time series analysis between gdcf and gdp

8/11/2019 TIME SERIES ANALYSIS BETWEEN GDCF AND GDP

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ECONOMIC ENVIRONMENT OF BUSINESS 1

Assignment for

Economic Environment of Business

A Report

On

TIME SERIES ANALYSIS BETWEEN

GDCF AND GDP

Course Instructor - EEB

Prof. Joy Chowdhury

Submitted By:

Priyanka Tiwari 2013220

Parimal Tewari 2013220

Ravi Pradhan 2013231Rohan Bajaj 2013238

Rohit Barve 2013240

Saksham Arora 2013253

SECTION E


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Table of Contents

Chapter Title Page No.

I Introduction 4

II Methodology 6

III Literature Review 8

IV Analysis 10

V Bibliography 15


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Chapter I

Introduction


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INTRODUCTION

Capital formation is a key to economic growth. It forms the backbone of an economy, and

it has very well been seen that India's addition to the capital stock since independence has

increased considerably.

Gross Domestic Product(GDP) is themarket value of all officially recognized final goods

and services produced within a country in a year, or other given period of time. GDPper

capita is often considered an indicator of a country'sstandard of living.

GDP per capita is not a measure of personal income. Under economic theory, GDP per

capita exactly equals the Gross Domestic Income (GDI) per capita. GDP is related to

national accounts, a subject in macroeconomics.GDP is not to be confused with gross

national product (GNP) which allocates production based on ownership.

Gross Domestic Capital Formationis the addition to the capital stock within the domestic

territory of a country during a year. The surplus of production over consumption during a

year adds to the capital stock of a country. Gross capital formation includes two

components namely Gross domestic fixed capital formation, and change in stock. Gross

domestic capital formation includes all expenses made by household, businesses and the

government, adding new durable goods to the fixed capital stock of a country. These assets

are in the form of infrastructure such as buildings, roads canals, bridges, means of transport,

machinery and other equipments. The value of the new fixed assets is equal to the

expenditure made on new capital assets bought.

Thus, it is important to consider and analyze the rate of growth of the gross domestic capital

formation of a country with respect to the rate of growth of GDP. It also shows the

proportion of GDCF to GDP, hence determining other variables comprising the GDP.

GFCF time series data is often used to analyze the trends in investment activity over time,

deflating or reflating the series using a price index. But it is also used to obtain alternative

measures of the fixed capital stock. This stock could be measured at surveyed "book value",

but the problem there is that the book values are often a mixture of valuations such as

historic cost, current replacement cost, and current sale value and scrap value. That is, thereis no uniform valuation.
http://en.wikipedia.org/wiki/Market_valuehttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Standard_of_livinghttp://en.wikipedia.org/wiki/National_accountshttp://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Gross_national_producthttp://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/National_accountshttp://en.wikipedia.org/wiki/Standard_of_livinghttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Per_capitahttp://en.wikipedia.org/wiki/Market_value


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Chapter II

Methodology


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METHODOLOGY

The study is India centric & data used in this research is primarily through secondary

sources, which includes already published data on the official sites of the Government of

India, Reserve Bank of India, Central Statistics Office, and others. Data on the variableshave been observed for the last 15 years to analyze the trends over these years and

determine the impact of the relationship between the two variables.

Data for the last 15 years on Gross Domestic Capital Formation (GDFC) and GDP at

market prices, is obtained from Table 2: Macro-economic aggregates (at constant

prices) available in the database of the RBI site.

For the analysis, the ratio between GDCF and GDP at market prices is calculated and

hence depicted in the corresponding graph. This is done to show whether GDCF is

increasing or decreasing as a proportion of GDP, and to determine the components

of GDP.

Further, the growth rate of GDP and the growth rate of GDCF have been calculated

and plotted on the graph to predict the extent and reason of variability.


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Chapter III

Literature Review


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Chapter IV

Analysis


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ANALYSIS

YEAR GDCF GDP ATMP

GDCF/GDP Growth rate ofGDP

Growth rate ofGDCF

1996-97 4755.26 20497.86 0.23198812

1997-98 5462.85 21327.98 0.256135368 4.049788612 14.88015377

1998-99 5669.3 22646.99 0.250333488 6.184411276 3.779162891

1999-00 6669.08 24563.63 0.271502217 8.463111433 17.63498139

2000-01 6300.56 25540.04 0.246693427 3.975023236 -5.525799661

2001-02 6588.27 26802.8 0.245805289 4.944236579 4.566419493

2002-03 7086.37 27850.13 0.254446568 3.907539511 7.560406601

2003-04 8199.25 30062.54 0.272739762 7.943984463 15.70451444

2004-05 10640.41 32422.09 0.328183963 7.848804525 29.77296704

2005-06 12369.27 35432.44 0.349094502 9.284873369 16.24805811

2006-07 14023.69 38714.89 0.362229881 9.263968273 13.37524365

2007-08 16568.92 42509.47 0.389770091 9.801345167 18.14950273

2008-09 15703.33 44163.5 0.355572588 3.890968295 -5.224178764

2009-10 18388.7 47801.79 0.384686431 8.238228401 17.10064044

2010-11 19741.72 52368.23 0.376978943 9.552864025 7.357888268


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The GDCF and GDP ratio tells us, what part of the entire Gross Domestic Product is being

invested towards Gross Domestic Capital Formation or what percentage of GDP is created

by investing in capital assets.

