AUTO SECTOR IN INDIA

(BUSINESS STATISTICS PROJECT)

Submitted by: Group 3, Sec-B

Project Title: Analysis of Car Sales in India depending on some non-stochastic variable by Regression
Model.
 Motivation/Objective
To study and analyze the sales of the cars in India on the basis of certain non-stochastic variables.

Data
In order to prepare an effective model on the basis of certain dependent and independent
variables, the data corresponding to car sales, India's GDP, Fuel Price , Steel Price, Exchange Rate,
Interest Rate were considered.

Dependent
Variable Independent Variables
GDP(in Rs. Fuel Steel Exchange Interest
Year Sales(units) Crore) Price(Rs.) Price(Rs./Ton) Rate(Rs./$) Rate(%)
2001-02 5225788 2097726 28 15500 46.69 11.5
2002-03 5941535 2261415 30 20000 48.34 11.13
2003-04 6810537 2538170 34 20800 46.01 10.62
2004-05 7897629 2971464 35 30800 45.69 10.62
2005-06 8906428 3390503 38 26300 43.47 11
2006-07 10123988 3953276 46 32750 45.19 13.5
2007-08 9654435 4582086 44 34550 39.42 14
2008-09 9724243 5303567 47 44984 48.88 14.12
2009-10 12295397 6108903 45 34489 46.37 13.37
2010-11 15481381 7266967 47 43020 46.21 8.92
2011-12 17376624 8353495 57 47530 44.17 10.37
2012-13 17815618 9461013 72 48650 57.15 10.12

Sources
Society of Indian Automobile Manufacturers
http://www.indiastat.com
http://www.rbi.org.in
http://www.indexmundi.com

Analysis and interpretation of Regression Result

The main factors which were considered for the determination of the car sales in India were as
follows:
India's GDP: Increase in the GDP has direct relationship with the increase in the
production in different industries. Thus, this will affect the car sales as well.
Fuel Price: The fuel price has negative relationship with the car sales. People are reluctant
in buying the car, if the fuel price soars.
Tax Rate: The tax rate has negative relationship with the car sales as people are reluctant
in buying the car when higher tax rate is levied.

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 Employment Rate: Employment rate increases the buying power of the individual and so
car sales is in the direct relationship with this factor.
Steel Price: Steel is the major resource for the manufacturing of the car. The increase in
its price can increase the price of the car, which can impact the car sales.
Interest Rate: In India, Car loan is the major source for financing the car. If the interest
rate increases, it can affect the car sales.
Exchange Rate: Since many equipments are imported in India, the exchange rate has vital
role in affecting the overall cost of the car.
Inflation Rate: The increase in the inflation rate will force people to spend more on the
fundamental needs and so the car sales will decrease.

Among the above mentioned factors, we intuitively selected five major factors that can
predominantly influence the car sales. The factors are India's GDP, Fuel Price, Steel Price,
Interest Rate and Exchange Rate.

GDP(in Rs. Fuel Steel Exchange Interest

Crore) Price(Rs.) Price(Rs./Ton) Rate(Rs./$) Rate(%)
GDP(in Rs. Crore) 1
Fuel Price(Rs.) 0.937613904 1
Steel
Price(Rs./Ton) 0.913876584 0.89036894 1
Exchange
Rate(Rs./$) 0.406999546 0.488393791 0.290350495 1
Interest Rate(%) -.217035903 -.095188461 -0.027682653 -0.30180986 1

By performing the correlation on the above non-stochastic variables, we learnt that there is high
correlation between GDP, Fuel Price and Steel Price. Due to such observation, we eliminated Fuel
price and Steel Price from our model.
In the last two decades, GDP of developing countries have grown at a higher rate. This has
resulted in increase in the demand of oil in the international market, consequently leading to
increase in the oil prices. Since India is also among those developing countries and given the data
of last twenty years, we observed a strong relationship between GDP and fuel price and hence
eliminated the Fuel Price from our model.
Moreover, the improvement in the infrastructure of a country has increased the demand of the
steel and so the prices of the steel . Also, the improvement in the infrastructure of the country
had increased the country's GDP by a multiplying factor. The effect of infrastructure on GDP and
steel price had caused a high correlation between the two and hence eliminated the steel price
from our model.
Finally we were left with three main variables (i.e. India's GDP, Interest Rate and Exchange Rate)
that are not highly correlated to each other.

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 GDP(in Rs. Exchange Interest
Crore) Rate(Rs./$) Rate(%)
GDP(in Rs. Crore) 1
Exchange
Rate(Rs./$) 0.406999546 1
Interest Rate(%) -0.217035903 -0.30180986 1

The in depth observation of the summary output of Regression was carried in the following steps:
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.991236
R Square 0.982548
Adjusted R
Square 0.976004
Standard Error 663314.4
Observations 12

ANOVA
Significance
df SS MS F F
Regression 3 1.98E+14 6.61E+13 150.1351 2.27E-07
Residual 8 3.52E+12 4.4E+11
Total 11 2.02E+14

Standard
Coefficients Error t Stat P-value
Intercept 11198837 3112653 3.597843 0.007004
GDP(in Rs. Crore) 1.735937 0.089027 19.49909 4.97E-08
Exchange
Rate(Rs./$) -119593 54268.76 -2.20371 0.058653
Interest Rate(%) -298945 123238.9 -2.42573 0.041477

