Final report on Capstone project
By Priya Malhotra
January 30, 2018
ANALYSIS OF FISCAL DEFICIT OF INDIA FROM 1999-2000 TO 2012-13
INTRODUCTION
Fiscal deficit presents a more comprehensive view of budgetary imbalances. It is widely used as a budgetary tool for explaining and understanding the budgetary developments in India. Fiscal deficit refers to the excess of total expenditure over total receipts (excluding borrowings) during the given fiscal year.
Fiscal Deficit = Total Expenditure - Total Receipts excluding borrowings. The extent of fiscal deficit is an indication of how far the government is spending beyond its means.
This paper studies the impact of various variables on the fiscal deficit in India from period 1999-2000 to 2012-13.
OVERVIEW OF THE STUDY
Fiscal Deficit of a country shows the amount of borrowings.The term ‘fiscal’ is an indicative of Government revenue, whereas the term ‘deficit’ means an excess of liabilities over deficits. Government Budget in India averaged -3.87 Percent of GDP from 1991 until 2014, reaching an all time high of -2.04 Percent of GDP in 1997 and a record low of -7.80 Percent of GDP in 2009. Government Budget in India is reported by the Ministry of Finance, Government of India.
DATA
For this paper, data has been collected from https://data.gov.in/ .
economyindicator <- read.csv("E:/Documents/internship-R/economyindicator.csv")View(economyindicator)library(psych)## Warning: package 'psych' was built under R version 3.4.3summary(economyindicator)## YEAR Fiscal.Deficit CPI..Average. Inflation...WPI..Average.
## 1999-2000:1 Min. :2.540 Min. : 3.400 Min. :3.300
## 2000-01 :1 1st Qu.:4.055 1st Qu.: 3.950 1st Qu.:4.175
## 2001-02 :1 Median :5.340 Median : 5.250 Median :6.000
## 2002-03 :1 Mean :4.953 Mean : 6.357 Mean :5.964
## 2003-04 :1 3rd Qu.:5.862 3rd Qu.: 8.750 3rd Qu.:7.650
## 2004-05 :1 Max. :6.460 Max. :13.000 Max. :9.600
## (Other) :8
## Gross.Fixed.Capital.Formation Consumption....of.GDP. Capital.Formation
## Min. : 0.000 Min. :67.10 Min. :22.30
## 1st Qu.: 5.825 1st Qu.:68.08 1st Qu.:25.70
## Median : 7.450 Median :69.20 Median :34.48
## Mean : 9.550 Mean :71.72 Mean :31.58
## 3rd Qu.:13.750 3rd Qu.:76.65 3rd Qu.:35.59
## Max. :20.700 Max. :79.40 Max. :38.11
##
## Saving.Investment.Gap Gross.Domestic.Saving Bank.Credit.Growth
## Min. :23.77 Min. :-4.8900 Min. :15.30
## 1st Qu.:26.70 1st Qu.:-2.8725 1st Qu.:17.00
## Median :31.91 Median :-1.2400 Median :17.85
## Mean :30.64 Mean :-1.4014 Mean :21.29
## 3rd Qu.:33.63 3rd Qu.:-0.5125 3rd Qu.:23.35
## Max. :36.82 Max. : 2.8600 Max. :37.00
##
## Bank.Deposit.growth
## Min. :13.00
## 1st Qu.:16.00
## Median :16.55
## Mean :17.76
## 3rd Qu.:19.52
## Max. :24.00
## describe(economyindicator)## vars n mean sd median trimmed mad min
## YEAR* 1 14 7.50 4.18 7.50 7.50 5.19 1.00
## Fiscal.Deficit 2 14 4.95 1.17 5.34 5.03 0.97 2.54
## CPI..Average. 3 14 6.36 2.96 5.25 6.05 2.30 3.40
## Inflation...WPI..Average. 4 14 5.96 2.11 6.00 5.88 2.74 3.30
## Gross.Fixed.Capital.Formation 5 14 9.55 5.84 7.45 9.42 5.71 0.00
## Consumption....of.GDP. 6 14 71.72 4.87 69.20 71.47 2.82 67.10
## Capital.Formation 7 14 31.58 5.63 34.47 31.81 3.24 22.30
## Saving.Investment.Gap 8 14 30.64 4.09 31.91 30.70 3.56 23.77
## Gross.Domestic.Saving 9 14 -1.40 2.01 -1.24 -1.47 1.90 -4.89
## Bank.Credit.Growth 10 14 21.29 6.56 17.85 20.48 3.78 15.30
## Bank.Deposit.growth 11 14 17.76 3.53 16.55 17.63 2.82 13.00
## max range skew kurtosis se
## YEAR* 14.00 13.00 0.00 -1.46 1.12
## Fiscal.Deficit 6.46 3.92 -0.58 -1.03 0.31
## CPI..Average. 13.00 9.60 0.72 -0.74 0.79
## Inflation...WPI..Average. 9.60 6.30 0.20 -1.49 0.56
## Gross.Fixed.Capital.Formation 20.70 20.70 0.28 -1.12 1.56
## Consumption....of.GDP. 79.40 12.30 0.56 -1.60 1.30
## Capital.Formation 38.11 15.81 -0.48 -1.62 1.51
## Saving.Investment.Gap 36.82 13.05 -0.36 -1.38 1.09
## Gross.Domestic.Saving 2.86 7.75 0.23 -0.53 0.54
## Bank.Credit.Growth 37.00 21.70 1.08 -0.08 1.75
## Bank.Deposit.growth 24.00 11.00 0.58 -1.07 0.94BOXPLOT
boxplot(economyindicator$Fiscal.Deficit, main="Boxplot for fiscal deficit of India from 1999-2000 to 2012-13", horizontal = TRUE)
The boxplot for fiscal deficit for the period mentioned shows that is skewed towards left. It shows that most of the concentration is around 5-5.5 during this year.