From the above the data and the graph of the ratio of Gross Domestic Capital Formation to

GDP (at market prices) in India, it is observed that the ratio is increasing but there has not

ben and equivalent impact of the same on the GDP as a whole. Therefore we can say that

the other components have a major role to play in determining the GDP than GDCF alone.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

GDCP:GDP

GDCP:GDP


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From the above graph, it is clearly seen that the GDCF (red line) is an increasing function

with respect to GDP. It is observed that there is a steep fall in GDCF initially followed by

a sharp rise and then again a dip. The GDP is more or less in the same range. Thus, GDCF

is more variable than GDP i.e. the fluctuations in GDCF is way more than GDP.

Furthermore, the sharp increase or decrease in the GDCF has not led to a subsequent

increase or decrease in GDP. This implies that there are other components of the GDP that

play a greater role in determining the GDP.

Possible reasons for the variability

1999-2000 poverty elevation programs-The government spent a huge amount ofmoney on such programs. (Jawahar Gram SamridhiYojana (JGSY))

Rural Housing-Indira AwaasYojana (IAY) - This scheme aimed at creating

housing for everyone. It aimed at creating 20 lakh housing units out of which

13 lakhs were in rural area. This scheme also would give out loans to people at

subsidized rates to make houses. It was started in 19992000. In 19992000

-10

-5

0

5

10

15

20

25

30

35

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Series1 Series2


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1438.39 crore Rs was used for this scheme and about 7.98 lakh units were built. In

2000-01 a central outlay of 1710.00 crores Rs was provided for this scheme.

National family Benefit Scheme (NFBS) - This scheme was started in August 1995

by GOI. This scheme is sponsored by the state government. It was transferred to

the state sector scheme after 2002-03. It is under the community and rural

department. This scheme provides a sum of 10000Rs to a person of a family who

become the head of the family after the death of its primary breadwinner. A

breadwinner is a person who is above 18 who earns the most for the family and the

family survives on his/her earnings. It is for families below the poverty line.

2005 NAREGA- Started in 2005, this scheme guarantees 100 days of paid work to

people in the rural areas. The scheme has proved to be a major boost in Indian rural

population's income. To augment wage employment opportunities by providing

employment on demand and thereby extend a security net to the people andsimultaneously create durable assets to alleviate some aspects of poverty and

address the issue of development in the rural areas.The Ministry of Rural

Development is the nodal Ministry for the implementation of NREGA. It is

responsible for ensuring timely and adequate resource support to the States and to

the Central Council. It has to undertake regular review, monitoring and evaluation

of processes and outcomes. It is responsible for maintaining and operating the MIS

to capture and track data on critical aspects of implementation, and assess the

utilization of resources through a set of performance indicators. MORD will

support innovations that help in improving processes towards the achievement of

the objectives of the Act. It will support the use of Information Technology (IT) to

increase the efficiency and transparency of the processes as well as improve

interface with the public. It will also ensure that the implementation of NREGA at

all levels is sought to be made transparent and accountable to the public.

2006-2008 Inflationary pressure, GDP was very high. To an extent of 9.5% GDP

growth.

2008-2010 Common Wealth Games, Expenditure on Metro. Hence very high

GDCF.
http://en.wikipedia.org/wiki/Ministry_of_Rural_Developmenthttp://en.wikipedia.org/wiki/Ministry_of_Rural_Developmenthttp://en.wikipedia.org/wiki/Ministry_of_Rural_Developmenthttp://en.wikipedia.org/wiki/Ministry_of_Rural_Development


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Chapter V

BIBLIOGRAPHY


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BIBLIOGRAPHY

1.http://www.preservearticles.com/201106208238/gross-domestic-capital-formation-

what-are-its-components.html26thFebruary, 2014, 21:00.

2.http://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-

growth-wb-data.html, 1st March, 2014, 20:30.

3.http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1039 , 1st March,

2014, 20:00.

4.http://www.rbi.org.in/scripts/statistics.aspx

5. Mahambre, V. and Balasubramanyam, V.M. (2000) Liberalisation and Savings in

Developing Countries: The Case of India. WorkingPaper No. 2000/004, LancasterUniversity Management School, Lancaster, UK.
http://www.preservearticles.com/201106208238/gross-domestic-capital-formation-what-are-its-components.htmlhttp://www.preservearticles.com/201106208238/gross-domestic-capital-formation-what-are-its-components.htmlhttp://www.preservearticles.com/201106208238/gross-domestic-capital-formation-what-are-its-components.htmlhttp://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1039http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1039http://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1039http://www.rbi.org.in/scripts/statistics.aspxhttp://www.rbi.org.in/scripts/statistics.aspxhttp://www.rbi.org.in/scripts/statistics.aspxhttp://www.rbi.org.in/scripts/statistics.aspxhttp://www.rbi.org.in/scripts/statistics.aspxhttp://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1039http://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.tradingeconomics.com/india/gross-capital-formation-annual-percent-growth-wb-data.htmlhttp://www.preservearticles.com/201106208238/gross-domestic-capital-formation-what-are-its-components.htmlhttp://www.preservearticles.com/201106208238/gross-domestic-capital-formation-what-are-its-components.html

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