Case: Demand Analysis &

forecasting
The ATIRA STUDY argued that :a. A growth in Income will result in increased consumption of
cloth or a switchover by consumers to more expensive
varieties of cloth. Hence , there is a proportional relationship
between the two.
b. If the prices of cloth decline , consumption of cloth will rise.
Hence, there is an inverse relationship between the two.
c. Food prices have an indirect effect on the demand for cloth.
A rise in food prices , will lead to less demand for cloth ; as
food is a much important necessity than cloth.

1) Evaluate the ATIRA Study in terms of its methodology,

assumptions and data used
METHODOLOGY:-For the purpose of forecasting demand two
separate models were used by ATIRA :1) Model

1 -Forecasting demand for mill made cloth.

2) Model 2 -Forecasting demand for handloom and powerloom

cloth made by decentralized sector.
In case of mill made cloth, both data on production and prices
were available while in case of decentralized sector data on past
production of yarn used by handloom and power loom were
available. ATIRA had no information on their past prices.
ASSUMPTIONS: Demand for cotton cloth was assumed as a function of three
variables namely income, textile prices(excise duty) and
food prices

1) In Model 1 a functional relationship between per capita

deliveries of mill made cloth for civil consumption
(dependent variable)and per capita income, index of
wholesale prices of textile and the index of wholesale prices
of food (independent variable).
2) In Model 2 a functional relationship was assumed between
per capita deliveries of handloom and power loom yarn for
civil consumption (dependent variable) and per capita
income, index of wholesale prices of food particles and index
of excise duty on mill made cloth (independent variable)
It was assumed that handlooms and power looms produced
4.5 yards to a pound of yarn.

In table 7.5 it was assumed that food and textile prices

would remain at the 1955 level.

Table 7.6 assumed that the 1958 price level prevailed

DATA USED: For both mill sector as well as decentralized sector, the data
considered are cloth and yarn delivered for civil consumption
only.
For decentralized sector, estimates of total cloth production
were made on the basis of yarn deliveries by cotton textile
mills.
Data for per capita income has been obtained by dividing
national income at constant prices (1948-49 = 100) by
corresponding population figures.

 Data for index of wholesale price of food is taken from the

Economic Adviser's ( Govt. of India) index of wholesale price
which had 1948-49 as its base.
The wholesale price of textiles data is compiled by the
Economic adviser's ( Govt. of India) index of wholesale price
of textiles with base 1948-49 = 100
Index of excise duty on mill cloth has been computed by
ATIRA with base 1948-49 =100
In statistical analysis, ATIRA relied on time series data.
Data on per capita deliveries of cloth for civil consumption,
index of wholesale prices of food, index of wholesale price of
textiles, index of excise duty and per capita income were
available for the years 1951-57.

2) Can you suggest an alternative approach to the forecasting of

demand for cotton textiles ?
Moving Average Method