Study of leading macroeconomic indicators in India

Abstract

The state of the economy affects each of its participants; businesses, consumers and governments. Leading economic indicators help give indications about future economic trends. Hence, such information would be of interest to the economy’s participants. In this report, we seek to answer a simple question; which leading economic indicators are the most important to understand future GDP trends in India? Existing literature in this area has focussed on the utility of measures such as the Index of Industrial Production (IIP) in India. Internationally in developed markets, there has been research published on the nature of leading indicators, such as durable goods, business activity surveys and commodity prices and employment situations. In this paper, we analyze 58 indicators of various categories (consumer, business, macroeconomic environment and foreign flows) with quarterly GDP. We run a cross-correlation analysis at various lead factors to find the most reliable coincident and leading indicators. Following this, we also conduct a regression analysis to try create a a Composite Indicator of Indian GDP.