Advanced Manufacturing Analytics

(MS7031)
(PGPEX VLM)

Report Title: Analysis of relationship between Indian GDP and

other variables using regression.

Submitted by: Submitted to:

Abhishek Sarma : MS19V001 Prof. Usha Mohan
Abhishek Tyagi : MS19V002
Pankaj Singh : MS19V020
Ranjit M : MS19V025
Introduction:
GDP is one of the most important factors which reflect the economic condition of a country.
It amalgamates all the transactions inside and between the countries. It encompasses all the
goods produced, service used by individual, firms, industry or government. It helps
government and agency to formulate policy and actions. GDP helps to identify the health of a
country’s economy, whether it needs a boost or not, economy is expanding or contracting,
jobs are created or not, which sectors are performing well and which are lagging behind.
GDP has been accepted as a common comparison benchmark by all countries hence it will
allow us to compare the rate of growth of different countries.
In recent past India has been the leader in terms of fastest growing GDP among the major
economies of the world. The factors that played major roles in the growth of the GDP varied
from as trivial as rainfall to as modern as FDI, hence we have tried to check the impact of
different micro and macro-economic factors on GDP and their impact on each other from the
data available in public domain from government of India.
Response variable and Explanatory variable:
Gross Domestic Product (GDP) is a function of many factors hence it has been taken as a
response variable for our analysis.
Rainfall, FDI, FII, HDI, Election year, Export, Import and Crude oil price have been
considered to impact the GDP, hence they are taken as explanatory variables. Among these
variables, election year is categorical variable while FDI, FII, HDI, Export, Import, rainfall
and Crude oil price are taken as continuous variable.
GDP= β0 + β1*Rainfall + β2*FDI + β3*FII + β4*HDI + β5*Election year + β6*annual Export
+ β7*Import + β8*crude oil price.
Data Collection:
For our analysis we have taken the data set for 17 years starting from 2001 to 2018. The data
set which we have taken is shown below. The sources from which have collected our data are
also mentioned below.
Assumptions for Regression:
1. Errors should be independent. (Durbin-Watson statistic should be close to 2)
2. Valid Linear relationship between the variables.
3. Normal distribution of variables.
4. Equivariance of residuals.
 Indian Annual Exports Imports Crude oil
GDP (in Rainfall in USD in USD price FDI (in FII (in Election
Year USD mn) (mm) mn mn (US$/barrel) Rs Cr) Rs Cr) HDI year
2001 304536.4 818.8 43826.7 51413.3 24.35 6130 1505 0.502 No
2002 328141 700.5 52719.4 61412.1 24.92 5035 377 0.508 No
2003 367614.7 902.9 63842.6 78149.1 28.90 4322 10918 0.521 No
2004 446086.5 807.1 83535.9 111517 37.73 6051 8686 0.53 No
2005 508497.5 874.3 103091 149166 53.39 8961 9926 0.539 Yes
2006 595648.1 889.3 126414 185735 64.29 22826 3225 0.548 No
2007 685812.7 943 163132 251654 71.12 34843 20328 0.558 No
2008 771981.3 877.8 185295 303696 96.99 41873 15017 0.565 No
2009 891297 698.3 178751 288373 61.76 37745 29048 0.571 Yes
2010 1068826 911.1 249816 369769 79.04 34847 29422 0.581 No
2011 1223086 901.3 305964 489319 104.01 46556 16812 0.59 No
2012 1392162 823.9 300401 490737 105.01 34298 27582 0.6 No
2013 1572693 937.4 314405 450200 104.08 36046 5009 0.607 No
2014 1745514 781.7 310338 448033 96.24 45148 40923 0.618 Yes
2015 1926965 765.8 262291 381008 50.75 55559 4016 0.627 No
2016 2135520 864.4 275852 384357 42.81 60220 7735 0.637 No
2017 2348240 887.5 303526 465581 52.80 60974 22165 0.643 No
2018 2661423 804 330078 514078 68.35 64375 3587 0.647 No
Table-1: Source Data
Checking of Assumptions:
1. Based on the residual plot we can see errors have equal variance & are independent
(DW=1.41)

