Impact of Crude and Imports on Trade Deficit

7/23/2019 Impact of Crude and Imports on Trade Deficit

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Table of content

INTRODUCTION

LITRATURE REVIEW

Indian macro-economic summary:1999-2 !o211-12

Ar!ic"e1

Ar!ic"e2

Ar!ic"e#

O$%ECTIVE

RESEARCH METHODOLOGY

GRAPHICAL REPRESENTATION OF TRADE DEFICIT,CRUDE

AND IMPORTS

ANALYSIS

Single linear regression model

Model based on trade deficit and imports

Model based on trade deficit and crude

Multiple linear regression model based on trade deficit,

imports and crude

Multicollinearity analysisSUGGESTINS

!N!LUSIN

"I"LIG#A$%Y

A$$EN&I'



PREPARED BY:

LAKSHAY CHAUDHARY

JATIN ARORA

YASH ROHRA

AJAY KUMAR

GOURA BINDAL

DANISH KHANNA

MENTORED BY:

M!" RASHI THAREJA



Impact of crude and imports on trade deficit

Trade Deficit

An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficitrepresents an outflow of domestic currency to foreign markets . The trade deficit is usually denoted by N!N"T"#$%T&( is the difference between the value of the goods !and services a country exports and the value of the goods thecountry imports)

( or e*uivalently

Imports

+Imports, consist of transactions in goods and services !sales( barter( gifts or grants from non-residents to residents./Theexact definition of imports in national accounts includes and excludes specific ,borderline, cases. A general delimitation ofimports in national accounts is given below)

An import of a good occurs when there is a change of ownership from a non-resident to a resident0 this does not

necessarily imply that the good in *uestion physically crosses the frontier. 1owever( in specific cases national accounts

impute changes of ownership even though in legal terms no change of ownership takes place !e.g. cross border financial leasing ( cross border deliveries between affiliates of the same enterprise( goods crossing the border for

significant processing to order or repair . Also smuggled goods must be included in the import measurement.

Imports of services consist of all services rendered by non-residents to residents. In national accounts any direct

purchases by residents outside the economic territory of a country are recorded as imports of services0 therefore allexpenditure by tourists in the economic territory of another country are considered as part of the imports of services.Also international flows of illegal services must be included.

2%3D" $I4

A naturally occurring( unrefined petroleum product composed of hydrocarbon deposits. 2rude oil can be refined to produce

usable products such as gasoline( diesel and various forms of petrochemicals. It is a natural commodity extracted from the

core of the earth and only some countries have crude oil reserves.

4iterature review

%ecently trade deficit ( crude oil prices its effects were very much in news( that5s why we took this topic so as to analy6e its

impact on the economy as india5s economy is very much sensitive to the change in crude oil prices because india imports

789 of its crude oil re*uirements. The main aim of taking this topic was to :udge the sensitivity of or trade deficit to the

changes in crude oil prices and changes in imports our time.

2rude oil is needed for production of mostly everything that is produced today and with the increase in the si6e of india5s

economy crude oil imports increased dramatically denting the trade deficit as growth in exports was less as compare to

imports.

%o( economy is related to c)anges in crude oil prices*

2rude oil prices change often with the global demand( so increase in the crude oil prices increases our imports as

crude has inelastic demand which in line increases our trade deficit!"-I(leading to high current account deficit

which leads to more inflation in the economy and this inflation leads to high interest rates which further slows

down the investment and decline in saving investment rate.

It also Impacts the fiscal deficit in the economy leading to more borrowings and also leads the

currency to decline and further increasing the import bill. 1ence ( Increase in crude oil prices is a bad for the

economy like india as it worsens it deficit and also leads to depreciation of the currency.

http://en.wikipedia.org/wiki/Import#cite_note-2


http://en.wikipedia.org/wiki/National_accounts




http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Economic_territory









The %;I ha written to oil marketing companies asking them to purchase at least <8 per cent of their dollar needs

from the public sector &tate ;ank of India. This will cut the demand in the open market( where dollars are bought

on a competitive bidding process( by half and help to keep the rupee volatility in check. &;I will sell dollars to

oil companies at market prices( the %;I has stipulated.

+The exchange rate is market determined(= >u:ral said( adding that +The fall in the rupee is counteracting the fall

in the crude prices( and that will not help our fiscal deficit much.=

1e ponted out that the fall in crude prices had helped India reduce its current account deficit. 2rude oil imports

are the single largest item in India5s import bill.

