Impact of Shocks On Indian GDP Growth

IMPACT OF SHOCKS ON INDIAN
GDP GROWTH
Submitted to Lovely Professional University

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MASTER OF BUSINESS ADMINISTRATION
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LOVELY INSTITUTE OF MANAGEMENT (LIM)

LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
2010
©ARUN GULERIA arun_guleria@ymail.com

TO WHOMSOEVER IT MAY CONCERN
This is to certify that the project report titled “Investors Impact of Shocks on Indian GDP
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requirements for the award of the Master of Business Administration from Lovely Professional
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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
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literature, data or works done by others and cited within this dissertation has been given due
acknowledgement and listed in the reference section.
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INDEX
Ch. No. PARTICULAR Page No.
i. Declaration v
ii. Acknowledgement vi
1. Executive Summary 10
2. Introduction 14
2.1 Gross Domestic Product (GDP) 16
2.2 Inflation 17
2.3 International Trade 26
3. 3.1 Objective 29
3.2 Scope 30
3.3 Needs 30
4. Review Of Literature 31
4.1 Oil Prices And Inflation: Impact On Economy’ 31
4.2 Effect Of Oil Price 31
4.3 Global Imbalance The Cause For Global Liquidity 33
4.4 Inflation In India 33
4.5 Price Of Crude Oil 34
4.6 Why Is Oil Price So High 34
4.7 Recession And Its Impact 35
4.8 Should We Learn To Love Recessions 35
4.9 Strategic Analysis Of Oil And Gas Sector In India 36
4.10 Industry Insight Oil And Gas 37
4.11 Inflation, Investment And Growth 38
5. Research Methodology 39
7. Data Analysis 42
9.1 Chi-Square Tests 43
9.2 Correlations 56
8. Findings 70
9. Conclusion 72
10 Recommendations 74
11. Appendix 76
12. Reference / Bibliography 80
Chapter -1
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
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. 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 in
case 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
10
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
11
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, India’s oil revenues
and GDP are likely to be lower, as higher prices would not compensate fully for lower
production.
12
Chapter -2
INTRODUCTION
13
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
14
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 the
current 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.
15
2.2 INFLATION
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
16
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
17
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 statistical
agencies 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
18
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 the
typical 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.
19
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 formulate
monetary 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
20
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.
21
COST-PUSH INFLATION
Rising inflation can prompt employees to demand higher wages, to keep up with consumer
prices. 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.
22
MENU COSTS
With high inflation, firms must change their prices often in order to keep up with economy
wide 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
23
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 monetary
assets 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.
24
2.3 INTERNATIONAL TRADE
International trade is exchange of capital, goods, and services across international borders or
territories. 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), it’s 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.
25
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
26
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.
27
Chapter -3
OBJECTIVE
SCOPE
NEEDS
28
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?
29
Chapter -4
REVIEW OF LITERATURE
30
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 India’s 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.
31
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.
32
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 Yergin’s FT piece is that he deftly
sidesteps the question of predicting the future for oil price—near-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 eventual
deflationary 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
33
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
34
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.
35
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, India’s 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.
36
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 it—by 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 Fund–World
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.
37
Chapter -5
RESEARCH METHODOLOGY
38
RESEARCH METHODOLOGY
TYPES OF RESEARCH
Descriptive 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.
39
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.
40
CHAPTER - 6
DATA ANALYSIS
Data analysis
Correlation 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.
41
6.1 Chi-Square Tests
1. CRUDE PRICE
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
Crude Price of last 20 years *

18 94.7% 1 5.3% 19 100.0%
Gross Domestic Product
Crude Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Crude
Price of
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
last 20
years 20.17
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 0
35.67 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
42
Chi-Square Tests
Asymp. Sig. (2-

Value df sided)
Pearson Chi-Square 2.880E2 a 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.
43
2. PETROL PRICE
Cases
Valid Missing Total
Petrol Price of last 20 years *

19 100.0% 0 .0% 19 100.0%
Petrol Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Petrol
Price of
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
last
20years 25.24
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 0
29.61 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 0
31.62 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 0
34.45 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
35.64 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 0
36.85 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 0
40.05 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 0
42.85 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 0
45.62 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
47.49 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
44
Chi-Square Tests
Asymp. Sig. (2-