HDI Residual Plot

400000
Residuals

200000

0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
-200000
HDI

Election year Residual Plot

400000
Residuals

200000

0
0 0.2 0.4 0.6 0.8 1 1.2
-200000
Election year
 FII (in Rs Cr) Residual Plot
400000
Residuals

200000

0
0 5000 10000 15000 20000 25000 30000 35000 40000 45000
-200000
FII (in Rs Cr)

FDI Residual Plot

400000
Residuals

200000

0
0 10000 20000 30000 40000 50000 60000 70000
-200000
FDI

Crude oil price(US$/barrel) Residual

Plot
500000
Residuals

0
0.00 20.00 40.00 60.00 80.00 100.00 120.00
-500000
Crude oil price(US$/barrel)

Exports in USD mn Residual Plot

400000
Residuals

200000

0
0 50000 100000 150000 200000 250000 300000 350000
-200000
Exports in USD mn
 Drought Residual Plot
400000
Residuals

200000

0
0 0.2 0.4 0.6 0.8 1 1.2
-200000
Drought

Annual Rainfall (mm) Residual Plot

400000
Residuals

200000

0
0 200 400 600 800 1000
-200000
Annual Rainfall (mm)

2. Normal distribution is checked ok from the below plot

Normal Probability Plot

300000

250000

200000

150000

100000
Residuals

50000
Residuals
0 Linear (Residuals)
-50000

-100000

-150000

-200000
-2 -1.5 -1 -0.5 0 0.5 1 1.5 2
-250000
Z Value
3. Linearity checked ok.

Y vs Y hat
3000000

2500000

2000000

1500000

1000000

500000

0
0 500000 1000000 1500000 2000000 2500000 3000000

Interpretation

F value of 56 and Significance F is less than 0.05. So the model is significant. R sq value is
0.98 and adjusted R-sq. is 0.962 which tells us that the model is able to explain the variation
in response variable. For confidence interval of 50%, we can see that exports, crude oil price,
FII and HDI are significant factors with p value less than 0.5.
 VIF comparison

VIF is high for exports and imports. So will remove Exports and check again.

Coefficientsa

Standardized
Unstandardized Coefficients Coefficients Collinearity Statistics

Model B Std. Error Beta t Sig. Tolerance VIF

1 (Constant) -8551814.706 1241675.039 -6.887 .000

Annual Rainfall (mm) -591.599 574.145 -.058 -1.030 .325 .704 1.421

Crude oil
-3152.906 1763.160 -.117 -1.788 .101 .520 1.921
price(US$/barrel)

FDI -3.859 5.421 -.106 -.712 .491 .101 9.905

FII (in Rs Cr) -4.163 4.187 -.065 -.994 .341 .523 1.913

Election year -83398.180 121586.517 -.043 -.686 .507 .577 1.732

HDI 18401214.849 2361635.824 1.149 7.792 .000 .103 9.724

a. Dependent Variable: GDP (in USD mn)

VIF is in the acceptable limits. Also, p value is less than 0.5 for annual rainfall, crude oil,
price, FDI, FII, election year, HDI are the significant factors.

Conclusion:
GDP is a very dynamic parameter and it depends upon many factors. As the value of GDP
changes with the same proportion and VIF is very high we can conclude that these value are
highly interdependent and cannot be taken into model building hence dropped. As there are
many other factors affecting the data we cannot take the confidence interval more than 50%
and with this the model we have generated is reliable to certain extent.
References:
https://commerce-app.gov.in/eidb/Default.asp
https://www.downtoearth.org.in/news/water/india-had-a-deficit-monsoon-in-13-of-the-last-
18-years-61772
https://www.indexmundi.com/commodities/?commodity=crude-oil&months=360
https://dipp.gov.in/sites/default/files/FDI_Factsheet_27May2019.pdf
https://data.gov.in/resources/year-wise-gross-domestic-product-gdp-2004-05-2017-18-
ministry-statistics-and-programme
http://hdr.undp.org/en/data