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.