Next, we consider the scatterplot between fiscal deficit and CPI Average, which shows a downward trend for some initial years, where as it further shows an upward trend for the later par of the year.
A similar trend can be seen when we plot fiscal deficit against WPI Average.
library(car)## Warning: package 'car' was built under R version 3.4.3##
## Attaching package: 'car'## The following object is masked from 'package:psych':
##
## logitscatterplot(economyindicator$CPI..Average., economyindicator$Fiscal.Deficit, main="Scatterplot of Fiscal deficit and CPI Average", ylab = "Fiscal Deficit", xlab = "CPI Average")
library(car)scatterplot(economyindicator$Inflation...WPI..Average., economyindicator$Fiscal.Deficit, main= "Scatterplot of Fiscal Deficit and WPI Average", ylab = "Fiscal Deficit", xlab = "WPI Average")
plot(jitter(economyindicator$Fiscal.Deficit),jitter(economyindicator$Gross.Fixed.Capital.Formation),main="Fiscal Deficit vs gross fixed capital formation",ylab = "Fiscal Deficit ", xlab="GFCF")
The above plot shows that as the Gross Fixed Capital Formation kept increasing, Fiscal Deficit of India showed a downward trend. This reflects that greater Gross Fixed Capital Formation helps reducing the Fiscal Deficit of an aconomy, as it creates earning potential in an economy.
library(lattice)## Warning: package 'lattice' was built under R version 3.4.3The scatterplot between Fiscal Deficit and Saving Investment gap shows that Fiscal Deficit initially declined for most part of the period of analysis, but in the later years it showed an upward trend.
scatterplot(Saving.Investment.Gap~Fiscal.Deficit, data = economyindicator,main="Fiscal Deficit vs Saving Investment gap",ylab = "Fiscal Deficit ", xlab="Saving Invst gap" )
library(car)scatterplotMatrix(
economyindicator[
,c("Fiscal.Deficit","Gross.Domestic.Saving","Bank.Credit.Growth","Bank.Deposit.growth")],
spread=FALSE, smoother.args=list(lty=2),
main="Scatter Plot Matrix", diagonal = "histogram")
library(corrgram)## Warning: package 'corrgram' was built under R version 3.4.3temp<-data.frame(economyindicator$Fiscal.Deficit, economyindicator$Bank.Credit.Growth, economyindicator$Bank.Deposit.growth, economyindicator$CPI..Average.,economyindicator$Gross.Fixed.Capital.Formation,economyindicator$Inflation...WPI..Average.,economyindicator$Consumption....of.GDP.,economyindicator$Capital.Formation,economyindicator$Saving.Investment.Gap,economyindicator$Gross.Domestic.Saving)
corrgram(temp, order=TRUE, lower.panel=panel.shade,
upper.panel=panel.pie, text.panel=panel.txt,
main="Corrgram of Fiscal Deficit")
t.test(economyindicator$Fiscal.Deficit,economyindicator$Bank.Credit.Growth)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Bank.Credit.Growth
## t = -9.1648, df = 13.832, p-value = 2.997e-07
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -20.15948 -12.50624
## sample estimates:
## mean of x mean of y
## 4.952857 21.285714t.test(economyindicator$Fiscal.Deficit,economyindicator$Bank.Deposit.growth)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Bank.Deposit.growth
## t = -12.871, df = 15.842, p-value = 8.389e-10
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -14.91492 -10.69365
## sample estimates:
## mean of x mean of y
## 4.952857 17.757143t.test(economyindicator$Fiscal.Deficit,economyindicator$CPI..Average.)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$CPI..Average.
## t = -1.6506, df = 17.001, p-value = 0.1172
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -3.199294 0.390723
## sample estimates:
## mean of x mean of y
## 4.952857 6.357143t.test(economyindicator$Fiscal.Deficit,economyindicator$Inflation...WPI..Average.)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Inflation...WPI..Average.