ARTICLE 1

The Reserve Bank of India is keeping a watch on the rupee exchange rate, Finance ecretar! R "u#ra$ to$d

%&T' (rofit after the Indian currenc! fe$$ to an a$$)ti*e $ow of +-.. against the do$$ar-

/The additiona$ do$$ar window opened 0! RBI for 2Cs is to cushion the* fro* the vo$ati$e exchange rate,3 he

said, referring to a centra$ 0ank *ove to push down de*and the open *arket-

The RBI has written to oi$ *arketing co*panies asking the* to purchase at $east +4 per cent of their do$$arneeds fro* the pu0$ic sector tate Bank of India- This wi$$ cut the de*and in the open *arket, where do$$ars

are 0ought on a co*petitive 0idding process, 0! ha$f and he$p to keep the rupee vo$ati$it! in check- BI wi$$ s

do$$ars to oi$ co*panies at *arket prices, the RBI has stipu$ated-

/The exchange rate is ar!et "eterine",# G$%ra& sai", a""ing that 'The (a&& in the r$)ee is

c*$nteracting the (a&& in the cr$"e )rices, an" that +i&& n*t he&) *$r (isca& "e(icit $ch-

5e pointed out that the fa$$ in crude prices had he$ped India reduce its current account deficit- Crude oi$ i*por

are the sing$e $argest ite* in India6s i*port 0i$$

ARTICLE 2

India's trade deficit touched a record high at $184.9 billion for !11"1 as i#orts outaced e%orts b&

a huge #argin. This higher"than"e%ected trade deficit is about 1!. er cent of the ()* and is #ainl&

on account of bloating oil i#orts.

Merchandise exports for the fiscal crossed the targeted $+!! billion, desite a sluggish de#and fro#-e& #ar-ets in crisis"hit Euroean nion and the /. The o0erall e%orts ere u 1 er cent in dollarter#s to $+!+.2 billion as against re0ious &ear's $31.1 billion.

oe0er, i#orts gre +.13 er cent to $488. billion on rising oil and non"oil i#orts. Trade deficitor the ga beteen e%orts and i#orts during !11"1 gre 3 er cent o0er re0ious &ear's $118.billion, according to Co##erce 5inistr& data.

The high trade deficit is &et another cause of orr& for the Indian econo#&, eseciall& after the recentre0ision in outloo- on long"ter# credit rating b& /tandard and *oor's.

6The groing trade deficit of $184.9 billion is a cause of concern,7 said 5r 5. Rafeeue Ah#ed,*resident, ederation of Indian E%ort :rganisations ;IE:<.

oe0er, loo-ing at the rofile of i#orts, 0er& little #anoeu0ring is ossible since the increasing tradedeficit is on account of large i#orts of etroleu#, gold, sil0er and coal besides #achiner& inuts, 5rAh#ed said in a state#ent.

:il i#orts ere u 42 er cent at $133.+ billion during !11"1 o0er the re0ious &ear's $1!3.9 billion.The non"oil i#orts gre er cent to $+++ billion ;$+.8 billion<.

or 5arch !1, exports were six per cent lower at $28.6 billion ;$+!.4 billion<. I#orts during

5arch gre 4 er cent to $4.3 billion ;$+4. billion<. The oil i#orts during 5arch rose +.43 ercent to $13.8+ billion o0er $11.93 billion in corresonding last &ear. The non"oil i#orts also ent u b&! er cent to $.2 billion in 5arch.

5r Ah#ed stressed that the deficit could be bridged ith increasing e%orts as #ar-et and roductdi0ersification strateg& has started &ielding results.

The (o0ern#ent should ro0ide necessar& co#etiti0eness to e%orts b& ro0iding loer rate of creditthrough re"introduction of interest sub0ention and rebate on /tate and local ta%es.

The (o0ern#ent should also ro0ide #ar-eting suort to #icro and s#all enterrises throughcreation of an E%ort )e0elo#ent und, he said.

?ears D$44A%@

%3#""

BBB C.

888 CE.<8

88 C<.BC

88 CF.BG

88E C<.<F

88C CE.G7

88< CC.77

88G CC.

