impact of shocks on indian gdp growth

8/9/2019 IMPACT OF SHOCKS ON INDIAN GDP GROWTH

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ARUN GUL ERIA [email protected]

IMPACTOFSHOCKSONINDIAN

GDPGROWTH

Submitted to Lovely Professional UniversityIn partial fulfillment of the requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by: Supervisor:Group No: 1

LOVELY INSTITUTE OF MANAGEMENT (LIM)

LOVELY PROFESSIONAL UNIVERSITYPHAGWARA

2010


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TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled Investors Impact of Shocks on Indian GDP

Growth carried out by ________________S/o ________________ has been accomplished

under my guidance & supervisionas a duly registered MBA student of the Lovely Professional

University, Phagwara. This project is being submitted by him/her in the partial fulfillment of the

requirements for the award of the Master of Business Administration from Lovely Professional

University.

His dissertation represents his original work and is worthy of consideration for the award of the

degree of Master of Business Administration.

___________________________________

(Name & Signature of the Faculty Advisor)

Date:


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This is to certify that the project report titled Investors Impact Of Shocks On Indian GDP

Growth carried out by ________________, S/o ________________has been accomplished




University.

His dissertation represents his original work and is worthy of consideration for the award of thedegree of Master of Business Administration.

___________________________________


Date:


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Growth carried out by ________________, S/o ________________has been accomplished




University.



___________________________________


Date:


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Growth carried out by ________________, D/o ________________has been accomplished




University.



___________________________________


Date:


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DECLARATION

We, " Arun Kumar Guleria, Hardeep Singh Kalra, Harpreet Singh, Aarushi Sharma,

hereby declare that the work presented herein is genuine work done originally by us and has not

been published or submitted elsewhere for the requirement of a degree programme. Any

literature, data or works done by others and cited within this dissertation has been given due

acknowledgement and listed in the reference section.

(Student's name & Signature) (Registration No.)

Date: _________


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ACKNOWLEDGEMENT

In order to make my project we acknowledge a special thanks to all those people without

whose supports it would not be possible for us to complete our report.

First of all I really thankful to my Lovely Professional Universitybecause of them we

could achieve the target. We express my sincere thanks to my project guide ________________

who had guide to me throughout my project.

Also we would like to express our inner feeling for all the people for co-operating and

helping us throughout the project.

Last but not the least we thankful to our parents and friends who have provided us with

their constant support throughout this project.


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INDEXCh. No. PARTICULAR Page No.

i. Declaration v

ii. Acknowledgement vi

1. Executive Summary 10

2. Introduction2.1 Gross Domestic Product (GDP)2.2 Inflation2.3 International Trade

14161726

3. 3.1 Objective

3.2 Scope3.3 Needs

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3030

4. Review Of Literature4.1 Oil Prices And Inflation: Impact On Economy4.2 Effect Of Oil Price4.3 Global Imbalance The Cause For Global Liquidity4.4 Inflation In India4.5 Price Of Crude Oil4.6 Why Is Oil Price So High4.7 Recession And Its Impact4.8 Should We Learn To Love Recessions

4.9 Strategic Analysis Of Oil And Gas Sector In India4.10 Industry Insight Oil And Gas4.11 Inflation, Investment And Growth

313131333334343535

363738

5. Research Methodology 39

7. Data Analysis9.1 Chi-Square Tests9.2 Correlations

424356

8. Findings 70

9. Conclusion 72

10 Recommendations 74

11. Appendix 7612. Reference / Bibliography 80


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Chapter -1

EXECUTIVE SUMMARY


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EXECUTIVE SUMMARY

Evaluating the impact of domestic and external shocks on the growth of developing economies isof utmost importance, as the consequences of these shocks push millions of people into abject

poverty and deprivation. It is in this context that we have studied the impact of domestic and

external shocks on the Indian GDP. Given the objectives of this study, we have developed

framework that allows us to evaluate the impact of one domestic shock (INFLATION) and two

external shocks (OIL PRICE HIKE and WORLD TRADE SHOCK) that affect the Indian GDP.

Our results show that different shocks have very different impacts on various aspects of the

growth.

We find that the oil price hike show strong pervasiveness, while the economy is much more

resilient to the world trade shock in the long run. Another aspect that is important from the policy

point of view is to study whether the shock leads to a stagflationary situation or not. We find that

the oil price shock is stagflationary only in the short run; WORLD TRADE is stagflationary in

the long run. Finally, we focus on whether the shock leads to some instability in the growth by

enlarging the disequilibrium in the fiscal or the external factor.

We find from our study that there is some short run instability from the external factor in case of

the external shocks. However, in the long run we find that none of the shocks have any

significant negative impact on either the fiscal deficit or the external reserves.

On balance, it appears that the Indian GDP is more resilient to shocks. As far as counter shock

policies are concerned, all major domestic and external shocks must be countered periodically. In

the short run, this may lead to higher inflation due to a tradeoff between growth and inflation incase of certain shocks that are stagflationary. In the long run, counter shock policy must involve

higher public investment financed by the lowering of other government expenditure.

The vulnerability of oil-importing countries to higher oil prices varies markedly depending on

the degree to which they are net importers and the oil intensity of their economies. According to

the results of a quantitative exercise carried out by the IEA in collaboration with the OECD


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Economics Department and with the assistance of the International Monetary Fund Research

Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the

OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. Inflation

would rise by half a percentage point and unemployment would also increase.

The OECD imported more than half its oil needs in 2009 at a cost of over $260 billion 20%

more than in 2007. India highly dependent on oil imports, would suffer most in the short term,

their GDP dropping by 0.5% and inflation rising by 0.5% in 2008. The United States would

suffer the least, with GDP falling by 0.3%, largely because indigenous production meets a bigger

share of its oil needs.

Oil-importing developing countries like India use more than twice as much oil to produce a unit

of economic output as do OECD countries. Developing countries are also less able to weather the

financial turmoil wrought by higher oil-import costs. India spent $15 billion, equivalent to 3% of

its GDP, on oil imports in 2003. This is 16% higher than its 2001 oil-import bill.

It is estimated that the loss of GDP averages 0.8% in Asia and 1.6% in very poor highly indebted

countries in the year following a $10 oil-price increase. The loss of GDP in the Sub-Saharan

African countries would be more than 3%.

World GDP would be at least half of one percent lower equivalent to $255 billion in the year

following a $10 oil price increase. This is because the economic stimulus provided by higher oil-

export earnings in OPEC and other exporting countries would be more than outweighed by the

depressive effect of higher prices on economic activity in the importing countries.

The transfer of income from oil importers to oil exporters in the year following the price increase

would alone amount to roughly $150 billion.

A loss of business and consumer confidence, inappropriate policy responses and higher gas

prices would amplify these economic effects in the medium term. For as long as oil prices


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remain high and unstable, the economic prosperity of oil-importing countries especially the

poorest developing countries will remain at risk.