Value df sided)
Likelihood Ratio 109.116 3 011
N of Valid Cases 19
INTERPRETATION:
0.005.This means that our null hypothesis is rejected and we can conclude that petrol prices
has a significant impact on Indian GDP.
45
3. DIESEL PRICE
Cases
Valid Missing Total
Diesel Price of last 20 years

19 100.0% 0 .0% 19 100.0%
* Gross Domestic Product
Diesel Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Diesel
Price
of last 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20
years 20.22
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 0
22.84 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
46
Chi-Square Tests
Asymp. Sig. (2-

Value Df sided)
N of Valid Cases 19
INTERPRETATION:
Chi square test is done to study the association between the two variables. From Chi-square
0.005.This means that our null hypothesis is rejected and we can conclude that diesel prices
has a significant impact on Indian GDP.
47
4. INFLATION RATE
Cases
Valid Missing Total
Inflation Rate of last 20 years

19 100.0% 0 .0% 19 100.0%
Inflation Rate of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Inflation
Rate of
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
last 20
years 2.42
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 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 0
Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1
48
Chi-Square Tests
Asymp. Sig. (2-
Value Df sided)
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.
49
5. EXPORT
Cases
Valid Missing Total
International Trade (Export)

Data of last 20 years * Gross 19 100.0% 0 .0% 19 100.0%
Domestic Product
International Trade (Export) Data of last 20 years * Gross Domestic Product Crosstabulation
Count
3.73 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
Inter-
national
Trade
(Export) 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Data of
last 20
years 18.09
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 0
25.52 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
31.23 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
33.73 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
34.07 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
35.2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
36.87 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
43.13 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
43.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0
52.7 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
63.45 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
65.09 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 0
67.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0
69.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
72.84 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
75.62 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
50
Chi-Square Tests
Asymp. Sig. (2-
Value df sided)
N of Valid Cases 19
INTERPRETATION:
0.005.This means that our null hypothesis is rejected and we can conclude that export has a
significant impact on Indian GDP.
51
6. IMPORT
Cases
Valid Missing Total
International Trade (Import) Data of

last 20 years * Gross Domestic 19 100.0% 0 .0% 19 100.0%
Product
International Trade (Import) Data of last 20 years * Gross Domestic Product Crosstabulation
Count
3.73 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
Inter-
national
Trade
(Import) 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Data of
last 20
years 21.08
22.93 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
24.1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
29.67 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
37.95 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
43.78 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
44.82 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
45.55 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
45.73 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
50.53 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0
51.41 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
55.32 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
61.42 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
71.01 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
73.91 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0
76.33 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
76.95 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0
77.03 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 0
Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1
52
Chi-Square Tests
Asymp. Sig. (2-
Value Df sided)
N of Valid Cases 19
INTERPRETATION:
0.005.This means that our null hypothesis is rejected and we can conclude that import has a
gnificant impact on Indian GDP.
53
7. BALANCE OF TRADE
Cases
Valid Missing Total
International Trade (Balance

of Trade) Data of last 20
19 100.0% 0 .0% 19 100.0%
years * Gross Domestic
Product
Chi-Square Tests
Asymp. Sig. (2-
Value Df sided)
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.
54
6.2 CORRELATIONS
1. CRUDE PRICE
Cases
Valid Missing Total
Crude Price of last 20 years *

19 100.0% 0 .0% 19 100.0%
Crude Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Crude
Price
of last 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20
years 20.17
29.87 0 1 0 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 0 0
35.67 0 0 0 0 0 1 0 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 0
42.45 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 0
51.83 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 0
63.76 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
67.75 0 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 0 1 0 0 0
72.94 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 0
74.9 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 0
80.94 0 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 0 1
89.12 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
55
Symmetric Measures
Asymp. Std.
Value Errora Approx. Tb Approx. Sig.
c
Interval by Interval Pearson's R .767 .084 4.930 .005
c
Ordinal by Ordinal Spearman Correlation .803 .116 5.555 .000
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.
56
2. PETROL PRICE
Cases
Valid Missing Total
Petrol Price of last 20 years * Gross