88F EB.7E

887 C7.B

88B CG.<

88 C<.8

8 <.F8 <F.EE



ARTICLE .

ndia6s oi$ i*port 0i$$ $eaped 74 per cent to a record 8174 0i$$ion in 9411)19 as high oi$ prices shaved off*uch of the nation6s "&( growth rate, i$ 2inister 2r :aipa$ Redd! said toda!-

peaking at the +th (EC Internationa$ e*inar in 'ienna, 2r Redd! said it was /esti*ated that a

sustained 814 increase in oi$ prices $ead to a 1-+ per cent reduction in the "&( of deve$oping countries/-

;e have seen evidence of this in our own countr!< India6s "&( grew at =-> per cent during the $astinancia$ !ear ?9411)19@ down fro* the per cent p$us growth rate experienced in the past few !ears,3 hsaid-

2r Redd!, whose speech cop! was re$eased 0! his office here, said 0etween the 9414)11 and 9411)19, t

wor$d6s fourth $argest oi$ i*porter saw its average cost of i*ported crude oi$ rising 0! 89 per 0arre$,*aking India6s oi$ i*port 0i$$ rise fro* 8144 0i$$ion to 8174 0i$$ion do$$ars/-

'Higher internati*na& *i& )rices &ea" t* "*estic in(&ati*n, increase" in)$t c*sts, an increase inthe $"get "e(icit +hich in-aria&. "ri-es $) interest rates an" s&*+s "*+n the ec*n*icgr*+th,3 he said-

A$so, net oi$ i*porting countries $ike India experience deterioration in their 0a$ance of pa!*ents, putting

downward pressure on exchange rates-

As a resu$t, i*ports 0eco*e *ore expensive and exports $ess va$ua0$e, $eading to a drop in rea$ nationanco*e,3 he said- /There cou$d not 0e a *ore direct cause and effect re$ation than high oi$ prices retardinecono*ic growth of oi$ i*porting countries3-

Abo#e $ent%one& a'e !o$e a't%cle! (!)o*%n+ t)e %$,act of c-''enc. on t'a&e &e/c%t an& %$,o't!

(*)%c) !)o*! t)at alone c'-&e o%l ,'%ce! an& %$,o't! &o not %$,act t)e t'a&e &e/c%t b-t ot)e'

#a'%able! a'e al!o ,'e!ent %n &ete'$%n%n+ t'a&e &e/c%t"

T)e!e all a'e t)e UI o' ot)e' #a'%able! a! $ent%one& %n t)e bol& ,o't%on of a't%cle 0 (*)%c) !a.! t)at

fall %n '-,ee %! co-nte'act%n+ t)e fall %n c'-&e o%l ,'%ce! " T)%! !tate$ent %! +%#en )%$!elf b. t)e

/nance !ec'eta'. *)%c) ,'o#e! t)e ,'e!ence of c-''enc. facto' %n &ete'$%n%n+ t'a&e &e/c%t"

In a't%cle 1 $o'e #a'%able! a'e &%!co#e'e& *)%c) e2ect t)e t'a&e &e/c%t !-c) a! $e'c)an&%!e

e3,o't! ( an& &ecl%ne of e3,o't! b. 45 f-'t)e' %nc'ea!e! t)e t'a&e &e/c%t *)%c) !)o*! t)at t'a&e&e/c%t %! e6-all. a2ecte& b. e3,o't! %n co$,a'%!on to %$,o't!"

In a't%cle 7( /5igher internationa$ oi$ prices $ead to do*estic inf$ation, increased input costs, an increase

in the 0udget deficit which invaria0$! drives up interest rates and s$ows down the econo*ic growth@,this

portion suggests varia0$es $ike inf$ation,input costs and increase in 0udget deficit affects the overa$$

econo*! which further affects the trade deficit and has inf$uence on the trade deficit as we$$ which is

shown 0! the deviation of data fro* the regression $ine



OBJECTIE

T)e ob8ect%#e of o-' ,'o8ect 'e,o't %! to a!ce'ta%n t)e 'elat%on!)%, bet*een t'a&e &e/c%t( c'-&e

an& %$,o't!" Ma%n a%$ of ta9%n+ t)%! to,%c *a! to anal.e t)e %$,act of c'-&e not onl. on t)e

t'a&e &e/c%t b-t a! a *)ole on In&%an econo$. beca-!e t'a&e &e/c%t *)%c) %$,act! c-''ent

acco-nt &e/c%t a! *ell )a! beco$e a f-n&a$ental ,'oble$ of %n&%a a! %t! o#e'all /!cal &e/c%t on

'%!e an& fo'e%+n %n;o*! a'e &ec'ea!%n+ e#en t)o-+) o-' c-''enc. )a! &e,'ec%ate& $o'e t)an

1<5 %n t)e 'ecent ,e'%o&"

T)at=! *). *e *ante& to anal.e %t! %$,act b.

