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The working group which was set up in October last, to suggest suitable approaches for research on relevant economic indicators, has also recommended in a report submitted to the RBI last month, that various theories of business cycles must be tested in the Indian context.

MUMBAI, Aug 1

THE Reserve Bank of India's (RBI) Working Group on Economic Indicators has suggested strengthening of the information base on business cycle indicators.

The working group which was set up in October last, to suggest suitable approaches for research on relevant economic indicators, has also recommended in a report submitted to the RBI last month, that various theories of business cycles must be tested in the Indian context. It has said that the reference cycle peaks and troughs must be determined to enable expansionary and recessionary phases of the economy.

Non-agricultural GDP (in real terms) with quarterly frequency can be considered as the appropriate main reference series for business cycle analysis in India, in view of the predominant role of weather and the lower role of interplay of market forces in determining the level of agricultural output. The economy is continually evolving and is far too complex to be summarised by a single series.

Indicators for industrial and services output are not appropriate for predicting movements in agricultural output. However, since agricultural output is a strong influence on aggregate demand, the methodology for forecasting fluctuations in agricultural output may be different from that for the rest of the activities.

Improvements in the database relating to a number of variables relating to business cycle analysis such as urban housing, organised employment, manufacturing and retail inventories, capacity utilisation, consumer confidence, consumer loans etc, are also necessary, the group said.

It suggested that for a better understanding of research on business cycle in the Indian context, it is necessary to promote research on theoretical aspects, including testing of competing paradigms on business cycle.

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