19 100.0% 0 .0% 19 100.0%
Domestic Product
Petrol Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Petrol
Price
of last 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20
years 25.24
27.84 0 1 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
28.73 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
29.61 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 0
31.62 0 0 0 0 0 0 1 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
34.45 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0
35.64 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0
36.82 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 0
39.83 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
40.05 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 0
42.85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
44.63 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
45.62 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
47.49 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
57
Symmetric Measures
Asymp. Std.
Interval by Interval Pearson's R .856 .059 6.839 .001c
Ordinal by Ordinal Spearman Correlation .854 .091 6.764 .007c
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.
58
3. DIESEL PRICE
Cases
Valid Missing Total
Diesel Price of last 20 years

19 100.0% 0 .0% 19 100.0%
Diesel Price of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Diesel
Price of
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
last 20
years 20.22
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 0
22.84 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
59
Symmetric Measures
Asymp. Std.

c
Ordinal by Ordinal Spearman Correlation .648 .188 3.511 .003
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.
60
4. INFLATION RATE
Cases
Valid Missing Total
Inflation Rate of last 20 years

19 100.0% 0 .0% 19 100.0%
Inflation Rate of last 20 years * Gross Domestic Product Crosstabulation

Count
3.73 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
Inflation
Rate of
1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
last 20
years 2.42
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 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 0
Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1
61
Symmetric Measures
Asymp. Std.
a b
Value Error Approx. T 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.
62
5. EXPORT
Cases
Valid Missing Total
International Trade (Export)

Data of last 20 years * Gross 19 100.0% 0 .0% 19 100.0%
Domestic Product
International Trade (Export) Data of last 20 years * Gross Domestic Product Crosstabulation
Count
3.73 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
Inter-
national
Trade
(Export) 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Data of
last 20
years 18.09
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 0
25.52 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
31.23 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
33.73 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
34.07 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
35.2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
36.87 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
43.13 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
43.82 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0
52.7 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
63.45 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
65.09 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 0
67.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0
69.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
72.84 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
75.62 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
63
Symmetric Measures
Asymp. Std.
a b
N of Valid Cases 19
INTERPRETATION:
are highly correlated with each other i.e. with change in export there is change in GDP.
64
6. IMPORT
Cases
Valid Missing Total
International Trade (Import) Data

of last 5 years * Gross Domestic 19 100.0% 0 .0% 19 100.0%
Product
International Trade (Import) Data of last 20 years * Gross Domestic Product Crosstabulation
Count
3.73 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
Inter
national
Trade
(Import) 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Data of
last
20 years 21.08
22.93 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
24.1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
29.67 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
37.95 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
43.78 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
44.82 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
45.55 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
45.73 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
50.53 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0
51.41 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
55.32 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
61.42 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
71.01 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
73.91 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0
76.33 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
76.95 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0
77.03 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 0
Total 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1
65
Symmetric Measures
Asymp. Std.
a b
N of Valid Cases 19
INTERPRETATION:
are highly correlated with each other i.e. with change in import there is change in GDP.
66
6. BALANCE OF TRADE
Cases
Valid Missing Total
International Trade (Balance of

Trade) Data of last 20 years * 19 100.0% 0 .0% 19 100.0%
International Trade (Balance of Trade) Data of last 20 years * Gross Domestic

Product Cross tabulation
Count
3.73 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
Inter
national
Trade 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
(Balance of -
Trade) 12.19
-
0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0
11.58
-
0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0
10.75
-
0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0
10.53
-
0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0
10.05
-9.13 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0
-8.68 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0
-6.72 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0
-6.71 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0
-6.24 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0
-5.94 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0
-3.49 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0
-2.99 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-2.92 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-2.47 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0
-2.09 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-1.18 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1
1.29 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
2.03 0 0 0 0 1 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 1 1 1
67
Symmetric Measures
Asymp. Std.
Interval by Interval Pearson's R -.034 .216 -.139 .009c

