trick, quantities and volumes of all respective goods and services are multiplied by their prices and then summed up. This gives the money value of GDP. Prices however include indirect business taxes (IBT) i.e.sales taxes and excise duties. So this GDP is not a true measure of the productive activities in the economy. In order to get a true measure of GDP we deduct IBT from GDP. This is called GDP at factor cost. For all practical purposes the government uses data on GDP at factor cost. The government of India has started Economic Reform program following the guidelines of IMF and World Bank with a number of ends keeping in view, one of which is that this program would boost up the annual growth of GDP through liberalizing trade. The philosophy of comparative advantage tells that free trade can increase the GDP of the trading countries. GDP of India is found to be a stationary process. It gives a result contrary to the belief that economic reform causes a boost in the GDP. It gives however an adjusted squared ‘R’ as high as 99.7%. All the ‘t’ values are found highly significant. While plotted on graph, the estimated GDP line just coincides with the actual line. So this estimation can be used for the purpose of GDP forecasting. This model has tracked well the path of past movements in the value of the variable. The sector comprising Trade, Transport, Storage and Communication is found to contribute the maximum and the sector comprising Financing, Insurance, Real Estate and Business Services is found to contribute the minimum to the GDP trend under study.
GDP Growth Forecasts of the Reserve Bank of India – A Performance Assessment
This article evaluates the annual gross domestic product (GDP) growth projections of the Reserve Bank of India (RBI) against final official estimates of GDP, which are normally released with a lag of about three years. During 1998-99 to 2016-17, on an average, growth projections underestimated realised growth. Forecast errors, committed in both directions, were free of any systematic bias, and remained modest in a cross-country context. A study specifically assessed the Reserve Bank’s forecast performance of the headline inflation for identifying the episodes of large forecast errors and understanding the underlying factors [Raj, et. al. (2019)]. In a related study, attempt has been made to examine the accuracy of median forecasts of Professional Forecasters’ (SPF) relative to official actual data on growth and inflation [Bordoloi, et. al. (2019)]. In a cross-country setting, another study analysed the inflation and GDP growth forecasts of 17 select central banks (including RBI) for 2018 and 2019 in a panel regression framework and sought to examine the determinants of growth forecast errors (RBI, 2020). No study, however, has made an assessment of the performance of the Reserve Bank’s growth forecasts vis-à-vis the final GDP estimates that is released by the Central Statistics Office1 (CSO) after a lag of about three years. This article seeks to bridge this gap.
Impact of FDI on GDP per capita in India using Granger causality
This research investigates the causality between FDI and GDP per capital in the context of India. Using WDI data from 1970-2019, We applied two types of Granger causality tests: long-run causality and shortrun causality tests. For the long-run causality, we applied pairwise Granger causality test, and for shortrun, we performed the Wald test approach under VECM (Vector Error Correction Model). The long-run causality test indicates that there is a unidirectional causality running from FDI to GDP per capita, implying that FDI causes the GDP per capita to change and not vice-versa. The short-run causality test indicates that there is no causality between FDI and GDP per capita, suggesting that, in the short-run, FDI and GDP per capita does not cause each other. The central policy conclusion from this study is that although FDI does not cause GDP per capita in the short-run, it causes in the long-run. Therefore, according to our study, India should attract FDI to sustain a long-run growth of GDP per capita. Foreign direct investment is considered to be crucial for a developing economy like India. It helps the target country grow economically, resulting in a more favorable market for policy make as an investor and benefits for local businesses (Asiedu, 2002). A country’s own import tariff is normal, and it’s one of the reasons why doing business with it can be difficult. In addition, certain companies need a presence in foreign markets in order to ensure that their profits and targets are met fully. Both of these will be made simpler with FDI. Job creation and economic growth. As investors establish new businesses in the target nation, foreign direct investment generates new employment and opportunities. As a result, people’s income rises and their purchasing power increases, resulting in a boost in the economy.
