An Analysis of the Indian Industrial Business Cycle from 1991 to 2009

Abstract

The Indian business cycle is a relatively recent phenomenon, in the sense that perturbations newlinethroughout the economy that are not dependent entirely on the vagaries of the monsoon have newlineonly really been observed since 1991. This has been largely due to the liberalization of the Indian newlineeconomy during 1991 (and in the years immediately following 1991). newlineWe have therefore analyzed the Indian business cycle for the time period 1991-2009, and newlineattempted to answer a central question regarding the Indian business cycle: does a set of factors newlineexplain the existence and perpetuation of the Indian business cycle since 1991? newlineWe attempt to answer this question by building a dynamic model of an industrial economy, in newlinewhich a business cycle arises by the need to periodically replace fixed capital. The need for newlinereplacement arises out of nothing more than the realistic assumption of depreciation of fixed newlinecapital. In addition, the business cycle may be impacted by decisions made by the industrialists newlinein response to observed conditions and prospects in the economy as regards actual and newlineexpected future output. newlineWe then seek to ascertain if such a model may find empirical validation in the Indian context for newlinethe time period under consideration by comparing the output of the model to actual data from newlinethe Indian economy, sourced from the CMIE Prowess database. This comparison serves two newlinepurposes: the model stands up to empirical scrutiny, and the methodology used herein newlinevalidates turning points marked out by other research done in this field. newline