-!%n+ 'e+'e!!%on (co''elat%on bot) !%$,le l%nea' 'e+'e!!%on an& $-lt%,le l%nea' 'e+'e!!%on"



Research *ethodo$og!

All t)e &ata %! co$,%le& %n e3cel !,'ea&!)eet! an& f-'t)e' all t)e l%ne

c)a't! a'e &'a*n *%t) t)e )el, of e3cel"

All t)e anal.!%! a'e &one *%t) t)e )el, of SPSS ( *e )a#e a,,l%e&'e+'e!!%on anal.!%! /'!t %n 1 #a'%able ca!e an& !econ& %n 7 #a'%able

ca!e" In /'!t ca!e:

1 #a'%able! a'e ta9en( c'-&e %! ta9en a! %n&e,en&ent beca-!e

t'a&e &e/c%t *%&en! a! c'-&e ,'%ce %nc'ea!e! an& t'a&e &e/c%t %!

ta9en a! &e,en&ent #a'%able (t)en l%nea' 'e+'e!!%on anal.!%! a'e

a,,l%e& on bot) of t)e$ *)%c) +%#e! o-t t)e'e

co''elat%on (R1(a&8-!te& R1(ano#a table>f te!t?(t te!t t)e%'

!%+n%/cance le#el! an& 'e+'e!!%on e6-at%on" It al!o +%#e!

)%!to+'a$ an& 'e+'e!!%on l%ne *)%c) tell! *)et)e' o-' &ata %!

l.%n+ on t)e 'e+'e!!%on l%ne an& )o* *ell %t !-%t! %t (o' t)e'e %!

,'e!ence of UI #a'%able!" S%$%la'l.( t)e !a$e t.,e of anal.!%! a'e

&one b. ta9%n+ %$,o't! a! %n&e,en&ent #a'%able an& t'a&e &e/c

a! &e,en&ent #a'%able beca-!e t'a&e &e/c%t *%&en! a! %$,o't!

%nc'ea!e"

No*( %n !econ& ca!e l%nea' 'e+'e!!%on anal.!%! a'e a,,l%e& on 7

#a'%able! *)e'e c'-&e an& %$,o't! a'e ta9en a! %n&e,en&ent

#a'%able! beca-!e t)e. bot) )a#e )%+) &e+'ee of ne+at%#e

co''elat%on *%t) t)e t'a&e &e/c%t an& %nc'ea!e %n an. of t)e$

lea&! a !%$-ltaneo-! %nc'ea!e %n t'a&e &e/c%t" T)e anal.!%! +%#e

t)e follo*%n+:0?Mean( !tan&a'& &e#%at%on an& !tan&a'& e''o'1?Co''elat%on coe@c%ent!7?ANOA table> f te!t( !%+n%/cance of t)e o#e'all $o&el??Re+'e!!%on e6-at%on( t te!t?M-lt%co l%nea'%t. %n&%cato'! l%9e tole'ance le#el an&

I>#a'%ance %n;at%on facto'?(con&%t%on %n&e3 *)%c) %! al!o a

lea&%n+ %n&%cato' of c)ec9%n+ $-lt%co l%nea'%t."



Trade deficit and crude

Trade deficit shares the positive correlation with the crude oil (as it can be seen that as the prices crude

is increases trade deficit gets widened.

Tradedeficit!billionH

2rude!Hper barell

-F.7 .FB

-.< EG.<C

-.G B.7G

-8.F B.-E.F EC.G

-EE.F C<.F7

-<.B <7.7E

-G.7 GG.C<

-B.< F.8E

-B.< BF.EE

-7. <F.7

-E8.G F<.8<

-GB. 77.BE



Trade deficit and imports

T'a&e&efc%t

I$,o't!

0"F "

01" "00"4 4"7

0<" 4"

07" F<

77" 00F"

0" 0"0

40"F 0<"

0" 1"4

00" 7<F"

00F"1 7<<"4

07<"4 7F0"0

Trade deficit and i*ports share positive corre$ation with each other as increase in

i*ports increase the trade deficit to $arge extent- This re$ationship shows that with

ever! increase in i*ports the trade deficit wi$$ increase in the negative territor!"



T#A&E &E+I!IT,!#U&E AN& IM$#TS



ANALYSIS + T#A&E &E+I!IT AN& IM$#TS

Y--./012.342'i5Ui

? refers to the dependent variable i.e. trade deficit

.G is the intercept term i.e. constant

is the f independent variable.i.e. imports

3i refers to the residual term which consists of vaiables other

than imports and crude that effect trade deficit(for e.g.forex and

gold reserves with %;I(transfers(internationalInflation and Interest rate.