An analysis of revisions in Indian GDP data
The paper titled “An Analysis of Revisions in Indian GDP Data” by Amey Sapre and Rajeswari Sengupta, published in 2017, examines the revisions in India’s annual GDP estimates to assess the Central Statistical Organisation’s (CSO) revision policies. The study analyzes both aggregate and sectoral GDP data, comparing initial growth rate estimates with final revisions. Key findings include:
The paper concludes with recommendations to refine the CSO’s revision policies, emphasizing the importance of data quality and the selection of appropriate indicators to improve the reliability of GDP estimates.
India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications
Arvind Subramanian’s 2019 paper, “India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” critically examines the significant overestimation of India’s GDP growth following methodological changes in 2011-12. Official estimates report an average annual GDP growth of approximately 7% between 2011-12 and 2016-17. Subramanian suggests that the actual growth rate during this period may have been around 4.5%, with a 95% confidence interval between 3.5% and 5.5%.
The paper attributes this overestimation to several factors:
Data Source Changes: The shift from the Annual Survey of Industries (ASI) to the Corporate Affairs Ministry’s MCA21 database led to inconsistencies, as the new data included a broader range of companies, including those with zero or negative sales.
Methodological Shifts: Adjustments in estimating the value-added of companies, particularly in the manufacturing sector, resulted in inflated growth figures.
To address these issues, Subramanian recommends a comprehensive review of national income accounting methods, leveraging new data sources like the Goods and Services Tax (GST) records, and restoring growth should be a priority for policymakers.
FDI Impact on Employment Generation and GDP Growth in India
The paper titled “FDI Impact on Employment Generation and GDP Growth in India” by Ratan Kirti and Seema Prasad, published in 2016, investigates the influence of Foreign Direct Investment (FDI) on employment generation and GDP growth within the Indian economy. The study analyzes sector-wise FDI inflows and their correlation with employment trends and GDP growth.
Key Findings:
The Contribution of MSMEs in India’s Total Exports and GDP Growth: Evidence from Cointegration and Causality Tests
The paper titled “The Contribution of MSMEs in India’s Total Exports and GDP Growth: Evidence from Cointegration and Causality Tests” by Md Sahnewaz Sanu, published in 2018, examines the causal relationships between Micro, Small, and Medium Enterprises (MSMEs) output, MSME exports, total exports, and India’s GDP. The study utilizes Johansen-Juseliuscointegration tests and Granger causality tests to analyze data from 1981-82 to 2011-12.
Key Findings:
Implications:
The findings highlight the significant role of MSME exports in driving India’s GDP and total export growth. However, the absence of long-run cointegration suggests that other factors may also influence these economic indicators. Policymakers should focus on enhancing MSME export capabilities to sustain economic growth, while also considering broader economic reforms to address other influencing factors.
Economic Impact Analysis of Covid-19 Implication on India’s GDP, Employment and Inequality
The paper titled “Economic Impact Analysis of Covid-19 Implication on India’s GDP, Employment and Inequality” by Biswajit Nag and Willem van der Geest, published in 2020 by the Indian Institute of Foreign Trade, examines the effects of the COVID-19 pandemic on India’s economy.
GDP Contraction: The pandemic led to a significant contraction in India’s GDP, with estimates suggesting a decline of over 40% in the first quarter of the fiscal year 2020-2021.
Employment Impact: Unemployment rates surged during the lockdown, reaching 26% by April 2020. Approximately 140 million people lost their jobs, with informal sector workers being the most affected.
Inequality Concerns: The economic downturn exacerbated income inequality, as low-income and informal sector workers faced the brunt of job losses and reduced earnings.
Policy Recommendations:
The authors suggest that policy interventions should focus on supporting the informal sector, ensuring income support for affected populations, and implementing measures to stimulate economic recovery and reduce inequality.