c
Ordinal by Ordinal Spearman Correlation -.187 .238 -.785 .004
N of Valid Cases 19
INTERPRETATION:
we found that Pearson correlation coefficient is .034which shows the crude oil prices and GDP
are lower correlated with each other i.e. with change in balance of trade there is change in GDP.
68
Chapter - 7
FINDINGS
69
FINDINGS
1. Chi square test is done to study the association between the two variales.From Chi-square
table we found that crude oil prices has a significant impact on Indian GDP.
2. From Chi-square table we found that petrol prices have a significant impact on Indian
GDP.
3. Chi square test is done to study the association between the two variales.From Chi-square
table we found that diesel prices has a significant impact on Indian GDP.
4. From Chi-square table we found that inflation rate has a significant impact on Indian
GDP.
5. From Chi-square table we found that export has a significant impact on Indian GDP.
6. We found that that import has a significant impact on Indian GDP.
7. We found that balance trade has a significant impact on Indian GDP.
8. Correlation reveals the degree of relationship between two variables. From correlation
table we found import, export, crude oil prices, petrol prices are highly correlated in
GDP.
9. Correlation reveals the degree of relationship between two variables. From correlation
table we found inflation rate, balance of trade are lower correlated with GDP.
70
Chapter - 8
CONCLUSION
71
Conclusion
 This paper provides rough estimates of the world oil price elasticity’s of real GDPs and
consumer prices, as well as historical changes in this elasticity’s in Indian economy.
 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,
India’s oil revenues and GDPS are likely to be lower, as higher prices would not
compensate fully for lower production.
 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 in case 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.
72
Chapter - 9
RECOMMENDATIONS
73
1. Import should be reduce so that the economy cannot face any shock in feature.
2. Inflation rate has a significant impact on Indian GDP, so the control on GDP is important
for growth in economy.
3. Government provide subsidy on petrol and diesel because oil prices has a significant
impact on Indian GDP growth.
4. Export should be increase for making the balance of trade between import and export.
74
APPENDIX
75
OIL PRICE
Year Crude Oil Petrol Diesel
1991 20.17 25.24 20.22
1992 29.87 27.84 20.87
1993 31.84 27.91 20.86
1994 35.67 28.73 22.84
1995 40.82 29.61 23.84
1996 42.45 31.62 22.9
1997 44.73 31.54 25.83
1998 51.83 33.96 25.74
1999 56.72 34.45 25.88
2000 63.76 35.64 27.04
2001 67.75 36.82 27.84
2002 72.94 36.85 27.84
2003 73.98 39.83 28.75
2004 71.83 40.05 20.61
2005 74.92 40.49 30.45
2006 74.9 47.49 31.25
2007 82.71 42.85 30.25
2008 80.94 45.62 32.86
2009 89.12 44.63 32.87
INFLATION RATE
Year Inflation Rate
1991 2.42
1992 3.93
1993 2.96
1994 3.95
1995 4.18
1996 4.87
1997 5.58
1998 6.83
1999 5.94
2000 6.7
2001 5.4
2002 5.4
2003 5.4
2004 3.8
2005 4.2
2006 4.2
2007 5.3
2008 6.4
2009 8.3
76
INTERNATIONAL TRADE
Year Export Import BOT
1991 18.09 21.08 -2.99
1992 20.01 22.93 -2.92
1993 22.01 24.1 -2.09
1994 25.52 29.67 -6.24
1995 31.23 37.95 -6.72
1996 33.73 43.78 -10.05
1997 35.2 45.73 -10.53
1998 34.07 44.82 -10.75
1999 36.87 45.55 -8.68
2000 43.13 55.32 -12.19
2001 43.82 50.53 -6.71
2002 52.7 51.41 1.29
2003 63.45 61.42 2.03
2004 65.09 77.03 -11.58
2005 67.82 76.95 -9.13
2006 67.97 73.91 -5.94
2007 69.83 71.01 -1.18
2008 72.84 76.33 -3.49
2009 75.62 78.09 -2.47
Gross Domestic Product (GDP) Rate

