Analysis of GDP

Components

Group 2
Aayushi 323, Debayan 324, Keshav 332
Pranav P 341, Rahul 351, Ruchika 354

1
Q1. Which component share has been the biggest between 2002-2015?
Ans.
After observing the first tab shared in the Excel file (Shares of Real GDP) – it can be concluded that
Private Consumption has had the highest share in real GDP for the time period 2002-15. This trend was
true for the period before that as well but private consumption’s contribution to GDP increased (a jump
of 3%) from 2001 to 2002 and then remained relatively stable after 2002 (with a slight steady increase).
This is also established from the private consumption graph.
As can be seen from the table below, not only is private consumption the highest contributor to real GDP
but it contributes to the majority of the GDP in India (almost four times as that of private investment
which comes second).
When the economy goes through boom, private consumption significantly increases and when it goes
through a bust cycle, the private consumption decreases.

Category 2002-2005 2006-2009 2010-2015

Private Consumption 66 66.5 66.8
Private Investment 16 17 17.1
Public Consumption 11.2 11 11.1
Public Investment 4.4 5.2 4.5
Inventory 1.2 1 0.6
Net Exports 1.2 -0.8 -0.1
Total 100 100 100

Q2. What is happening with private investment and public investment

during last two decades. Which component is growing?
Ans.
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0

Total Public GFCF (Ig) Total Private GFCF (Ip)

(Levels, 2008 Prices-DND Billions) (Levels, 2008 Prices-DND Billions)

Observations
1. The private investment is increasing rapidly since Q3 1994 and has continued since
2. The public investment has not increased largely and is rather constant
2
3. The change in direction of investment (private) is post the economic liberalization reforms
4. Private investment dipped during 2008 crash, but public investment increased in a bid to compensate
for the same

Q3. Why do you think Net Exports fell in the third decade 2006-2015? Why
both exports and imports fell?
Ans.

Net Exports
8.0

6.0

4.0

2.0

0.0
Q1-1993
Q4-1993
Q3-1994
Q2-1995
Q1-1996
Q4-1996
Q3-1997
Q2-1998
Q1-1999
Q4-1999
Q3-2000
Q2-2001
Q1-2002
Q4-2002
Q3-2003
Q2-2004
Q1-2005
Q4-2005
Q3-2006
Q2-2007
Q1-2008
Q4-2008
Q3-2009
Q2-2010
Q1-2011
Q4-2011
Q3-2012
Q2-2013
Q1-2014
Q4-2014
Q3-2015
Q2-2016
-2.0

-4.0

Net export, as seen from the data indicates NX was positive for the first few quarters and a significant
chunk of the decade, it was negative. It is because imports rose relatively higher than the exports. One
reason could be whenever the countries’ private consumption increases, people tend to import goods and
services as they can afford it.

3
During the 2006-2015, the world was suffering from the effects of the 2008 Economic crises. The housing
crises in America affected the whole world leading to slowdown in every country. This affected the world
trade the most as countries decreased importing goods and services, which in turn reduced exports of the
country.
This is why imports and exports fell.

Q4. What is the relative contribution during recession and growth? Which
component fell down the most? Is it the same way every time there is a
decline?
Ans.
Recession and boom periods have been identified after analysing the GDP growth % and real GDP
growth YoY graphs. We categorize each quarter where GDP fell over the corresponding quarter of the
preceding year as a fall, and every quarter where the GDP rose over the corresponding quarter of the
preceding year as boom.

Component Business Cycle Relation Timing

Private Consumption Pro-Cyclical Coincident
Public Consumption Counter-Cyclical Leading
Private Investment Pro-Cyclical Leading
Public Investment Counter-Cyclical Leading
Change in Inventories Pro-Cyclical Coincident
Net Exports Acyclical

After this the average contribution of each component was calculated. The average percentage changes of
the components for growth and recession have been structured in the table below.

Period Private Government Public Private Net

Change in
Consumption Consumption Investment Investment Exports
Inventories
(Cp) (Cg) (Ig) (Ip) (NX)
Recession -6.04 0.05 -0.08 -1.26 -0.33 0.26
Growth 2.67 0.19 -0.03 1.26 0.09 -0.13

The component that fell the most can be seen to be Private consumption at an average of -6.04%.
The component that rose the most during times of growth is also Private Consumption at 2.67%.
Since private consumption contributes the most to the GDP, the drop in private consumption
corresponds to a recessionary time. This also sits well with our hypothesis that private consumption is pro-
cyclical and co-incidental. During boom, private consumption reaches its maximum as can be seen from
the contribution graphs in the excel sheet.