Interpretation

The intercept term .G explains the trade deficit at 6ero level

of imports and residual(which suggests that the trade deficit

will be u.s. .G bn H.

The above e*uation explains that for u.s.bnH increase in the

imports the trade deficit will get increased by us H.EB8 bn.



ean J The mean values of imports are B.< respectively which is

positive( however the mean for trade deficit i.e. GC.7 is negative sinceis a negative value.

&td. deviationJthe standard deviation of trade deficit is <C.B<< which

explains that the trade deficit values over the time deviates to the extent

of <C.B<< from its mean i.e. GC.7E

The no. of observations are E for all variables i.e. from year BBB-

8



Karl #earson coefficient of correlation is calculated for finding out the degree of

orrelation between three variable and all values are close to which represents

igh correlation between three variables.

Trade deficit and imports J the degree of correlation between trade d and

imports is .BB<(this values represent a very high degree of correlation between

trade deficit and imports .



% J r i.e. overall coefficient of correlation is .BB< which shows

a high degree of correlation between the variables

%

!coefficient of determinationJ it is nothing but the s*uaredvalue of r or "&&@T&&( it is considered as a better measure of

goodness of fit and represents how well the data fits to the

regression line.in this case it .B7B which is *uite close to

representing low level of residual values. This also explains that

that B7.B9 variation in trade deficit is explained by imports alone.

&td. errorJ std. error is the std. deviation of the sample( which

represents that the sample values deviates by the extent of <.B

from the mean.



"xplained sum of s*uares!"&& J explained sum of s*uares !"&&(

alternatively known as the odel &um of &*uares or &um of &*uares due

to %egression( is a *uantity used in describing how well a model( often a

regression model( represents the data being modeled. In particular( theexplained sum of s*uares measures how much variation there is in the

modeled values( greater the "&&( the better the estimated model performs.

since it is E<7<G(it means that the is well represented by model. %esidual sum of s*uares !%&& J It is a measure of the discrepancy

between the data and an estimation model. A small %&& indicates a tight fit

of the model to the data. &ince our %&& is E7C.G ( which is considerably

low our data fits precisely in the model. Total sum of s*uares !T&& J the T&& is the sum of the s*uares of the

difference of the dependent variable and its grand mean.Total sum of s*uares J explained sum of s*uares L residual sum of

s*uares. since it is EGC8( it represents high level of authenticity of

model. M T"&T

18JT1"I% I& AN IN"%&" %"4ATI$N&1I# ;"TO""N T%AD"

D"MI2IT AND I#$%T&.1JT1"%" I& A DI%"2T %"4ATI$N&1I# ;"TO""N T%AD"

D"MI2IT AND I#$%T&&ince the significance level is 8.88P8.8< at B<9 confidence interval

level( our data is statistically significant and we re:ect the null

hypothesis due to occurrence of type error.



T T"&T

18JT1"%" I& AN IN%&" %"4ATI$N &1I# ;"TO""N T%AD"

D"MI2IT AND I#$%T&.1JT1"%" I& DI%"2T %"4ATI$N&1I# ;"TO""N T%AD"

D"MI2IT AND I#$%T&.

&ince the significance level is 8.88P8.8< at B<9 at

confidence interval( our data is statistically significant and

we re:ect the null hypothesis due to occurrence of type

error.



The histogram represents that the dependent variable trade deficit is

normally distributed. And since it is normally distributed the degree of

skewness is 8( in other words no asymmetry exists.



The normal probability plot explains how the residual terms are

distributed over the time. The straight upward sloping line

%epresents the ideal condition and the closer residual plots are to the

line the better it is. In this model the residuals are tightly

Mitted to the line except between probability of 8.-8.C.



Analysis of trade deficit and crude

Y67.68-1/.260'i5Ui

? refers to the dependent variable i.e. trade deficitCF.C< is the intercept term i.e. constant

i is the independent variable i.e. crude oil



gold reserves with %;I(transfers(international

Inflation and Interest rate.

Interpretation

The intercept term CF.C< explains the trade deficit at 6ero level

of crude oil prices and residual (which suggests that the trade

deficit will be u.s. CF.C< bn H.

Mor an increase in unit in the crude oil price the trade

deficit will increase by u.s.H .8CG bn.



ean J The mean values of crude oil is <C.77E respectively which is

positive( however the mean for trade deficit is negative since is a negative

value.


explains that the trade deficit values over the time deviates to the extent of

<C.B<< from its mean i.e. GC.7E.