The impact of higher oil prices on GDP growth in India would depend on a variety of factors,

particularly how the windfall revenues are spent. In the long term, however, Indias oil revenues

and GDP are likely to be lower, as higher prices would not compensate fully for lower

production.


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Chapter -2

INTRODUCTION


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INTRODUCTION

Evaluating the impact of domestic and external shocks on the growth of developing economies is

of utmost importance, as the consequences of these shocks push millions of people into abject

poverty and deprivation. It is in this context that we have studied the impact of domestic and

external shocks on the Indian GDP. A closer look at the last fifty years experience reveal that

broadly, there are three distinct types of shocks that have affected the performance of the Indian

GDP, sometimes working in tandem. The domestic shock we have studied is inflation.

This paper reviews how oil prices affect the macro-economy and assesses quantitatively the

extent to which the economy of India and developing countries remain vulnerable to a sustained

period of higher oil prices. It summarises the findings of a quantitative exercise carried out by

the IEA in collaboration with the OECD Economics Department and with the assistance of the

International Monetary Fund (IMF) Research Department.

Oil prices had their fourth rally in last three decades between 1999 and 2009. Further research is

needed on the effects of oil price movements, especially pertaining to developing countries. Such

a study would not only fill the gap in oil macroeconomics literature but would also serve the

needs of policy makers. As summarized above, the literature on oil is dominated by studies

aiming to explore oil price changes, GDP growth, or the mechanisms which affect the economy

of the United States

Average IEA Crude Oil Import Price


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The next section describes the general mechanism by which higher oil prices affect the global

economy. This is followed by a quantitative assessment of the impact of a sustained $10 per

barrel rise in the oil price on India GDP Growth. The net effect on the global economy is then

summarized.

2.1 GROSS DOMESTIC PRODUCT

The total market value of all final goods and services produced in a country in a given year,

equal to total consumer, investment and government spending, plus the value of exports, minus

the value of imports. The GDP report is released at 8:30 am EST on the last day of each quarter

and reflects the previous quarter. Growth in GDP is what matters, and the U.S. GDP growth has

historically averaged about 2.5-3% per year but with substantial deviations. Each initial GDP

report will be revised twice before the final figure is settled upon: the "advance" report is

followed by the "preliminary" report about a month later and a final report a month after that.

Significant revisions to the advance number can cause additional ripples through the markets.

The GDP numbers are reported in two forms: current dollar and constant dollar. Current dollar

GDP is calculated using today's dollars and makes comparisons between time periods difficult

because of the effects of inflation. Constant dollar GDP solves this problem by converting thecurrent information into some standard era dollar, such as 1997 dollars. This process factors out

the effects of inflation and allows easy comparisons between periods. It is important to

differentiate Gross Domestic Product from Gross National Product (GNP). GDP includes only

goods and services produced within the geographic boundaries of the U.S., regardless of the

producer's nationality. GNP doesn't include goods and a service produced by foreign producers,

but does include goods and services produced by U.S. firms operating in foreign countries.


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2.2INFLATION

In economics, inflation is a rise in the general level of prices of goods and services in an

economy over a period of time. When the price level rises, each unit of currency buys fewer

goods and services; consequently, annual inflation is also erosion in the purchasing power of

money a loss of real value in the internal medium of exchange and unit of account in the

economy. A chief measure of price inflation is the inflation rate, the annualized percentage

change in a general price index (normally the Consumer Price Index) over time.

Inflation's effects on an economy are manifold and can be simultaneously positive and negative.

Negative effects of inflation include a decrease in the real value of money and other monetary

items over time; uncertainty about future inflation may discourage investment and saving, or

may lead to reductions in investment of productive capital and increase savings in non-producing

assets. e.g. selling stocks and buying gold. This can reduce overall economic productivity rates,

as the capital required to retool companies becomes more elusive or expensive. High inflation

may lead to shortages of goods if consumers begin hoarding out of concern that prices will

increase in the future. Positive effects include a mitigation of economic recessions, and debt

relief by reducing the real level of debt.

Economists generally agree that high rates of inflation and hyperinflation are caused by an

excessive growth of the money supply. Views on which factors determine low to moderate rates

of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real

demand for goods and services, or changes in available supplies such as during scarcities, as well

as to growth in the money supply. However, the consensus view is that a long sustained period of

inflation is caused by money supply growing faster than the rate of economic growth.

Today, most mainstream economists favor a low steady rate of inflation,Low (as opposed to zero

or negative) inflation may reduce the severity of economic recessions by enabling the labor

market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents

monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and

stable is usually given to monetary authorities. Generally, these monetary authorities are the


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central banks that control the size of the money supply through the setting of interest rates,

through open market operations, and through the setting of banking reserve requirements.

MEASURES of Inflation

Annual inflation rates in the United States from 1666 to 2009.

Inflation is usually estimated by calculating the inflation rate of a price index, usually the

Consumer Price Index. The Consumer Price Index measures prices of a selection of goods and

services purchased by a "typical consumer". The inflation rate is the percentage rate of change of

a price index over time.

Other widely used price indices for calculating price inflation include the following:

Cost-of-living indices (COLI) are indices similar to the CPI which are often used to

adjust fixed incomes and contractual incomes to maintain the real value of those incomes. Producer price indices (PPIs) which measures average changes in prices received by

domestic producers for their output. This differs from the CPI in that price subsidization,

profits, and taxes may cause the amount received by the producer to differ from what the

consumer paid. There is also typically a delay between an increase in the PPI and any

eventual increase in the CPI. Producer price index measures the pressure being put on

producers by the costs of their raw materials. This could be "passed on" to consumers, or


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it could be absorbed by profits, or offset by increasing productivity. In India and the

United States, an earlier version of the PPI was called the Wholesale Price Index.

Commodity price indices, which measure the price of a selection of commodities. In the

present commodity price indices are weighted by the relative importance of the

components to the "all in" cost of an employee.

Core price indices: because food and oil prices can change quickly due to changes in

supply and demand conditions in the food and oil markets, it can be difficult to detect the

long run trend in price levels when those prices are included. Therefore most statisticalagencies also report a measure of 'core inflation', which removes the most volatile

components (such as food and oil) from a broad price index like the CPI. Because core

inflation is less affected by short run supply and demand conditions in specific markets,

central banks rely on it to better measure the inflationary impact of current monetary

policy.

Other common measures of inflation are:

GDP deflator is a measure of the price of all the goods and services included in Gross

Domestic Product (GDP). The US Commerce Department publishes a deflator series for

US GDP, defined as its nominal GDP measure divided by its real GDP measure.

Regional inflation The Bureau of Labor Statistics breaks down CPI-U calculations down

to different regions of the US.