Population regression line: E(Y/X) = 0 + 1 * X1+ 2 *X2 +3 *X3

0 , 1 , 2 ,3 are population parameter corresponding to intercept, GDP, Interest and Exchange
Rate respectively.
X1, X2 and X3 are independent variable representing GDP, Interest and Exchange Rate
respectively.
y=b0 + b1*x1 + b2* x2 + b3*x3
b0 , b1 , b2 , b3 are the estimators for 0 , 1 , 2 ,3 respectively.
=0.05
1)ANOVA: H0: 1= 0 (i.e.no variation due to non-stochastic variables) ,

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 H1: 1 0 (i.e. variation due to non-stochastic variables)
Significance F <<< 0.05
Since the Significance-F value in ANOVA is approximately zero, we concluded that non-stochastic
variables(i.e. GDP, Interest Rate and Exchange Rate) have impact on the variation of car sales in
addition to the random part. Hence, ANOVA represents the model.

2) Regression Statistic: Adjusted R Square value(= 0.976) shows that 97.6% variation in the car
sales can be explained by the GDP, Interest Rate and Exchange Rate. Thus this is good
determination of the car sales w.r.t. the GDP, Interest and Exchange Rate.

3) P-value
Intercept: H0: 0= 0 (i.e.no intercept value) ,
H1: 0 0 (i.e. some non-zero value of intercept)
p <<< 0.05 , accept the alternative hypothesis i.e. non-zero value of intercept

GDP: H0: 1= 0 (i.e.no variation in car sales by varying GDP) ,

H1: 1 0 (i.e. variation in car sales by varying GDP)
p <<< 0.05 , accept the alternative hypothesis i.e. variation in car sales due to change in GDP

Exchange Rate: H0: 2= 0 (i.e. no variation in car sales by varying Exchange Rate) ,
H1: 2 0 (i.e. variation in car sales by varying Exchange Rate)
p ~ 0.05 , accept the alternative hypothesis i.e. variation in car sales due to change in Exchange
Rate

Interest Rate: H0: 2= 0 (i.e. no variation in car sales by varying Interest Rate) ,
H1: 2 0 (i.e. variation in car sales by varying Interest Rate)
p < 0.05 , accept the alternative hypothesis i.e. variation in car sales due to change in Interest
Rate

The p-value corresponding to all the independent variables and intercept is less than
0.05(except exchange rate that is slightly higher than 0.05), which confirmed that we are
approximately 95% confident of null hypothesis(no variation corresponding to specific
variable) being rejected and existence of evidence for the variation in the car sales
corresponding to the GDP, Interest and Exchange Rate.
Coefficients:
The Positive coefficient of GDP shows that the car sales increases by 1.73 unit with
the increase in the GDP by 1 crore INR.
The negative coefficient of Exchange rate shows that the car sales increases by
119593 units with the appreciation of exchange rate by one rupee against dollar.
The negative coefficient of Interest rate shows that the car sales increases by
298945 units with the decrease in the interest rate by 1 percent.

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 Dependent
Variable Independent Variables
Actual GDP(in Rs. Exchange Interest Estimated Absolute
Year Sales(units) Crore) Rate(Rs./$) Rate(%) Sales(units) Residual
2001-02 5,225,788 2097726.00 46.69 11.5 5818706.944 -592,919
2002-03 5,941,535 2261415.00 48.34 11.13 6016142.209 -74,607
2003-04 6,810,537 2538170.00 46.01 10.62 6927684.469 -117,147
2004-05 7,897,629 2,971,464 45.69 10.62 7718125.319 179,504
2005-06 8,906,428 3,390,503 43.47 11 8597447.687 308,980
2006-07 10,123,988 3,953,276 45.19 13.5 8621324.961 1,502,663
2007-08 9,654,435 4,582,086 39.42 14 10253477.62 -599,043
2008-09 9,724,243 5,303,567 48.88 14.12 10338702.23 -614,459
2009-10 12,295,397 6,108,903 46.37 13.37 12261101.32 34,296
2010-11 15,481,381 7,266,967 46.21 8.92 15620866.36 -139,485
2011-12 17,376,624 8,353,495 44.17 10.37 17317510.18 59,114
2012-13 17,815,618 9,461,013 57.15 10.12 17762513.71 53,104

The final equation for the estimated sales is as follows:

Yest = 11198837 + 1.735937*GDP - 119593*ER - 298945*IR
GDP: Gross Domestic Product of India(Rs. in Crore)
ER: Exchange Rate(Rs/$)
IR: Interest rate(%)

20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
Sales(units)
8,000,000
6,000,000 Estimated(units)
4,000,000
2,000,000
0

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During the period from 2005-2008, which lasted for three years, Indian economy grew at above
9%. This continuous growth resulted in extraordinary increase in the demand of manufactured
goods and so the passenger cars and automobiles. This could be the possible explanation for
the deviation of actual sales (which was quite higher) from the estimated sales. On the other
hand due to global slowdown during the year 2008-09, India also got negatively impacted, with
its growth rate falling under 7%. The car sales fell during this period.