&imilarly standard deviation of crude i.e. C.8E explains that the crude oil

prices over the time deviates to the extent of C.8E from its mean i.e. <C.77

The no. of observations are E for all variables i.e. from year BBB-8



Karl #earson coefficient of correlation is calculated for finding out the

egree of correlation between three variable and all values are close to which represents high correlation between three variables.

Trade d and imports and crude J the degree of correlation between

trade deficit and crude is .7B<. ;oth of these values represent a very

high degree of correlation between trade d and imports and trade

deficit and crude.



% J r i.e. overall coefficient of correlation is 8.7B< which

shows a high degree of correlation between the variables

%Q!coefficient of determinationJ it is nothing but the s*uared

value of r or "&&@T&&( it is considered as a better measure of

goodness of fit and represents how well the data fits to theregression line.in this case it 8.78 which is *uite close to

representing low level of residual values.it also explains that

78.9 variation in trade deficit is explained by the movement in

crude oil prices alone.

&td. errorJ std. error is the std. deviation of the sample( whichrepresents that the sample values deviates by the extent of <.G

from the mean.



"xplained sum of s*uares!"&& J explained sum of s*uares !"&&( alternatively

known as the odel &um of &*uares or &um of &*uares due to %egression( is a*uantity used in describing how well a model( often a regression model( represents

the data being modeled. In particular( the explained sum of s*uares measures how

much variation there is in the modeled values( greater the "&&( the better the

estimated model performs. &ince it is B8<.BB( it means that the regression is well

represented by model. %esidual sum of s*uares !%&& J It is a measure of the discrepancy between the data

and an estimation model. A small %&& indicates a tight fit of the model to the data.

&ince our %&& is F<.<( which is low our and data fits precisely in the model. Total sum of s*uares !T&& J the T&& is the sum of the s*uares of the difference of

the dependent variable and its grand mean.Total sum of s*uares J explained sum of s*uares L residual sum of s*uares. since

it is EGC8( it represents high level of authenticity of model. M T"&T

18JT1"I% I& AN IN"%&" %"4ATI$N&1I# ;"TO""N T%AD" D"MI2IT

AND I#$%T&.1JT1"%" I& A DI%"2T %"4ATI$N&1I# ;"TO""N T%AD" D"MI2IT

AND I#$%T& &ince the significance level is 8.88P8.8< at B<9 confidence interval level( our data is

statistically significant and we re:ect the null hypothesis due to occurrence of type

error



T T"&T

18JT1"%" I& AN IN%&" %"4ATI$N &1I# ;"TO""N T%AD"

D"MI2IT AND I#$%T& AND 2%3D" $I4 #%I2"&.1JT1"%" I& DI%"2T %"4ATI$N&1I# ;"TO""N T%AD"

D"MI2IT AND 2%3D" $I4 #%I2"&.

&ince the significance level is 8.88P8.8< at B<9 atconfidence interval( our data is statistically significant and

we re:ect the null hypothesis due to occurrence of type

error.




normally distributed. And since it is normally distributed the degree

of skewness is 8( in other words no asymmetry exists.



The normal probability plot explains how the residual terms aredistributed over the time. The straight upward sloping line



Mitted to the line except between prob. $f 8.-8.C.



Multiple linear regression model

Y-/.90012.399'i12.20/'i5Ui

? refers to the dependent variable i.e. trade deficit

.7GG is the intercept term i.e. constant is the first independent variable.i.e. imports

is the second independent variable i.e. crude oil



gold reserves with %;I(transfers(international

Inflation and Interest rate.

Interpretation

The intercept term .7GG explains the trade deficit at 6ero level

of imports(crude oil prices and residual(which suggests that the

trade deficit will be u.s. .7GG bn H.

The above e*uation explains that for u.s.bnH increase in the

imports the trade deficit will get increased by us H.E77 bn.&imilarly for an increase in unit in the crude oil price the

trade deficit will increase by u.s.H 8.8G bn.



ultiple linear regression model analysis

ean J The mean values of imports and crude oil are B. and <C.77E

respectively which are positive( however the mean for trade deficit is

negative since is a negative value.


explains that the trade deficit values over the time deviates to the extent of

<C.B<< from its mean i.e. GC.7E

The no. of observations are E for all variables i.e. from year BBB-8



Karl #earson coefficient of correlation is calculated for finding out the degree of

orrelation between three variable and all values are close to which represents

igh correlation between three variables.

Trade d and imports and crude J the degree of correl. between trade d and

imports is .BB<( and the degree of correl. between trade d and crude is .7B<.