Historical inflation Before collecting consistent econometric data became standard for

governments, and for the purpose of comparing absolute, rather than relative standards of

living, various economists have calculated imputed inflation figures. Most inflation data

before the early 20th century is imputed based on the known costs of goods, rather than


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compiled at the time. It is also used to adjust for the differences in real standard of living

for the presence of technology.

Asset price inflation is an undue increase in the prices of real or financial assets, such as

stock (equity) and real estate. While there is no widely accepted index of this type, some

central bankers have suggested that it would be better to aim at stabilizing a wider

general price level inflation measure that includes some asset prices, instead of stabilizing

CPI or core inflation only. The reason is that by raising interest rates when stock prices or

real estate prices rise, and lowering them when these asset prices fall, central banks might

be more successful in avoiding bubbles and crashes in asset prices.

ISSUES IN MEASURING

Measuring inflation in an economy requires objective means of differentiating changes in

nominal prices on a common set of goods and services, and distinguishing them from those price

shifts resulting from changes in value such as volume, quality, or performance. For example, if

the price of a 10 oz. can of corn changes from $0.90 to $1.00 over the course of a year, with no

change in quality, then this price difference represents inflation. This single price change would

not, however, represent general inflation in an overall economy. To measure overall inflation, the

price change of a large "basket" of representative goods and services is measured. This is the

purpose of a price index, which is the combined price of a "basket" of many goods and services.

The combined price is the sum of the weighted average prices of items in the "basket". A

weighted price is calculated by multiplying the unit price of an item to the number of those items

the average consumer purchases. Weighted pricing is a necessary means to measuring the impact

of individual unit price changes on the economy's overall inflation. The Consumer Price Index,

for example, uses data collected by surveying households to determine what proportion of thetypical consumer's overall spending is spent on specific goods and services, and weights the

average prices of those items accordingly. Those weighted average prices are combined to

calculate the overall price. To better relate price changes over time, indexes typically choose a

"base year" price and assign it a value of 100. Index prices in subsequent years are then

expressed in relation to the base year price.


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Inflation measures are often modified over time, either for the relative weight of goods in the

basket, or in the way in which goods and services from the present are compared with goods and

services from the past. Over time adjustments are made to the type of goods and services

selected in order to reflect changes in the sorts of goods and services purchased by 'typical

consumers'. New products may be introduced, older products disappear, the quality of existing

products may change, and consumer preferences can shift. Both the sorts of goods and services

which are included in the "basket" and the weighted price used in inflation measures will be

changed over time in order to keep pace with the changing marketplace.

Inflation numbers are often seasonally adjusted in order to differentiate expected cyclical cost

shifts. For example, home heating costs are expected to rise in colder months, and seasonal

adjustments are often used when measuring for inflation to compensate for cyclical spikes in

energy or fuel demand. Inflation numbers may be averaged or otherwise subjected to statistical

techniques in order to remove statistical noise and volatility of individual prices.

When looking at inflation economic institutions may focus only on certain kinds of prices, or

special indices, such as the core inflation index which is used by central banks to formulatemonetary policy.

Most inflation indices are calculated from weighted averages of selected price changes. This

necessarily introduces distortion, and can lead to legitimate disputes about what the true inflation

rate is. This problem can be overcome by including all available price changes in the calculation,

and then choosing the median value.

EFFECTS

General

An increase in the general level of prices implies a decrease in the purchasing power of the

currency. That is, when the general level of prices rises, each monetary unit buys fewer goods

and services. The effect of inflation is not distributed evenly in the economy, and as a


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consequence there are hidden costs to some and benefits to others from this decrease in the

purchasing power of money. For example, with inflation lenders or depositors who are paid a

fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings,

while their borrowers benefit. Individuals or institutions with cash assets will experience a

decline in the purchasing power of their holdings. Increases in payments to workers and

pensioners often lag behind inflation, especially for those with fixed payments.

Increases in the price level (inflation) erode the real value of money (the functional currency)

and other items with an underlying monetary nature (e.g. loans and bonds). However, inflation

has no effect on the real value of non-monetary items, (e.g. goods and commodities, gold, real

estate).

NEGATIVE

High or unpredictable inflation rates are regarded as harmful to an overall economy. They add

inefficiencies in the market, and make it difficult for companies to budget or plan long-term.

Inflation can act as a drag on productivity as companies are forced to shift resources away from

products and services in order to focus on profit and losses from currency inflation.[10]

Uncertainty about the future purchasing power of money discourages investment and saving.[30]

And inflation can impose hidden tax increases, as inflated earnings push taxpayers into higher

income tax rates.

With high inflation, purchasing power is redistributed from those on fixed incomes such as

pensioners towards those with variable incomes whose earnings may better keep pace with the

inflation.[10] This redistribution of purchasing power will also occur between international

trading partners. Where fixed exchange rates are imposed, rising inflation in one economy will

cause its exports to become more expensive and affect the balance of trade. There can also be

negative impacts to trade from an increased instability in currency exchange prices caused by

unpredictable inflation.


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COST-PUSH INFLATION

Rising inflation can prompt employees to demand higher wages, to keep up with consumerprices. Rising wages in turn can help fuel inflation. In the case of collective bargaining, wages

will be set as a factor of price expectations, which will be higher when inflation has an upward

trend. This can cause a wage spiral. In a sense, inflation begets further inflationary expectations.

HOARDING

People buy consumer durables as stores of wealth in the absence of viable alternatives as a

means of getting rid of excess cash before it is devalued, creating shortages of the hoarded

objects.

HYPERINFLATION

If inflation gets totally out of control (in the upward direction), it can grossly interfere with the

normal workings of the economy, hurting its ability to supply.

ALLOCATIVE EFFICIENCY

A change in the supply or demand for a good will normally cause its price to change, signaling

to buyers and sellers that they should re-allocate resources in response to the new market

conditions. But when prices are constantly changing due to inflation, genuine price signals get

lost in the noise, so agents are slow to respond to them. The result is a loss of allocate efficiency.

SHOE LEATHER COST

High inflation increases the opportunity cost of holding cash balances and can induce people

to hold a greater portion of their assets in interest paying accounts. However, since cash is still

needed in order to carry out transactions this means that more "trips to the bank" are necessary in

order to make withdrawals, proverbially wearing out the "shoe leather" with each trip.


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MENU COSTS

With high inflation, firms must change their prices often in order to keep up with economywide changes. But often changing prices is itself a costly activity whether explicitly, as with the

need to print new menus, or implicitly.

BUSINESS CYCLES

According to the Austrian Business Cycle Theory, inflation sets off the business cycle.

Austrian economists hold this to be the most damaging effect of inflation. According to Austrian

theory, artificially low interest rates and the associated increase in the money supply lead to

reckless, speculative borrowing, resulting in clusters of malinvestments, which eventually have

to be liquidated as they become unsustainable.