## t = -1.5695, df = 20.381, p-value = 0.1319
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -2.3540384 0.3311813
## sample estimates:
## mean of x mean of y
## 4.952857 5.964286t.test(economyindicator$Fiscal.Deficit,economyindicator$Gross.Fixed.Capital.Formation)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Gross.Fixed.Capital.Formation
## t = -2.8867, df = 14.05, p-value = 0.01192
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -8.011569 -1.182716
## sample estimates:
## mean of x mean of y
## 4.952857 9.550000t.test(economyindicator$Fiscal.Deficit,economyindicator$Consumption....of.GDP.)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Consumption....of.GDP.
## t = -49.866, df = 14.508, p-value < 2.2e-16
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -69.63094 -63.90621
## sample estimates:
## mean of x mean of y
## 4.952857 71.721429t.test(economyindicator$Fiscal.Deficit,economyindicator$Capital.Formation)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Capital.Formation
## t = -17.32, df = 14.129, p-value = 6.489e-11
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -29.92492 -23.33508
## sample estimates:
## mean of x mean of y
## 4.952857 31.582857t.test(economyindicator$Fiscal.Deficit,economyindicator$Saving.Investment.Gap)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Saving.Investment.Gap
## t = -22.564, df = 15.127, p-value = 4.62e-13
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## -28.11189 -23.26239
## sample estimates:
## mean of x mean of y
## 4.952857 30.640000t.test(economyindicator$Fiscal.Deficit,economyindicator$Gross.Domestic.Saving)##
## Welch Two Sample t-test
##
## data: economyindicator$Fiscal.Deficit and economyindicator$Gross.Domestic.Saving
## t = 10.219, df = 20.966, p-value = 1.347e-09
## alternative hypothesis: true difference in means is not equal to 0
## 95 percent confidence interval:
## 5.061000 7.647571
## sample estimates:
## mean of x mean of y
## 4.952857 -1.401429MODEL
Y(FISCAL DEICIT)= B1+B2(CPI Average)+B3(WPI Average)+B4(Gross Fixed Capital Formation)+B5(Consumption of GDP)+B6(Capital.Formation)+B7(Saving.Investment.Gap)+B8(Gross.Domestic.Saving)+B9(Bank.Credit.Growth)+B10(Bank.Deposit.growth)
The results show that the value of multiple R squared is 0.9569 , which shows that together these explanatory variables explain most of the variations in explained variable,i.e the Fiscal Deficit. Also, the p-value for overall test of significance is 0.02076,which is less than 0.05. So, the null hypothesis of each of the beta coefficients equal to 0 are rejected in favor of alternative hypothesis that they are not equal to 0.Thus, these explanatory variables explains significant variations in the explained variable, i.e. Fiscal Deficit.
reg<-lm(Fiscal.Deficit~CPI..Average. + Inflation...WPI..Average. + Gross.Fixed.Capital.Formation + Consumption....of.GDP. + Capital.Formation + Saving.Investment.Gap + Gross.Domestic.Saving +Bank.Credit.Growth + Bank.Deposit.growth, data = economyindicator)
summary(reg)##
## Call:
## lm(formula = Fiscal.Deficit ~ CPI..Average. + Inflation...WPI..Average. +
## Gross.Fixed.Capital.Formation + Consumption....of.GDP. +
## Capital.Formation + Saving.Investment.Gap + Gross.Domestic.Saving +
## Bank.Credit.Growth + Bank.Deposit.growth, data = economyindicator)
##
## Residuals:
## 1 2 3 4 5 6 7
## 0.200293 -0.102711 -0.077102 -0.269711 0.195366 0.016700 0.310436
## 8 9 10 11 12 13 14
## -0.320443 -0.249713 0.494763 0.027760 -0.001438 -0.303701 0.079502
##
## Coefficients:
## Estimate Std. Error t value Pr(>|t|)
## (Intercept) 44.68395 16.59532 2.693 0.0545 .
## CPI..Average. 0.30457 0.13522 2.252 0.0874 .
## Inflation...WPI..Average. -0.21003 0.10964 -1.916 0.1279
## Gross.Fixed.Capital.Formation -0.03228 0.08203 -0.394 0.7140
## Consumption....of.GDP. -0.32495 0.15851 -2.050 0.1097
## Capital.Formation -0.13107 0.20578 -0.637 0.5588
## Saving.Investment.Gap -0.39467 0.29518 -1.337 0.2522
## Gross.Domestic.Saving -0.01570 0.14610 -0.107 0.9196
## Bank.Credit.Growth 0.02143 0.03285 0.652 0.5498
## Bank.Deposit.growth -0.05892 0.06856 -0.859 0.4386
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Residual standard error: 0.4397 on 4 degrees of freedom
## Multiple R-squared: 0.9569, Adjusted R-squared: 0.86
## F-statistic: 9.869 on 9 and 4 DF, p-value: 0.02076