Year Gross Domestic Product (GDP) Rate
1991 3.73
1992 3.78
1993 4.02
1994 4.34
1995 4.59
1996 4.48
1997 4.06
1998 5.01
1999 5.04
2000 5.50
2001 6.00
2002 4.30
2003 4.30
2004 8.30
2005 6.20
2006 8.40
2007 9.20
2008 9.00
77
2009 7.40
DEFINITIONS OF VARIABLES
Variable Definition
GDP Gross Domestic Product
CPI Consumer Price Index
OE/OP Ratio of Oil Exports to Crude Oil Production
NOI/GDP Ratio of Net Oil Imports to the GDP
Oilt Oil Price
Rert Real Exchange Rate
Inft Inflation
Growth Output Growth
78
BIBLIOGRAPHY
1. Fisher, Irving, The Theory of Interest, London: Macmillan, 1930.
2. Poole, William, “Is Inflation too Low?”, Federal Reserve Bank of St. Louis Review, July
– August , 1999, pp 3 – 10 .
3. Shapiro, Matthew D. and David W. Wilcox, “Bias in the Consumer Price Index”, NBER
Macroeconomics Annual, edited by B. Barnanke and J. Rotenburg (eds), MIT Press,
1998.
4. Svensson, Lars E. O., “Optimal Inflation Targets, ‘Conservative’ Central Bank, and
Linear Inflation Contracts”, American Economic Review,(March), 1997, pp 98 – 114 .
5. Truman, Edwin, Inflation Targeting in World Economy, Institute of International
Economics, 2007
6. Borenstein, S., Cameron, A. and Gilbert, R. (1997), "Do Gasoline Prices Respond
Asymmetrically to Crude Oil Price Changes?" Quarterly Journal of Economics, 112, 305-
339.
7. Davis, S. and Haltiwanger, J. (2001), "Sectoral Job Creation and Destruction Response to
Oil Price Changes," Journal of Monetary Economics 48, 465-512.
8. Davis, S., Loungani, P. and Mahidhara, R. (1997), "Regional Labor Fluctuations: Oil
Shocks, Military Spending and Other Driving Forces," International Finance Discussion
Paper number 578, Board of Governors, Federal Reserve System.
9. Ferderer, J. (1996), "Oil Price Volatility and the Macroeconomy: A Solution to the
Asymmetry Puzzle," Journal of Macroeconomics 18, 1-26.
WEBSITES REFERENCES
 http://ideas.repec.org/p/pra/mprapa/19776.html
 http://www.imf.org/external/np/res/seminars/2005/macro/pdf
 http://www.rediff.com/money/2006/jan/02guest.htm
 http://www.livemint.com/2009/07/02233132/External-shocks-pose-greatest.html
 http://jjap.ipap.jp/link?JJAP/46/3997/
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IMPACT OF SHOCKS ON INDIAN

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MASTER OF BUSINESS ADMINISTRATION

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2.1 GROSS DOMESTIC PRODUCT

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

Other common measures of inflation are:

SHOE LEATHER COST

RISK IN INTERNATIONAL TRADE

The next two types of external shocks

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

DATA COLLECTION TECHNIQUES

Valid Missing Total

N Percent N Percent N Percent

Crude Price of last 20 years *

Crude Price of last 20 years * Gross Domestic Product Crosstabulation

Asymp. Sig. (2-

Pearson Chi-Square 2.880E2 a 3 .000

Likelihood Ratio 101.281 3 .000

Linear-by-Linear Association 10.020 1 .002

Case Processing Summary

Valid Missing Total

N Percent N Percent N Percent

Petrol Price of last 20 years *

Petrol Price of last 20 years * Gross Domestic Product Crosstabulation

Asymp. Sig. (2-

Pearson Chi-Square 3.230E2 a 3 .011

Likelihood Ratio 109.116 3 011

Linear-by-Linear Association 13.202 1 .000

Valid Missing Total

N Percent N Percent N Percent

Diesel Price of last 20 years

Diesel Price of last 20 years * Gross Domestic Product Crosstabulation

Asymp. Sig. (2-

Pearson Chi-Square 3.087E2 a 4 .030

Likelihood Ratio 106.344 2 .000

Linear-by-Linear Association 6.835 1 .009

Valid Missing Total

N Percent N Percent N Percent

Inflation Rate of last 20 years

Inflation Rate of last 20 years * Gross Domestic Product Crosstabulation

Pearson Chi-Square 2.850E2 a 55 .045

Likelihood Ratio 102.524 55 .050

Linear-by-Linear Association 1.614 1 .004

Valid Missing Total

N Percent N Percent N Percent

International Trade (Export)

Pearson Chi-Square 3.230E2 a 6 .041

Likelihood Ratio 109.116 6 .500

Linear-by-Linear Association 12.114 1 .001

Valid Missing Total

N Percent N Percent N Percent

International Trade (Import) Data of

Pearson Chi-Square 3.230E2 a 6 .051

Likelihood Ratio 109.116 6 .020