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EF F E C T S OF S O M E
M A C R O E C O N O M I C
VA R I A B L E S O N
E C O N O M I C G R O W T H
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E G
IMacroeconomic variables (e.g. National Income (GDP), investment(private and public), employment rate, balance of trade, money supply
and general rise in price level (inflation), interest rate, play a vital role in
the economic performance of any country. The study develops anempirical framework to examine the relationship between the
macroeconomic environment and trends in macroeconomic variables..
The macro economic variables that are supposed tobe associated with an improvement in higher growth rate are higher
income level, higher investment rate, and real depreciation of exchange
rate. The estimated significant effects of growth, income and investment
provide evidence that policies designed to promote investment and
growth are likely also to contribute to an improvement in economic
growth.
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DATASOURCE& METHODOLOGY
Data source-Reserve Bank of India (Handbook of Statistics on Indian Economy)
Various issues, National Sample Survey Organisation (NSSO)
World Bank
IMF, Various issues
Methodology-Economic tools like correlation, regression, testing of hypothesis,
observation of trends of economic variables and study of their growth
and impacts on each other and overall economic performance are
used.
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REVIEWOFLITERATUREThe standard wisdom of macroeconomics came to be questioned with the
publication ofJohn Maynard Keynes 1936 book, The General Theory Of
Employment, Interest and Money (1936).
Keynesian macroeconomics put forward fiscal and monetary policy to generate
effective demand in the economy.
Keynes showed that faced with a recession or depression like situation, a policy
maker can undertake major government expenditure programmes that can boost
effective demand and can ultimately help the economy to come out of recession. For
a considerable period the Keynesian revolution seemed synonymous with a weak
instrument of stabilization policy.
According to Moggridge and Susan (1974) unlike the classical school, Keynes
thought money is not a veil and hence an increase in the quantity of money in will
not only lead to an increase in aggregate output, but, also a reduction in interest rate
and exact role of money could vary with circumstances.
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A diametrically opposite view on monetary policy came from Milton Friedman.
Keynes and Friedman are often seen at the extreme corners of the poles while
Keynes stood for government intervention, Friedman represented the superiority of
market forces..
The standard economic prophesies in the 1980s increasingly favoured price stability
as an exclusive objective of monetary policy.
Edward Prescott and Finn Kydland (1977) had developed time inconsistency
problem, which describes situation where, with passing of time, policies that were
determined to be optimal yesterday are no longer perceived to be optimal today.
Now there has been much comment by the media and criticism by business that the
policy of hiking interest rates to combat inflation will hurt investment and growth.
A rising interest rate will shave off 2% points from out 6 6.5 GDP growth rate. One
firm level study by Centre for Studies in Social Science, Calcutta (Mangit 2008)
shows that real interest rates do not explain private investment.
However, we extend our study to examine the effects of interest rate, the inflationrate, investment and trade balance on GDP growth.
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RESEARCHQUESTIONThe relation between GDP and Prime Lending Rate.
Relation between Public Investment and Prime LendingRate.
Relation between Private Investment and Prime LendingRate.
Relation between GDP and Total Investment.
Relation between GDP , Total Inflation and Real lendingrate.
Relation between deficit in trade balance, Exchange Rate,FDI, FII and GDP growth.
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TableONE
The relationbetween GDP &
PrIme LendIng Rate
http://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/CORRELATION1.xlsx -
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ECONOMIC ANALYSIS:From table 1, we have observed that the relationship
between the prime lending rate and GDP growth.We intend to focus on the statistical associations. This
will give us some idea on what to expect of our growth
rate, if the RBI keeps on raising the prime lending rate
in the face of a sustained rise in prices.
We analyse pre-reform and post-reform periods and
find that:
The association was positive and moderate in the pre-
reform period (0.7719).
There is a negative association between them during
the post reform period but much lower(-0.8519).
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0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
GDP At FactorCost
YEARS
Pre-Liberalization GDP at FactorCost
GDP at Factor Cost
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
GDP At FactorCost
YEARS
Post-Liberalization GDP at FactorCost
GDP at Factor Cost
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TableONE
The relation
between Primelendingrate&
Public investment
http://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation2.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/PROJECT/correlation2.xlsx -
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ECONOMIC ANALYSIS:From table 2, we have observed that the
relationship between the prime lending rate andpublic investment. We focus on the
statistical association between these two
variables and give us some idea about how far
changes in prime lending rate affected public
investment.
