Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Proceedings of Five Day Workshop on

FINANCIAL ECONOMETRICS

On
15th to 19th October 2019

Organised by
Research and Post Graduate Department of Commerce
Government College, Attingal

Sponsored by
Directorate of Collegiate Education
Government of Kerala

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Workshop Organising Committee

Dr. V. Manikantan Nair, Principal, Government College, Attingal

Dr. K. Pradeep Kumar, Co-ordinatror, Five day Workshop
Dr. Lt. Sunilraj N.V, Co-coordinator, Five day Workshop
Sunil S., Head of the Department of Commerce
Dr. Anitha S., Associate Professor
Dr. Sajeev H., Assistant Professor
Dr. Sarun S.G, Assistant Professor
Manikantan G., Assistant Professor
Dr. Shanimon S., Assistant Professor
Dr. Binu R., Assistant Professor

Editors

Dr. K. PRADEEP KUMAR

Dr. Lt. SUNILRAJ N.V.

January, 2020

Research and Post Graduate Department of Commerce

Government College, Attingal

ISBN: 978-81-936576-7-6

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

CONTENTS
1 REPORT OF FIVE DAY WORKSHOP ON FINANCIAL ECONOMETRICS 4-7
2 TECHNICAL SESSIONS I TO VIII Dr.S. KEVIN 8 - 27
3 TIME SERIES REGRESSION Dr. P.N. HARIKUMAR 28-32
4 INTRODUCTION TO GRETL Dr. K. PRADEEP KUMAR 33- 35
PERFORMANCE EVALUATION OF
ENTREPRENEURSHIP DEVELOPMENT
SCHEMES OF NATIONAL HANDICAPPED
5
AND FINANCE DEVELOPMENT Dr. SHANIMON S 36 - 44
CORPORATION
TRENDS IN GLOBAL AQUACULTURE
6 Dr. ANITHA S. 45 - 47
PRODUCTION
PERFORMANCE EVALUATION OF SBI LIFE
7 ANSA S. 48 - 52
INSURANCE COMPANY
ARIMA MODEL IN PREDICTING NSE NIFTY50
8 Dr. LAKSHMANAN M.P
INDEX 53 - 61
FINANCIAL DEEPENING AND ECONOMIC
9 Dr. PRADEEP KUMAR N.
DEVELOPMENT OF INDIA 62 - 66
ANALYSIS OF TRENDS AND GROWTH OF
10 DIGITAL RETAIL PAYMENTS SYSTEM IN
SUNIL S. 67 - 78
INDIA
KILLING THE GOLDEN GOOSE- THE CASE OF PRAGEETH P
11
PRIVATE BUSES IN KERALA Dr. ANZER R.N. 79 - 86
TRENDS AND GROWTH OF TOURISM IN
12
KERALA THANSIYA N. 87 - 92
A CROSS-SECTIONAL ANALYSIS ON THE
INFLUENCE OF VARIOUS COSTS OF
13 Dr. K. PRADEEP KUMAR 93-96
AQUACULTURE ACTIVITIES ON REVENUE
FROM AQUACULTURE

