Abstract

This research paper investigates the relationships between India's Gross Domestic Product
(GDP), its population, inflation rate, and the Consumer Price Index (CPI). Utilizing
regression analysis as the primary statistical tool, we explore how these variables interact and
influence India's economic landscape.
Our study aims to discern the extent to which India's burgeoning population acts as a catalyst
for economic growth or imposes constraints on the same. Additionally, we observe the
relationship between inflation and GDP, seeking to understand whether inflation increases
economic growth or presents challenges to stability. Another very important index, Consumer
Price Index (CPI) becomes central in this analysis, as we evaluate its role in affecting the
GDP and its growth.

Introduction
The economic landscape of any nation is intricately linked to a multitude of factors, with
Gross Domestic Product (GDP) serving as a pivotal measure of its economic health and
vitality. In the case of India, a country characterized by its humongous population, diverse
economic sectors, and dynamic policy environment, the relationship between GDP and
several key determinants is important to be observed. In this research paper, various statistical
tools are being used to unveil the intricate interplay between India's GDP, its burgeoning
population, the fluctuating effect of inflation, and the most significant factor from a citizen’s
point of view, Consumer Price Index (CPI). Our primary objective is to determine the extent
to which these variables are related to GDP of India and to show the scope of this
relationship.

Variables
1. GDP: Our Dependent Variable is the GDP (Gross Domestic Product) of India for the
years 1991-2019.
Below is a graph showing the GDP growth of India over the years :

2. Inflation Rate: Inflation Rate is an independent variable . It represents

the rate at which prices increase over time, resulting in a fall in the purchasing value
of money. Inflation rate is a result of both fiscal and monetary policies in the
economy. It also represents the strategic standpoint of the central bank.
 3. CPI : The Consumer Price Index (CPI) consists of a family of indexes that measure
price change experienced by urban consumers. Specifically, the CPI measures the
average change in price over time of a market basket of consumer goods and services.
The market basket includes everything from food items to automobiles to rent.
Below graph shows the increase in Consumer Price Index through the years :

4. Population : For this project, we have also taken into consideration India’s population
through the sample time frame as the gross domestic product is a function of
economic activity done by the citizens. As visualized in the graph below, the
population has grown over the years :

Correlation between independent variables and GDP of India

GDP is highly positively correlated with both CPI and Population, whereas it is negatively
correlated with inflation. This negative correlation is not very strong either, because of the
two-pronged effect of inflation on GDP. While inflation makes products more expensive,
hence adding to the gross value, there is a decline in the purchasing power of money, which
reduces consumption and therefore GDP decreases. High inflation can make investments less
desirable, since it creates uncertainty for the future and it can also affect the balance of
payments because exports become more expensive.
 Hypothesis Testing
Hypothesis 1.
Null Hypothesis : There is no significant relationship between the population of India and its
GDP.
Alternate Hypothesis: There is a significant relationship between the population of India and
its GDP.

Hypothesis 2
Null Hypothesis : There is no significant relationship between the Consumer Price Index and
India’s GDP
Alternate Hypothesis: There is a significant relationship between the Consumer Price Index
and India’s GDP

Hypothesis 3
Null Hypothesis : There is no significant relationship between the Inflation Rate and India’s
GDP
Alternate Hypothesis : There is a significant relationship between the Inflation Rate and
India’s GDP

Testing
The null hypothesis will be rejected when the p-value in
the summary is less than 0.05, while it will be accepted if the
p-value is greater than 0.05.

As seen in the P-value table, it is less than 0.05 for all the independent variables, hence we
reject the null hypothesis for all of them.
Therefore, our independent variables have a significant relationship with GDP and the
statistical probability of getting a relevant result upon using this regression model is high.

Results and Discussion

By using the GDP of India as the dependent variable and the Consumer Price Index, Inflation
Rate and Population of India as the independent variables, a regression analysis was done.
Following results in terms of correlation are obtained:

It is seen that both CPI and Population are strongly correlated with GDP but Inflation has a
slight correlation of 0.225339 because of the two pronged effect of inflation on GDP. To get a
clearer picture of the relationship between inflation rate and GDP, more independent
variables have to be considered, such as unemployment rate, wholesale price index, FDI,
other investment indicators because all of these are in turn affected by inflation rate.
Below is the regression summary obtained :

For this project, the data collected for GDP of India and the independent variables was used
in the following way :
For regression analysis : 1991 to 2019
For regression validation : 2020
Using the summary data, we were able to construct the regression equation :

Using this regression equation, we have