POSITIVE

Labor-market adjustments

Keynesians believe that nominal wages are slow to adjust downwards. This can lead to

prolonged disequilibrium and high unemployment in the labor market. Since inflation would

lower the real wage if nominal wages are kept constant, Keynesians argue that some inflation is

good for the economy, as it would allow labor markets to reach equilibrium faster.

DEBT RELIEF

Debtors who have debts with a fixed nominal rate of interest will see a reduction in the "real"

interest rate as the inflation rate rises. The real interest on a loan is the nominal rate minus the

inflation rate.[dubious discuss] (R=n-i) For example if you take a loan where the stated interest

rate is 6% and the inflation rate is at 3%, the real interest rate that you are paying for the loan is

3%. It would also hold true that if you had a loan at a fixed interest rate of 6% and the inflation

rate jumped to 20% you would have a real interest rate of -14%. Banks and other lenders adjust


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for this inflation risk either by including an inflation premium in the costs of lending the money

by creating a higher initial stated interest rate or by setting the interest at a variable rate.

ROOM TO MANEUVER

The primary tools for controlling the money supply are the ability to set the discount rate, the

rate at which banks can borrow from the central bank, and open market operations which are the

central bank's interventions into the bonds market with the aim of affecting the nominal interest

rate. If an economy finds itself in a recession with already low, or even zero, nominal interest

rates, then the bank cannot cut these rates further (since negative nominal interest rates are

impossible) in order to stimulate the economy - this situation is known as a liquidity trap. A

moderate level of inflation tends to ensure that nominal interest rates stay sufficiently above zero

so that if the need arises the bank can cut the nominal interest rate.

TOBIN EFFECT

The Nobel prize winning economist James Tobin at one point had argued that a moderate level

of inflation can increase investment in an economy leading to faster growth or at least higher

steady state level of income. This is due to the fact that inflation lowers the return on monetaryassets relative to real assets, such as physical capital. To avoid inflation, investors would switch

from holding their assets as money (or a similar, susceptible to inflation, form) to investing in

real capital projects. See Tobin monetary model.


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2.3 INTERNATIONAL TRADE

International trade is exchange of capital, goods, and services across international borders orterritories. In most countries, it represents a significant share of gross domestic product (GDP).

While international trade has been present throughout much of history (see Silk Road, Amber

Road), its economic, social, and political importance has been on the rise in recent centuries.

Industrialization, advanced transportation, globalization, multinational corporations, and

outsourcing are all having a major impact on the international trade system. Increasing

international trade is crucial to the continuance of globalization. Without international trade,

nations would be limited to the goods and services produced within their own borders.

International trade is in principle not different from domestic trade as the motivation and the

behavior of parties involved in a trade do not change fundamentally regardless of whether trade

is across a border or not. The main difference is that international trade is typically more costly

than domestic trade. The reason is that a border typically imposes additional costs such as tariffs,

time costs due to border delays and costs associated with country differences such as language,

the legal system or culture.

Another difference between domestic and international trade is that factors of production such as

capital and labour are typically more mobile within a country than across countries. Thus

international trade is mostly restricted to trade in goods and services, and only to a lesser extent

to trade in capital, labor or other factors of production. Then trade in goods and services can

serve as a substitute for trade in factors of production. Instead of importing a factor of

production, a country can import goods that make intensive use of the factor of production and

are thus embodying the respective factor. An example is the import of labor-intensive goods by

the United States from China. Instead of importing Chinese labor the United States is importing

goods from China that were produced with Chinese labor.

International trade is also a branch of economics, which, together with international finance,

forms the larger branch of international economics.


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REGULATION OF INTERNATIONAL TRADE

Traditionally trade was regulated through bilateral treaties between two nations. For centuries

under the belief in mercantilism most nations had high tariffs and many restrictions on

international trade. In the 19th century, especially in the United Kingdom, a belief in free trade

became paramount.[citation needed] This belief became the dominant thinking among western

nations since then. In the years since the Second World War, controversial multilateral treaties

like the General Agreement on Tariffs and Trade (GATT) and World Trade Organization have

attempted to promote free trade while creating a globally regulated trade structure. These trade

agreements have often resulted in discontent and protest with claims of unfair trade that is not

beneficial to developing countries.

Free trade is usually most strongly supported by the most economically powerful nations, though

they often engage in selective protectionism for those industries which are strategically important

such as the protective tariffs applied to agriculture by the United States and Europe.[citation

needed] The Netherlands and the United Kingdom were both strong advocates of free trade when

they were economically dominant, today the United States, the United Kingdom, Australia and

Japan are its greatest proponents. However, many other countries (such as India, China and

Russia) are increasingly becoming advocates of free trade as they become more economically

powerful themselves. As tariff levels fall there is also an increasing willingness to negotiate non

tariff measures, including foreign direct investment, procurement and trade facilitation.[citation

needed] The latter looks at the transaction cost associated with meeting trade and customs

procedures.

Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors

often support protectionism.[citation needed]This has changed somewhat in recent years,

however. In fact, agricultural lobbies, particularly in the United States, Europe and Japan, are

chiefly responsible for particular rules in the major international trade treaties which allow for

more protectionist measures in agriculture than for most other goods and services.

During recessions there is often strong domestic pressure to increase tariffs to protect domestic

industries. This occurred around the world during the Great Depression. Many economists have


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attempted to portray tariffs as the underlining reason behind the collapse in world trade that

many believe seriously deepened the depression.

The regulation of international trade is done through the World Trade Organization at the global

level, and through several other regional arrangements such as MERCOSUR in South America,

the North American Free Trade Agreement (NAFTA) between the United States, Canada and

Mexico, and the European Union between 27 independent states. The 2005 Buenos Aires talks

on the planned establishment of the Free Trade Area of the Americas (FTAA) failed largely

because of opposition from the populations of Latin American nations. Similar agreements such

as the Multilateral Agreement on Investment (MAI) have also failed in recent years.

RISK IN INTERNATIONAL TRADE

Companies doing business across international borders face many of the same risks as would

normally be evident in strictly domestic transactions. For example,

Buyer insolvency (purchaser cannot pay);

Non-acceptance (buyer rejects goods as different from the agreed upon specifications);

Credit risk (allowing the buyer to take possession of goods prior to payment);

Regulatory risk (e.g., a change in rules that prevents the transaction); Intervention (governmental action to prevent a transaction being completed);

Political risk (change in leadership interfering with transactions or prices); and

War and other uncontrollable events.

The next two types of external shocks

1. Hike in the price of oil (petroleum). This is a major import item and is highly price

inelastic as a result of which it has a strong impact on the economy.

2. Stagnation or fall in world trade. World trade is a strong determinant of Indian and hence

any fluctuation in this also affects the economy adversely.


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Chapter -3

OBJECTIVE

SCOPE

NEEDS


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OBJECTIVE:

Primary Objective

To study the impact of various internal and external shocks on the aggregate

growth (GDP)

Secondary Objective

The pervasiveness of the shocks, i.e., their long run persistence.