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
REPORT OF FIVE DAY WORKSHOP ON FINANCIAL
ECONOMETRICS
MAIN THEME OF THE WORKSHOP
Financial Econometrics is selected as
the topic for the workshop basically to train
the Commerce teachers in various Universities
of Kerala as the subject is recently included in
the latest revision made in the UG and PG
curriculum of various Universities in Kerala.
In Kerala University and many other
Universities, the subject of Financial
Econometrics has included under two major
modules in the Course „Quantitative
Techniques and Financial Econometrics‟ in the
PG curriculum. As the content of the syllabus
is new to Commerce teachers, a short term
training course in the form of a workshop is
considered essential. At the same time, there is
shift in focus of data analysis towards analysis
of econometric data. Researchers are using
Econometric modeling techniques in cross
sectional data, time series data and panel data.
In practice, these models are used for many
practical situations involving measuring the
volatility, CAPM, simulation and the like.
Thus the topic of workshop is highly relevant
for Commerce and Management research now-
a –days. Thus the Research and Post Graduate
Department of Commerce selected Financial
Econometrics as the main theme of the
workshop during this plan period (2019-20).
SELECTION OF CHIEF TRAINERS
As we need to impart both basic and
advanced level training in the subject with a
direct focus on two groups of participants viz.
Teachers and Research Scholars, we decided
Government College, Attingal
to select Dr. S. Kevin, the former Pro-Vice
Chancellor of University of Kerala and
Professor of Commerce to impart the
foundation training and Dr. Vijayamohanan
Pillai, Professor, Centre for Development
Studies to impart advanced training in the
selected topic. Both trainers are well
recognized and handling the subject for many
years. Thus the Workshop was scheduled from
15th the 19th October, 2019 as per their
convenience. Frequent discussions with these
two subject experts enables us to locate the
major modules to be included in the workshop
in a sequence from simple to complex. Thus
the basic modules were assigned to Dr. S.
Kevin and the advanced modules were
assigned to Dr. Vijayamohanan Pillai N.
PLAN FUND ALLOCATION
The College Council meeting held on
th
30 July, 2019 allocates an amount of Rs.
65000/ (Rupees Sixty Five Thousand Only)
from the Plan fund sanctioned for FDP by the
Directorate of Collegiate Education for the
conduct of Workshop by the Research and
Post Graduate Department of Commerce. The
Department meeting held on 14th August,
2019 assigned Dr. K Pradeep Kumar,
Associate Professor of Commerce and Dr.Lt.
Sunilraj N.V., Assistant Professor of
Commerce as Co-ordinator and Co-
coordinator respectively. An Organising
Committee consisting of Principal, Head of the
Department and other Faculty members of
Commerce was also constituted for preparing
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
programme schedule and necessary stages for
the successful conduct of the programme.
SELECTION OF PARTICIPANTS
As the theme is focused on Teachers and
Research Scholars, the organizing committee
decided to invite all teachers and research
scholars in various universities by clearly
explaining the theme and various modules
through the publicity materials. Personal e-
mails were sent to Heads of the Department of
Commerce of various Colleges and
Universities to depute the teacher who is
handling the subject or in need of training in
the subject of Financial Econometrics. In
addition, brochures were sent to all Colleges,
Univerisity Departments and Self Financing
Colleges by clearly specifying the sequence of
modules included in different technical
sessions. Participants are requested to register
through e-mail by emphasizing their need for
participation in the programme. Based on the
response of the participants, 21 teachers from
various Colleges of Kerala and 24 research
scholars were screened and selected for
participation in the programme. Selection
memo is issued to all participants with strict
stipulation on adherence to attendance in all
days. In addition to that 9 faculty members of
Commerce Department, Govt. College,
Attingal and 5 full-time research scholars of
the Research Centre and 30 M.Com students
of the Department participated in the
Programme. Thus a total of 89 participants
attended the Five day workshop.
INAUGURATION AND THEME
PRESENTATION
In the inaugural session, Prof. Sunil S., Head
of the Department of Commerce welcomed the
Government College, Attingal
participants. The Five day Workshop is
inaugurated by Dr. V. Manikantan Nair,
Principal Government College, Attingal. In his
inaugural address he appreciates the efforts
taken by the Research and P.G Department of
Commerce in promoting research in
Commerce and Management subjects through
thes series workshops organized successfully
every year. Dr. K. Pradeep Kumar, the Co-
ordinator of the Workshop presented the theme
of the Workshop by quoting the series of
Workshops conducted successfully by the
Research and Post Graduate Department of
Commerce since 2015 in every October. He
mentioned the importance of this short term
training programme in imparting skills to
Teachers for handling the new subject and
molding their research capabilities in
econometric data analysis. Dr. S. Kevin, the