We analyse pre-reform and post-reform periods and find that
:
The association between public investment and
prime lending rate in the pre-reform period ispositive and high (0.8009).
The association between public investment and
prime lending rate in the post-reform period is
negative and low (-0.7853).
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0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
YEARS
PRE-LIBERALIZATION-TOTALPUBLIC INVESTMENT
GDP at Factor Cost
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05T
OTALPUBLICINVES
TMENT
YEARS
POST -LIBERALIZATION-TOTAL PUBLIC INVESTMENT
Series1
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Table 3-The relation between PrivateInvestment and Prime Lending Rate
http://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation3.xlsx -
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ECONOMICANALYSIS:From table 3, we have observed that the relationship betweenthe prime lending rate and private investment in order to focus
on the statistical association between these two variables and
give us some idea about how far changes in prime lending
rate affected private investment.
We analyse pre-reform and post-reform periods and find that :
In the pre-reform period, the association between private
investment and prime lending is positive and high
(0.7145).
In the post-reform period, the association betweenprivate investment and prime lending rate negative and
low (-0.8326).
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0
100
200
300
400
500
600
700
800
900
1 3 5 7 9 11 13 15 17 19 21TOTALPRIVATEINVESTMENT
YEARS
PRE-LIBERALIZATION-TOTALPRIVATE INVESTMENT
Total PrivateInvestment
YEAR
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14
TOTALPRIVATEINV
ESTMENT
YEARS
POST-LIBERALIZATION-TOTALPRIVATE INVESTMENT
TOTAL PRIVATEINVESTMENT
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Table 4-GDP and Total Investment
http://localhost/var/www/apps/conversion/tmp/scratch_8/correlation%20between%20GDP%20and%20Total%20investment.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation%20between%20GDP%20and%20Total%20investment.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation%20between%20GDP%20and%20Total%20investment.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correlation%20between%20GDP%20and%20Total%20investment.xlsx -
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ECONOMICANALYSIS:From table 4, we have observed that the
relationship between GDP and Total
investment in order to focus on the statistical
association between
these two variables and give us some
idea about how far changes in prime
lending rate affected private
investment.
We analyse pre-reform and post-
reform periods and find that :
We have the association between GDP and
total investment as positive both in pre-reformand post-reform period.
In the post-reform period, the association between
GDP and total investment (0.9957) is higherthan in the pre-
reform period (0.9779).
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0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
1 2 3 4 5 6 7 8 9 10 11
PRE-LIBERALIZATION-TOTALINVESTMENT AND GDP AT
FACTOR COST
GDP at Factor Cost
TotalInvestment
0
5000
10000
15000
20000
25000
30000
35000
1 2 3 4 5 6 7 8 9 10 11 12 13 14
POST-LIBERALIZATION-TOTALINVESTMENT AND GDP AT
FACTOR COST
Series1
Series2
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Table 5-The relation
between REPO RATE,REVERSE REPO RATE AND
PRIME LENDING RATE
http://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/correl%20btw%20prime%20lending%20rate%20,repo,reverse%20repo.xlsx -
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ECONOMICANALYSIS:From table 5, we have observed that the relationship between Repo
rate, Reverse rate and Prime Lending Rate in order to focus on thestatistical association between these two variables and give us some
idea about how far changes in prime lending rate affected Repo rate and
Reverse rate.
We analyse post-reform period and find that :
The relationship between repo rate and prime lending rate in post-
reform period shows a negative association(-0.1803), and,
relationship between Reverse repo rate and prime lending rate in
post-reform period shows a positive association(0.1849).
So, upward or downward changes in the repo rate do not affect
prime lending rate.
When the RBI, for a policy measure, revised the repo rate either
upward or downward, commercial banks did not respond to thepolicy by revising the prime lending rate.
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0
2
4
6
8
10
12
14
PLR,REPO RATE,REVERSE REPO
RATE
YEARS
POST-LIBERALIZATION-PLR,REPO RATE
AND REVERSE REPO RATE
PLRREVERSE REPO RATE
REPO RATE
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Table 6-The Relationship Between
GDP, RealInterest Rate and Inflation
Rate
http://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/gdp,inflatn%20and%20plr.xlsx -
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ECONOMICANALYSIS:From table 5, we have observed that the relationship between
GDP, Real Rate of Interest and Inflation Rate n order to focus
on the statistical association between these two variables and
give us some idea about how far changes in the real interest
rate affected the GDP and the Inflation rate.