Interest from the policy point of view is whether the shock leads to a

stagflationary situation or not. The shock leads to some instability in the growth process by enlarging the

disequilibrium in the fiscal or the monetary factors.

SCOPE:

The scope of this study is to analyze the

Oil price shock impacting Indian GDP.

World trade shock and impact on Indian GDP.

Impact INLFATION on Indian GDP.

NEEDS:

As recession has shattered the world economy, we need to study the impact of

shocks on Indian GDP; whereas the recession has affected a many sectors of India

BUT we have confined our study to three shocks only.

How do we differentiate between the short term and long term effects of these

shocks?


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Chapter -4

REVIEW OF LITERATURE


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REVIEW OF LITERATURE

Silk Gary (14 Jan, 10), In his article Oil Prices and Inflation: Impact on Economy

He has studies that India's political economy could see some rough weather in the coming

months due to a combination of global and local events. Steering the economy through a possibly

tricky phase is a prospect the UPA government is quite alive to.

In India, the core inflation rate is still about 2.5 per cent, but the headline inflation rate is far

higher at 4.5 per cent as of end May. Though by itself the inflation rate may still appear

moderate, the politically worrying aspect for the UPA is the unprecedented 9.9 per cent rise in

the prices of food grains and pulses. This is the first time in recent years that food grains are

close to double digit inflation rate. At this time last year, the rate of inflation in food grains were

merely 3.5 per cent. In Indias political economy, this is the most critical aspect of inflation

because unlike in the developed economies, primary food articles constitute a substantial portion

of the wages for close to half the population of India.

It is to further reduce the duty on petroleum produced by 5 per cent to equate it with the duty on

crude. The 10 per cent duty on products has already been reduced to 7.5 per cent recently.

Stating that the increase in oil prices is now expected to persist for some years, the paper said,

"Although prices of some petroleum products have been raised, yet the increase leaves a large

uncovered gap."

Lecuin Urshala (29 Sep, 09)in this article EFFECT OF OIL PRICE , it has been studied the

India's economy is expected to grow by 7.1 per cent in terms of its gross domestic product

(GDP), according to recently updated International Monetary Fund's figures.

Oil prices have increased by over 50 per cent so far in 2005, boosted by high demand, refining

bottlenecks and more recently by the impact of Hurricane Katrina as well as expectations for

possible more damages as Hurricane Rita approaches the Gulf of Mexico oil installations.


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Early in September, India -which imports 70 per cent of its oil needs- increased by about 7 per

cent gasoline and diesel prices, the second similar rise in a year.

Dicosta Sam (17 Aug, 09) in his article GLOBAL IMBALANCE THE CAUSE FOR

GLOBAL LIQUIDITY, Inflation is no stranger to the Indian economy. In fact, till the early

nineties Indians were used to double-digit inflation and its attendant consequences. But, since the

mid-nineties controlling inflation has become a priority for policy framers.

The natural fallout of this has been that we, as a nation, have become virtually intolerant to

inflation. While inflation till the early nineties was primarily caused by domestic factors (supply

usually was unable to meet demand, resulting in the classical definition of inflation of too much

money chasing too few goods), today the situation has changed significantly.

Inflation today is caused more by global rather than by domestic factors. Naturally, as the Indian

economy undergoes structural changes, the causes of domestic inflation too have undergone

tectonic changes.

Daksh James (18 Nov, 09) in the article INFLATION IN INDIA it has been studied the era

of 1990s is widely described in general as a price stability era all over the globe. During the early

part of the decade developed and developing countries alike experienced "a distinct ebbing of

inflation", so observes India's central banking authorities, Reserve Bank of India (RBI). Inflation

in India, barring some external factors like bouts of increase in international oil price and natural

disasters like drought or flood, is showing an ebbing trend. The first half of India's fiscal 2002-03

(beginning April 1, 2002) witnessed uptrend in inflation largely due to increase in oil prices

twice during the period and adverse impact of drought on agri- products leading to increase in

prices particularly of oilseeds and edible oils. The efficient handling of supply management

helped inflation eased in the second half of the fiscal. As a whole at the end of the fiscal 2002-03

inflation was up 3.3 percentage points. In the light of overall variation in wholesale price

inflation, the inflation in fiscal 2002-03 was dominated by non-food items unlike preceding

years, according to a RBI report.


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One of the major import contents of India's inflation in fiscal 2002-03 were edible oils and oil

cakes that recorded highest price increase. Acute shortfall in production of the commodity led to

about half the domestic demand met by imports. The RBI report also states that the underlying

inflation (measured by average WPI) during this fiscal was dominated by manufactured product

groups. Within manufactures again, edible oils, oil cakes and manmade fibres were largely

responsible uppish trend in inflation. Inflation measured by average consumer price index for

industrial workers (CPI-IW) however eased in fiscal 2002-03.

NAGESWARAN V. ANATHA(30 March,09)in this article PRICE OF CRUDE OIL it has

be it has been studied that What is interesting in Daniel Yergins FT piece is that he deftly

sidesteps the question of predicting the future for oil pricenear-term or in the long-term. In

recent years, he has been proven wrong. His Cambridge Energy Research Associates (CERA)

has been bearish on oil since 2004-05.

More important rather than interesting are his comments on the skyrocketing cost of everything

from rigs, to ships to technical and skilled personnel. Clearly, for many reasons, the world needs

to slow down. Central banks (or more precisely, governments) are unwilling to let that happen.

The result is going to be more inflation (for a year or two) and less growth and eventualdeflationary bust.

Jerryh (May 18, 08) in this article WHY IS OIL PRICE SO HIGH?? the study has been

made over the past fifty years, we have seen a great deal of economic development throughout

the whole world, but at the same time, our oil-dependent society is demanding more oil than the

supply. As a long term effect, the finite resource, oil, will run out. The extreme-rising of oil price

had affected us dramatically and the price is expected to rise even higher in the summer of 2008,

making us hard to believe that it is ever going drop in the future. According to

lifeafteroilcrash.net, they said, "Oil is increasingly plentiful on the upslope of the bell curve,

increasingly scarce and expensive on the down slope. Once the peak is passed, oil production

begins to go down while cost begins to go up" (Running). High oil price is now a world-wide

concern but what cause the soaring oil price? As economies developed, the demand for oil

increase, so as a long term effect, oil will decrease and soon run out. The economy and the


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population of countries are constantly improving and growing, so in the last fifty or so years, the

booming of countries economies led to an increase of oil consumption. It is estimated that by the

year 2030, countries will be more industrialized and population will increase by twice as much,

but consequently, our demand for oil will also increase.

Salmon John (may 2006)RECESSION AND ITS IMPACT the article explores the recession

that the United States is now experiencing, and how it affects everything from large business like

the airline industry to paying for tonight's supper . The author also discusses how we can prevent

or slow down future recessions. The paper focuses the recession on a microeconomic scale,

applying it to the author's own Western Kentucky.