;oth of these values represent a very high degree of correlation between trade d

and imports and trade d and crude.Imports and trade d and crude J correl. 2oefficient between imports and trade

is .BB< and between imports and crude is .7BC.2rude and trade d and importsJcorrel. 2oefficient between crude and trade d

is .7B< and between crude and imports is .7BC



% J r i.e. overall coefficient of correlation is .BB< which shows

a high degree of correl. ;etween the variables

%Q!coefficient of determinationJ it is nothing but the s*uared

value of r or ess@tss( it is considered as a better measure of

goodness of fit and represents how well the data fits to the

regression line.in this case it .BB8 which is *uite close to representing low level of residual values.

&td. errorJ std. error is the std. deviation of the sample( which

represents that the sample values deviates by the extent of G.<

from the mean.

Analysis of variance



"xplained sum of s*uares!"&& J explained sum of s*uares !"&&( alternatively

known as the odel &um of &*uares or &um of &*uares due to %egression( is a

*uantity used in describing how well a model( often a regression model( represents

the data being modeled. In particular( the explained sum of s*uares measures how

much variation there is in the modeled values( greater the "&&( the better the

estimated model performs. since it is E<7G(it means that the regression is well

represented by model. %esidual sum of s*uares !%&& J It is a measure of the discrepancy between the data

and an estimation model. A small %&& indicates a tight fit of the model to the data.

&ince our rss is EF7 ( which is considerably low our data fits precisely in the model.

Total sum of s*uares!T&& J the T&& is the sum of the s*uares of the difference ofthe dependent variable and its grand mean.Total sum of s*uares J explained sum of

s*uares L residual sum of s*uares. since it is EGC8( it represents high level of

authenticity of model.&IN2" $3% DATA I& &TATI&TI2A44? &I>NIMI2ANT 3ND"% T T"&T IN

;$T1 T1" &IN>4" %">%"&&I$N $D"4 $3% 34TI#4" %">%"&&I$N

$D"4 I& "4I>I;4" M$% M-T"&T M T"&T

18JT1"I% I& AN IN"%&" %"4ATI$N&1I# ;"TO""N T%AD" D"MI2IT

AND I#$%T& AND 2%3D" $I4 #%I2"&.1JT1"%" I& A DI%"2T %"4ATI$N&1I# ;"TO""N T%AD" D"MI2IT

AND I#$%T& AND 2%3D" $I4 #%I2"&. &ince the significance level is 8.88P8.8< at B<9 confidence interval level( our data is

statistically significant and we re:ect the null hypothesis due to occurrence of type

error.



ulticollinearity analysis

IM J variance inflation factor !IM *uantifies the severity ofmulticollinearity in an ordinary least s*uares regression analysis.

It provides an index that measures how much the variance !the

s*uare of the estimate's standard deviation of an estimated

regression coefficient is increased because of collinearity. &ince it

is C.B7EP8 no multicollinearity exists between crude oil prices

and imports.

2ondition index J in order for multicolinearity to exist

88Pcondition indexP888. ;ut in all the three cases it is P88(

thus multicollinearity do not exists. Tolerance J tolerance level is .8R.(thus no multicollinearity

exists




normally distributed. And since it is normally distributed the degreeof skewness is 8( in other words no asymmetry exists.



The normal probability plot explains how the residual terms are

distributed over the time. The straight upward sloping line



Mitted to the line except between probability of 8.-8.C.



SUGGESTINS

• Trade deficit is widening day by day due to depreciating currency so to

control a fall in currency MDI and MII investment should increase which

will appreciate the currency and will help to curtail the amount ofimports which in line will reduce the trade deficit.

• Trade deficit can further be reduced by increase in exports and reducing

the dependency on crude oil by searching for alternative consumption

resources because in future crude oil prices will increase due to supply

constraints and increase in global demand( which will increase the trade

deficit( so steps are to be taken otherwise there is serious threat to

indiaSs imports which will worsen the trade deficit further.• The ma:or chunk of consumption of crude oil comes from sectors like

power( automobiles and energy sector. &o( they should also start looking

for alternative sources of consumption because there output cost will

increase in future on account of increased raw material cost because

importing crude will be a costly affair in some time (that will lead to

domestic inflation .&o (these sectors should also start shifting towards

hydro-electricity( wind energy (biogas( atomic energy or other sources(similarly automobile sector should promote electric vehicles.



2$N243&I$N

The analysis we have conducted leads us to the conclusion that there

is a strong positive relation between trade deficit( imports and crude

oil.

