Business cycles and leading indicators of industrial activity in India
The identification of business cycles in India and construction of a composite leading indicator for forecasting the cyclical turning points have been the focus of this study. The cyclical analysis of monthly index of industrial production (IIP) in India applying the Bry-Boschan procedure indicates that there have been 13 growth cycles in the Indian economy with varying durations during 1970-71 to 2001-02. While the average duration of expansion has been 12 months, the recessions are characterised by relatively longer duration of 16 months. For the purpose of forecasting turning points of business cycle, a composite leading index (CLI) is constructed comprising non-oil imports, exports, US GDP, deposits of commercial banks, non-food credit of commercial banks, currency demand, money supply growth, prices of industrial raw materials, prices of manufactured products, treasury bill yield, stock prices, freight loading of the railways and cargo handled at the major ports. The CLI has been able to forecast the turning points of the reference series with a lead period of about 6 months.
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