"The recession has impacted almost everyone in our surrounding community, whether they were

impacted directly or indirectly. It has impacted local small businesses, large industries and

companies, as well as individuals and families. All people in the economy are impacted by a

recession. However, from the current information that I have obtained, it looks as if the economy

is on the rise and will soon be back to normal. Recession is a serious issue, but hopefully our

current let down in economy has been a learning experience and next time we will be better

prepared and can prevent an equal disaster. This paper examines the current (2002) recession in

the U.S. and how it effects the economy, our families, and certain industries.

George Michelle (September 2009) in this article SHOULD WE LEARN TO LOVE

RECESSIONS? The study has been made The Economist" entitled "A Necessary Evil - Should

We Learn to Love Recessions?" The paper describes the content of the article and the argument

within it that recession may be necessary. The paper defines recession and discusses its

implications, according to the article.

"You may be asking yourself what does recession has to do with inflation and unemployment

and is there a relationship between recession, inflation and unemployment. In the 1950s, the

Phillips Curve appeared to indicate that policymakers could trade higher inflation for lower


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unemployment. Experience showed later that although inflating the economy could lower

unemployment at least as high as before and rising inflation as well. After that realization,

economists came up with NAIRU (non-accelerating inflation rate of unemployment). NAIRU is

the rate of unemployment below which inflation would start to accelerate. However, this is not

always the case. In the late 1990s, in both the U.S. and the UK, the unemployment rate fell

below what most economists thought was the NAIRU, yet inflation did not pick up. As a result,

some economists argued that technological and other changes brought upon by the new economy

meant that inflation no longer existed. However, traditionalists felt that inflation was only resting

(The Economist)."

Jerry Aplinn (November 2005) in this article STRATEGIC ANALYSIS OF OIL AND GAS

SECTOR IN INDIA the study has been made service provides a comprehensive overview of the

oil and gas sector in India, covering the entire value chain of the industry. The upstream sector

and the downstream sectors for petroleum and natural gas have been profiled individually. The

service gives a detailed analysis of the investment climate in each segment, highlighting growth

potential, competitive activity and the impact of government policies and regulations.

This Frost & Sullivan research service titled Strategic Analysis of Oil and Gas Sector in India

provides a comprehensive overview of the oil and gas sector in India, covering its entire value

chain. In this research, Frost & Sullivan's expert analysts thoroughly examine the following

segments of the industry: oil and gas upstream, petroleum downstream, and natural gas

downstream.

This analysis is available through our Energy & Power Growth Partnership Services program.

With continuous access to intelligence and resources from all seven perspectives of the Complex

Business Universe, the Growth Partnership Services program ensures that you and your Growth

Team are able to maintain a 360 Degree Perspective of the market. This comprehensive,

objective information allows your company to mitigate risk, identify new opportunities, and

drive effective strategies for growth.


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Stephens (April 2004)in this article Industry Insight OIL AND GAS the study that India is the

sixth largest consumer of oil. There is a huge demand-supply gap in oil and gas in India. The

country imports more than 70% of its crude oil requirement. In 2005, oil and gas accounted for

38% of primary energy consumption in India, followed by coal at 55%. Oil and gas industry is

broadly classified into Upstream and Downstream segments and comprises 18 refineries, with

total refining capacity of 132.47mmtpa as of April 1, 2006. According to Ministry of Petroleum

and Natural Gas, Indias crude oil reserves have increased from 726mmt in FY02 to an estimated

786mmt in FY06, whereas natural gas reserves have increased from 763 billion cubic metres

(bcm) to 1,101bcm between FY02 and FY06. Crude oil production was estimated at 32.19mmt

and natural gas at 32.20bcm in FY06. Consumption of crude oil was estimated at 130.11mmt,whereas consumption for natural gas was estimate to be 31.02bcm in the same year. The

production and consumption of petroleum products was estimated at 119.75mmtpa and

111.92mmt respectively. Recently, India has emerged as net exporter of petroleum products.

This report provides an insight into the Indian oil and gas industry. An attempt has been made to

provide a glimpse of the emerging opportunities in the backdrop of demand-supply gap of crude

oil and natural gas. Important projects in calibrating the gap have been mentioned and overall

industry scenario has been discussed in the light of global investments. Significant usage of

natural gas perpetuating through a gas infrastructure, coming up in a big way in India, has also

been highlighted. The industry is largely commanded by public sector units (PSUs) and a few

private sector giants like Reliance Industries Limited (RIL). Profiles of these companies and their

Operational and financial performance over the three years period (FY04 - FY06) has also been

given.


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Subharsh Kumar (july2007) in this article INFLATION, INVESTMENT AND GROWTH:

THE ROLE OF MACROECONOMIC POLICY IN INDIA the study that the relationship

between growth and inflation in India. In the short run, the relationship between growth and

inflation is usually positive. Policies that raise outprut (for example, expansionary fiscal and

monetary policies) also raise prices. Inflation is undesirable because it adversely affects some

sections of the population (especially the poor and those whose earnings are not indexed to

prices), distorts relative prices, leads to an appreciation of real exchange rates, erodes the value

of the financial assets and creates instability. The ultimate policy objective is a higher level of

well-being for the population, but a conflict arises in the means of achieving itby higher

growth or by lower inflation. There is a trade-off involved and both cannot be achieved together.A tightening of fiscal and monetary policies may achieve lower inflation but only at the cost of

growth. The government needs to find the right balance between contractionary and

expansionary policies to maximise the well-being of its people. However, some recent cross-

country evidence suggests that long-term growth requires macroeconomic stability, which

includes low inflation. The idea that a stable macroeconomic environment is conducive to

investment, and therefore also for growth, underlies the International Monetary FundWorld

Bank stabilisation and structural adjustment programs. It is only recently that this issue has been

addressed formally to establish the empirical relationship between the two. Low inflation,

sustainable budget deficits, realistic exchange rates and appropriate real interest rates are among

the indicators of a stable macroeconomic environment. Though it is too early for the debate to be

resolved, a number of studies suggest that low inflation is positively related to higher investment

and long-term growth. As an indicator of a stable macroeconomic environment, the inflation rate

assumes greater importance.


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Chapter -5

RESEARCH METHODOLOGY


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RESEARCH METHODOLOGY

TYPES OF RESEARCHDescriptive research will be conducted to study the relationship betwreen various variables like

GDP, crude oil, inflation and balance of trade.

Under descriptive research we are using cohort analysis for collecting data.cohort analysis refers

to a multiple cross sectional research design consisting of series of surveys conducted at

appropriate time intervals

POPULATION

GDP, crude prices, inflation rate from year 1947-2010.

SAMPLING TECHNIQUE

Judjemental sampling technique is used for collecting data related to different variables in such a

way that it represents different business cycles such as recession, recovery, prosperity.