2orrelation analysis represents high degree of correlation between

trade deficit and imports( and similarly between trade deficit and

crude oil.

&ingle regression model has presented the extent to which crude and

imports individually influence the trade deficit. Thus( afterinterpreting all the data and information( we can conclude that

individually imports and especially crude oil prices have huge

impact on the trade deficit apart from the residual variables. The

magnitude of crude and imports individually can be explained as

under)

• Increase in imports by bn H leads to increase in trade deficit by8.EB8bn H i.e. around EB9 increase.

• Increase in crude oil prices by unit leads to an increase by

.8C8bn H i.e. around 889 increase.

ultiple %egression analysis model has presented the extent to

which crude and imports have influence upon the trade deficit. Thus(

after interpreting all the data and information( we can conclude that

independent variables assumed under report ( that is crude and

imports apart from the residual variables such as forex assets(

transfers etc. have got a ma:or contribution in widening trade deficit(

and the magnitude of their contribution can be explained as under)



• Increase in imports by one billionH leads to increase in trade

deficit by 8.E77 billionH.

• &imilarly( increase in crude oil price by one unit leads to 8.8G

billionH.

Apart from that the residual factors also play significant role

between 88-88C!the main reason of deviation was sudden spike

in exports at that time as india focused on increasing exports by

promoting it and because of these efforts Indian exports grew at a

pace of <-E<9 during these years keeping the trade deficit stagnant

whereas crude price was increasing or it can be said that trade deficit

was not reacting that much to the movement in crude (indetermining trade deficit.



;I;4I$>%A#1?

All the data of imports( trade deficit and ui variables is taken from

the planning commission siteplanningcommission.nic.in/data/datatable/.../ databook _ dch _160511....

Crude oil data is taken from:

)tt,:%n;at%on&ata"co$%n;at%onIn;at%onRateH%!to'%calO%lP'%ce!Table"a!,(

)tt,:***"fo'e3,'o!"co$co$$o&%t%e!c'-&eo%l)%!to'%cal&ata"

Dolla' '-,ee &ata %! ta9en f'o$:

www.forexpros.com/currencies/ usd-inr-chart,

ibnlie.in.com/news/...graph-indian-rupee...dollar .../!5"#$%-5%.&tml

)tt,:%n#e!t%n+"$one."$!n"co$%n#e!t$ent!!toc9c)a't!

CA<CB<CC<CD<D0DD0D<DCS1MA<<MA0<C<CD

<C4<C<CD<CF<C<C<DF<DB<DC<D<DA<D0

<!.$bol51/n'-!&S<PT0<"

http://inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

http://www.forexpros.com/commodities/crude-oil-historical-data

http://www.forexpros.com/currencies/usd-inr-chart







http://investing.money.msn.com/investments/stock-charts/?CA=0&CB=0&CC=0&CD=0&D4=1&DD=1&D5=0&DCS=2&MA0=0&MA1=0&C5=0&C5D=0&C6=0&C7=0&C7D=0&C8=0&C9=0&CF=0&D8=0&DB=0&DC=0&D9=0&DA=0&D1=0&symbol=%2Finrusd&SZ=0&PT=10




http://inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

http://www.forexpros.com/commodities/crude-oil-historical-data







A##"NDI

This table is the main data source of our pro:ect.

TA;4" -



TA;4" - TA;4"-E

21A%T-4ine chart showing movement in trade deficit and crude oil

?ears D$44A%@

%3#""

BBB C.

888 CE.<8

88 C<.BC

88 CF.BG

88E C<.<F

88C CE.G7

88< CC.77

88G CC.

88F EB.7E

887 C7.B

88B CG.<

88 C<.8

8 <.F

8 <F.EE

Tradedeficit!billionH

2rude!Hper barell

-F.7 .FB

-.< EG.<C

-.G B.7G

-8.F B.

-E.F EC.G

-EE.F C<.F7

-<.B <7.7E-G.7 GG.C<

-B.< F.8E

-B.< BF.EE

-7. <F.7

-E8.G F<.8<

-GB. 77.BE

T'a&e&efc%t

I$,o't!

0"F "

01" "

00"4 4"7

0<" 4"

07" F<

77" 00F"

0" 0"0

40"F 0<"

0" 1"4

00" 7<F"

00F"1 7<<"4

07<"4 7F0"0





21A%T- 4ine chart showing movement in trade deficit and imports



21A%T-E



4ine chart showing movement in all the E of the variables

taken for analysis.



Documents

Impact of Crude and Imports on Trade Deficit