We analyse pre-reform and post-reform periodsand find that:
We have calculated, as well as observed, that the
overall association between our growth and
inflation is negative.
In the pre-reform period the association is
positive (0.352).
But, in the post-reform period the association is
ratherstrongly negative (-0.4654).
PRE LIBERALIZATION GROWTH OF GDP REAL INTEREST
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-5
0
5
10
15
20
Pre
-liberalisation
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
GROWTHOFGDP,RE
ALINTERESTRATEAND
INFLAT
IONRATE
YEARS
PRE-LIBERALIZATION- GROWTH OF GDP, REAL INTERESTRATE AND INFLATION RATE
Inflation RateBased on WPI
Real Lending Ratebased on WPI
Growth of GDP
0
2
4
6
810
12
14
16
1
991-92
1
992-93
1
993-94
1
994-95
1
995-96
1
996-97
1
997-98
353704
199
9-2000
2
000-01
2
001-02
2
002-03
2
003-04
2
004-05
2
005-06
2
006-07
2
007-08
2
008-09
GROWTHOFGDP,REALINTERE
STRATEAND
INFLATIONRATE
YEARS
POST-LIBERALIZATION- GROWTH OF GDP,REAL INTERESTRATE AND INFLATION RATE
Inflation RateBased on WPI
Real LendingRate based onWPI
Growth OfGDP
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Table 7: Relationship between Current Account
Deficit, Exchange Rate and Inflation
http://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsxhttp://localhost/var/www/apps/conversion/tmp/scratch_8/trade%20balance.xlsx -
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ECONOMICANALYSIS:
For the Current Account Balance, we notice that thedata is available only for the post-reform per iod.
We have observed in our table that there had been
continuousdeficitin trade account of balance ofpayments.
The deficit in trade account (in commensurate with)
thehigh import bil lin terms of foreign exchange on
importing oil and gold.
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-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
1990-91
1995-96
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Trade Balance(= Total Exports-TotalImports)
Trade Balance(= TotalExpotrs-Total Imports)
C
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CONCLUSION:From the data tables, we can infer that the first half of the period i.e., 1990-91 to1999-2000 GDP growth was around 5-7% with a steady increase in investment,share of investment in the private sector increased to two-third of the totalinvestment, while inflation during the first two years of this period was on anaverage above 15%, though for the rest of the decade it was below 10%.
For the second half of this period, i.e., from 2000-01, the GDP growth rate wasaround 8-9%, reaching its peak at 9.56% in 2006-07. Though after a year, Indianeconomy showed a downfall with a growth rate of 6.72% . Share of the privatesector in investment remained the same.
The inflation rates during this period, we will see that during the first half it wasbelow 5% and rose above it during 2006-07 but never crossed 10%. But duringNovember, 2009 to June 2010, it was well above 15%, though it increases slowlyduring the later part of that financial year.
Recently the RBI argued that it was left with only very little space for furthereasing of monetary policy in this current financial year.
The Trade account and current account deficit risks would continue to stay, thougha fall in global-commodity prices blocked temporary respite to it. The CAD-GDPratio for the last 5 years was expected to be around 5%, which is twice thesustainable level.
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Marjit, S and K P Das(2008): Financial Sector Reform for Stimulating Investment andEconomic Growth : The Indian Experience, ADB volume, Oxford University Press, New
Delhi, forthcoming.
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(2007): Inflation in a Developing Economy: Theory and Policy, Money and Finance,3
(2),89-138 reprinted in M Rakshit, Macroeconomics of Post-Reform India (New Delhi:
Oxford University Press), 2009.
(2011): Global Crisis and Indias Trade-GDP Puzzle: A Suggested Resolution, Money and
Finance, forthcoming.
Government of India (2008): Economic Survey 2007-08.
Mishra, AR and S Zarabi (2008): Inflation Pays the Price of Poor Data Collection, Business
Standard, May,15, Mumbai edition.
Reserve Bank of India (2007): Macroeconomic and Monetary Developments in 2006-07,
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