SAMPLE SIZE

Data related to GDP, crude prices, inflation, balance of payments for past 20 years(1990-2010) is

collected which will clearly represents different stages like prosperity, recession which indian

economy has faced.

DATA COLLECTION TECHNIQUES

Secondary data used for the research is collected from various magazines, journals and from

websites such as reserve bank of india.


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HYPOTHESIS FORMULATION

H01- GDP is independent of changes in crude oil prices.H11- GDP is not independent of changes in crude oil prices.

H02- GDP is independent of changes in petrol prices.

H12- GDP is not independent of changes in petrol prices

H03- GDP is independent of changes in diesel prices.

H13- GDP is not independent of changes in diesel prices

H04- GDP is independent of changes in inflation rate.

H14- GDP is not independent of changes in inflation rate.

H05- GDP is independent of changes in level of import.

H15- GDP is not independent of changes in level of import.

H06- GDP is independent of changes in level of export.

H16- GDP is not independent of changes in level of export.

H07- GDP is independent of changes in balance of trade.

H17- GDP is not independent of changes in balance of trade.


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CHAPTER - 6

DATA ANALYSIS

Data analysisCorrelation analysis is used for studying the relationship between two variables like crude oil

prices, inflation, and balance of trade.

Chi square test is used for studying whether crude oil prices, inflation, balance of trade whether

having the impact upon GDP growth.


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6.1 Chi-Square Tests

1. CRUDE PRICECase Processing Summary

Cases

Valid Missing Total

N Percent N Percent N Percent

Crude Price of last 20 years *

Gross Domestic Product18 94.7% 1 5.3% 19 100.0%

Crude Price of last 20 years * Gross Domestic Product CrosstabulationCount

Gross Domestic Product3.73 3.78 4.02 4.06 4.3 4.34 4.48 4.59 5.01 5.04 5.5 6.2 7.4 8.3 8.4 9 9.2

CrudePrice oflast 20years 20.17

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

29.87 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

31.84 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 035.67 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

40.82 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0

42.45 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

44.73 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0

51.83 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0

56.72 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

63.76 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0

71.83 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

72.94 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

73.98 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

74.9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0

74.92 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0

80.94 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0

82.71 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

89.12 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value df

Asymp. Sig. (2-

sided)

Pearson Chi-Square 2.880E2a

3 .000

Likelihood Ratio 101.281 3 .000

Linear-by-Linear Association 10.020 1 .002

N of Valid Cases 18

a. 306 cells (100.0%) have expected count less than 5. The minimum

expected count is .06.

INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-square

table we found that significance two sided value is 0.000 which is much lower than

0.005.This means that our null hypothesis is rejected and we can conclude that crude oil

prices has a significant impact on Indian GDP.


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2. PETROL PRICE

Case Processing Summary

Cases

Valid Missing Total


Petrol Price of last 20 years *

Gross Domestic Product19 100.0% 0 .0% 19 100.0%

Petrol Price of last 20 years * Gross Domestic Product CrosstabulationCount

Gross Domestic Product3.73 3.78 4.02 4.06 4.3 4.34 4.48 4.59 5.01 5.04 5.5 6 6.2 7.4 8.3 8.4 9 9.2

PetrolPrice ofast20years 25.24

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

27.84 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

27.91 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

28.73 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 029.61 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

31.54 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 031.62 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

33.96 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 034.45 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 035.64 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

36.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 036.85 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0

39.83 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 040.05 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

40.49 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 042.85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

44.63 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 045.62 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 047.49 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value df

Asymp. Sig. (2-

sided)


3 .011

Likelihood Ratio 109.116 3 011


N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-squaretable we found that significance two sided value is 0.011 which is much lower than0.005.This means that our null hypothesis is rejected and we can conclude that petrol priceshas a significant impact on Indian GDP.


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3. DIESEL PRICECase Processing Summary

Cases

Valid Missing Total


Diesel Price of last 20 years

* Gross Domestic Product19 100.0% 0 .0% 19 100.0%

Diesel Price of last 20 years * Gross Domestic Product CrosstabulationCount


DieselPriceof last20years 20.22

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

20.61 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

20.86 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 020.87 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 022.84 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

22.9 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 023.84 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 025.74 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 025.83 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 025.88 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0

27.04 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 027.84 0 0 0 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0

28.75 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 030.25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 130.45 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 031.25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 032.86 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 032.87 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value Df

Asymp. Sig. (2-

sided)


4 .030



N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variables. From Chi-squaretable we found that significance two sided value is 0.030 which is much lower than0.005.This means that our null hypothesis is rejected and we can conclude that diesel priceshas a significant impact on Indian GDP.


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4. INFLATION RATECase Processing Summary

Cases

Valid Missing Total


Inflation Rate of last 20 years


Inflation Rate of last 20 years * Gross Domestic Product CrosstabulationCount


InflationRate oflast 20years 2.42

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2.96 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3.8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

3.93 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3.95 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 04.18 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

4.2 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 0

4.87 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

5.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

5.4 0 0 0 0 2 0 0 0 0 0 0 1 0 0 0 0 0 0

5.58 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5.94 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0

6.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 06.7 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

6.83 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0

8.3 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value Df

Asymp. Sig. (2-

sided)


55 .045



N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-square table

we found that significance two sided value is 0.045 which is much lower than 0.005.This means

that our null hypothesis is rejected and we can conclude that inflation rate has a significant

impact on Indian GDP.


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5. EXPORT


Cases

Valid Missing Total


International Trade (Export)

Data of last 20 years * Gross

Domestic Product

19 100.0% 0 .0% 19 100.0%

International Trade (Export) Data of last 20 years * Gross Domestic Product CrosstabulationCount


Inter-nationalTrade(Export)Data oflast 20years 18.09

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

20.01 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

22.01 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 025.52 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 031.23 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 033.73 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 034.07 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 035.2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 036.87 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 043.13 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 043.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 052.7 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 063.45 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 065.09 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 067.82 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0

67.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 069.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 172.84 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 075.62 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value df

Asymp. Sig. (2-

sided)


6 .041



N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-squaretable we found that significance two sided value is 0.041 which is much lower than0.005.This means that our null hypothesis is rejected and we can conclude that export has asignificant impact on Indian GDP.


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6. IMPORTCase Processing Summary

Cases

Valid Missing Total


International Trade (Import) Data of

last 20 years * Gross Domestic

Product

19 100.0% 0 .0% 19 100.0%

International Trade (Import) Data of last 20 years * Gross Domestic Product CrosstabulationCount


Inter-nationalTrade(Import)Data oflast 20years 21.08

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

22.93 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 024.1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 029.67 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 037.95 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 043.78 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 044.82 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 045.55 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 045.73 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 050.53 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 051.41 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 055.32 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 061.42 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 071.01 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 173.91 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 076.33 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 076.95 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 077.03 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

78.09 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Chi-Square Tests

Value Df

Asymp. Sig. (2-

sided)


6 .051



N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-squaretable we found that significance two sided value is 0.051 which is much lower than0.005.This means that our null hypothesis is rejected and we can conclude that import has agnificant impact on Indian GDP.