The Relation Among Inequality, Poverty and Economic Growth (GDP) in India
Dr. Rajeev Kumar’s 2017 paper, “The Relation Among Inequality, Poverty and Economic Growth (GDP) in India,” published in the Journal of Commerce and Trade, explores the interconnections between economic growth, poverty, and income inequality in India. The study analyzes data from both the pre- and post-economic reform periods to understand these relationships.
Key Findings:
Economic Growth and Poverty Reduction: The paper highlights that economic growth positively influences poverty reduction. Increased GDP growth leads to higher average incomes for the poor, suggesting that growth can be an effective tool for poverty alleviation.
Inequality Considerations: While economic growth contributes to poverty reduction, the study notes that it does not automatically lead to a decrease in income inequality. The impact of growth on inequality varies, and growth alone may not suffice to address disparities in income distribution.
To enhance the effectiveness of economic growth in reducing poverty and addressing inequality, the paper suggests several measures:
Stable Macroeconomic Policies: Implementing consistent and sound macroeconomic policies to foster sustainable growth.
Investment in Agriculture: Increasing investments in the agricultural sector to improve productivity and income for rural populations.
Infrastructure Development: Developing infrastructure to support economic activities and improve access to markets.
Good Governance: Ensuring transparent and efficient governance to effectively implement poverty reduction programs and equitable growth strategies.
The study underscores the importance of not only pursuing economic growth but also implementing targeted policies to ensure that the benefits of growth are widely shared, thereby reducing poverty and mitigating inequality.
Conclusion:
India’s economic growth is shaped by various factors, including exports, FDI, and MSMEs. Studies show that agriculture and exports are closely linked, while FDI plays a crucial role in boosting long-term GDP and employment. The Reserve Bank’s GDP forecasts are generally reliable but tend to underestimate actual growth. MSMEs contribute significantly to India’s economy, though their long-term impact on exports remains uncertain. The COVID-19 pandemic caused a sharp decline in GDP, massive job losses, and widened income inequality, highlighting the need for strong policy support. While economic growth helps reduce poverty, it doesn’t always bridge income gaps. To ensure sustainable and inclusive development, India needs smart policies, investments in key sectors, and a focus on fair wealth distribution.
References:-
Rajwant Kaur & Amarjit Singh Sidhu, 2014. “Causal Relationship between Exports and Agricultural GDP in India,” Global Business Review, International Management Institute, vol. 15(1), pages 105-120, March.
Daga, Ugam Raj & Das, Rituparna & Maheshwari, Bhishma, 2004. “Estimation, Analysis and Projection of India’s GDP,” MPRA Paper 22830, University Library of Munich, Germany.
Rajesh, Raj & Srivastava, Vineet, 2020. “GDP Growth Forecasts of the Reserve Bank of India – A Performance Assessment,” MPRA Paper 104131, University Library of Munich, Germany, revised 11 Oct 2020.
Nadar, Anand, 2021. “Impact of FDI on GDP per capita in India using Granger causality,” MPRA Paper 106826, University Library of Munich, Germany.
Amey Sapre & Rajeswari Sengupta, 2017. “An analysis of revisions in Indian GDP data,” Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-015, Indira Gandhi Institute of Development Research, Mumbai, India.
Arvind Subramanian, 2019. “India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” CID Working Papers 354, Center for International Development at Harvard University.
Ratan Kirti & Seema Prasad, 2016. “FDI Impact on Employment Generation and GDP Growth in India,” Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 3(1), pages 40-48.
Sanu, Md Sahnewaz, 2018. “The Contribution of MSMEs in India’s Total Exports and GDP Growth: Evidence from Cointegration and Causality Tests,” MPRA Paper 107892, University Library of Munich, Germany, revised Jan 2019.
Biswajit Nag & Willem van der Geest, 2020. “Economic Impact Analysis of Covid-19 Implication on India’s GDP, Employment and Inequality,” Working Papers 2041, Indian Institute of Foreign Trade. Dr. Rajeev kumar, 2017.
“The Relation Among Inequality, Poverty and Economic Growth (GDP) in India,” Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 12(2), pages 9-17, October.