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7. BALANCE OF TRADECase Processing Summary

Cases

Valid Missing Total


International Trade (Balance

of Trade) Data of last 20

years * Gross Domestic

Product

19 100.0% 0 .0% 19 100.0%

Chi-Square Tests

Value Df

Asymp. Sig. (2-

sided)


306 .041

Likelihood Ratio 109.116 306 1.000

Linear-by-Linear Association .020 1 .886

N of Valid Cases 19



INTERPRETATION:

Chi square test is done to study the association between the two variales.From Chi-square table

we found that significance two sided value is 0.041 which is much lower than 0.005.This means

that our null hypothesis is rejected and we can conclude that balance trade has a significant

impact on Indian GDP.


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6.2 CORRELATIONS1. CRUDE PRICE


Cases

Valid Missing Total


Crude Price of last 20 years *

Gross Domestic Product19 100.0% 0 .0% 19 100.0%

Crude Price of last 20 years * Gross Domestic Product CrosstabulationCount


CrudePriceof last20years 20.17

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

29.87 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 031.84 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

35.67 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 040.82 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 042.45 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

44.73 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 051.83 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0

56.72 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 063.76 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 067.75 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 071.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 072.94 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0

73.98 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 074.9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0

74.92 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 080.94 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 082.71 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

89.12 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Symmetric Measures

Value

Asymp. Std.

Errora Approx. Tb Approx. Sig.

Interval by Interval Pearson's R .767 .084 4.930 .005c

Ordinal by Ordinal Spearman Correlation .803 .116 5.555 .000c

N of Valid Cases 19

a. Not assuming the null hypothesis.

b. Using the asymptotic standard error assuming the null hypothesis.

c. Based on normal approximation.

INTERPRETATION:

Correlation reveals the degree of relationship between two variables. From correlation table

we found that Pearson correlation coefficient is .767 which shows the crude oil prices and GDP

are highly correlated with each other i.e. with change in crude oil prices there is change in GDP.


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2. PETROL PRICE


Cases

Valid Missing Total


Petrol Price of last 20 years * Gross

Domestic Product19 100.0% 0 .0% 19 100.0%

Petrol Price of last 20 years * Gross Domestic Product CrosstabulationCount

Gross Domestic Product3.73 3.78 4.02 4.06 4.3 4.34 4.48 4.59 5.01 5.04 5.5 6 6.2 7.4 8.3

PetrolPriceof last20years 25.24

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0

27.84 0 1 0 0 0 0 0 0 0 0 0 0 0 0 027.91 0 0 1 0 0 0 0 0 0 0 0 0 0 0 028.73 0 0 0 0 0 1 0 0 0 0 0 0 0 0 029.61 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

31.54 0 0 0 1 0 0 0 0 0 0 0 0 0 0 031.62 0 0 0 0 0 0 1 0 0 0 0 0 0 0 033.96 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0

34.45 0 0 0 0 0 0 0 0 0 1 0 0 0 0 035.64 0 0 0 0 0 0 0 0 0 0 1 0 0 0 036.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

36.85 0 0 0 0 1 0 0 0 0 0 0 0 0 0 039.83 0 0 0 0 1 0 0 0 0 0 0 0 0 0 040.05 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

40.49 0 0 0 0 0 0 0 0 0 0 0 0 1 0 042.85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 044.63 0 0 0 0 0 0 0 0 0 0 0 0 0 1 045.62 0 0 0 0 0 0 0 0 0 0 0 0 0 0 047.49 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1


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Symmetric Measures

Value

Asymp. Std.




N of Valid Cases 19




INTERPRETATION:

. Correlation reveals the degree of relationship between two variables. From correlation

table we found that Pearson correlation coefficient is 0.856 which shows the petrol prices and

GDP are highly correlated with each other i.e. with change in crude oil prices there is change in

GDP.


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3. DIESEL PRICECase Processing Summary

Cases

Valid Missing Total


Diesel Price of last 20 years


Diesel Price of last 20 years * Gross Domestic Product CrosstabulationCount


DieselPrice ofast 20years 20.22

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

20.61 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

20.86 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

20.87 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 022.84 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

22.9 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

23.84 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

25.74 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0

25.83 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0

25.88 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0

27.04 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

27.84 0 0 0 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0

28.75 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0

30.25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

30.45 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0

31.25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0

32.86 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0

32.87 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Symmetric Measures

Value

Asymp. Std.




N of Valid Cases 19




INTERPRETATION:


we found that Pearson correlation coefficient is .616which shows the diesel prices and GDP are

highly correlated with each other i.e. with change in crude oil prices there is change in GDP.


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4. INFLATION RATE


Cases

Valid Missing Total


Inflation Rate of last 20 years


Inflation Rate of last 20 years * Gross Domestic Product CrosstabulationCount


InflationRate oflast 20years 2.42

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2.96 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3.8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 03.93 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3.95 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0

4.18 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

4.2 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 0

4.87 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0

5.3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1

5.4 0 0 0 0 2 0 0 0 0 0 0 1 0 0 0 0 0 0

5.58 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5.94 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0

6.4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0

6.7 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0

6.83 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0

8.3 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Symmetric Measures

Value

Asymp. Std.

Errora

Approx. Tb

Approx. Sig.



N of Valid Cases 19




INTERPRETATION:



are lower correlated with each other i.e. with change in inflation rates there is change in GDP.


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5. EXPORTCase Processing Summary

Cases

Valid Missing Total


International Trade (Export)

Data of last 20 years * Gross

Domestic Product

19 100.0% 0 .0% 19 100.0%

International Trade (Export) Data of last 20 years * Gross Domestic Product CrosstabulationCount


Inter-nationalTrade(Export)Data oflast 20years 18.09

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

20.01 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 022.01 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 025.52 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 031.23 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 033.73 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 034.07 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 035.2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 036.87 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 043.13 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 043.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 052.7 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 063.45 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 065.09 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0

67.82 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 067.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 069.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 172.84 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 075.62 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1


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Symmetric Measures

Value

Asymp. Std.

Errora

Approx. Tb

Approx. Sig.



N of Valid Cases 19




INTERPRETATION:



are highly correlated with each other i.e. with change in export there is change in GDP.


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6. IMPORT


Cases

Valid Missing Total


International Trade (Import) Data

of last 5 years * Gross Domestic

Product

19 100.0% 0 .0% 19 100.0%

International Trade (Import) Data of last 20 years * Gross Domestic Product CrosstabulationCount


InternationalTrade(Import)Data oflast20 years 21.08

impact of shocks on indian gdp growth

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