Chief trainer assigned for the first two days, in
his special address congratulates the
Departmental initiates by the faculty for
promoting research in the subject. Prof.
Lakshmi Chandrasekhar, the Vice Principal of
the College signified the importance of these
workshop and express her gratitude to the
Director of Collegiate Education for
sponsoring these valid seminars and
workshops. Dr. Lt. Sunilraj N.V, the Co-
coordinator of the Workshop proposed vote of
thanks in the inaugural session. The inaugural
session concluded by 9.50 a.m.
TECHNICAL SESSIONS BY
DR. S. KEVIN
Technical sessions from I to VIII were
assigned to Dr. S. Kevin, the former Pro-Vice
Chancellor of University of Kerla and a former
Professor of Commerce. The first technical
session begins at 10.00 a.m with a brief
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
introduction of Chief Trainer by Dr. Anitha S.,
Assistant Professor of Commerce, Government
College, Attingal. In the first technical session
on Introduction to Financial Econometrics, Dr.
S. Kevin, clearly presented the importance of
Financial Econometrics and its applications in
Micro Economics including business and
industry. He answered the simple to complex
queries made by the participants patiently and
encourage them to widen the subject base by
reading books in Basic Econometrics. Tea and
snacks were served to participants as
refreshments during the sessions without any
tea break. Clean and safe drinking water is also
provided in the corner of the workshop venue.
In the second technical session, the trainer
focused on the importance of Normality of
Distributions in Econometric modeling. The
training was done through examples with
sufficient proofs to clarify the doubts of
participants. The second technical session
concluded by 1.00 p.m. Lunch break was
given for 30 minutes . In the third technical
session, the Chief trainer Dr. S. Kevin explains
the process of simple and multiple linear
regression analysis with the help of practical
examples. In the last technical session of the
first day, serial correlation and the use of
Durbin Watson Statistics was explained with
case studies. The first day of the workshop
concluded at 4.30 p.m. On 16th October,2019,
the technical session starts sharp at 9.30 a.m.
In the morning sessions, Stationarity of Time
series data and Unit root test and the problem
of heteroskedasticity were explained. A
complete learning atmosphere was clearly
visible in the whole sessions. Tea and snacks
were served during the sessions. The after
noon sessions after lunch started at 1.30 p.m .
In the beginning session, the problem of Multi
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Collinearity was disussed with solutions and at
the concluding session, the concpt of Co-
integration and its intricacies were discussed.
The second day comes to an end at 4.30 p.m.
Participants were given feedback form to
evaluate the technical sessions of Dr. S. Kevin
and the hospitality of the department in serving
the guest participants.
TECHNICAL SESSIONS BY
Dr.VIJAYAMOHANAN PILLAI N
Dr. Vijayamohanan Pillai, Professor of
Economics, Centre for Development Studies
has assigned 10 technical sessions in the
workshop to impart practical skills in
developing econometric models through sound
theoretical base and practical applications. He
explained the concepts in all technical sessions
through GRETL applications . The major
themes of various technical sessions are
advanced applications of Econometrics like
Time Series as a Stochastic Process, AR, MA
and ARMA processors, Tests for non-
stationarity, ARIMA modeling, Co-integration
methods, Volatility models, Nature of Panel
data models, Panel data Error component
models, and random effects model. In addition
to these, he engaged a full session for training
participants in GRETL applications. After his
session participants are given hands on
training in the computer lab with example files
supplied by the Chief Trainer.In the practical
sessions, Dr. Binu R., Assistant Professor of
Commerce assisted the Chief trainer in
delivering the practical knowledge. In the
whole three days assigned to Dr.
Vijayamohanan Pillai. N., the participants are
anxiously hearing and observing the new sets
of knowledge and appreciated his skills in
training. In the whole three days also the
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

participants are provided with refreshments
and lunch on time. The organsing committee
collected the Feed Back form given for
evaluating the three day sessions assigned to
Dr. Vijayamohanan Pillai. N.
VALEDICTORY SESSION
The whole technical sessions completed by
3.00 p.m on 19th October, 2019. The
valedictory session started after tea break. The
session was chaired by Prof. S. Sunil, Head of
the Department of Commerce. Prof.
SibuKumar D, the incharge Principal delivered
the valedictory address after the presidential
address. In the presidential address, the head of
the department express warm regards to all
participants and suggest them to use the
knowledge gained from the workshop for their
academic and future research purposes. The
Report of the Workshop is presented by Dr.
Binu R, Assistant Professor of Commerce with
a briefing on all technical sessions by the two
resource persons. Certificates were distributed
to all participants by the Principal and Dr.
Vijayamohanan Pillai. N. Dr. K. Pradeep
Kumar, the Co-ordinator of the workshop
proposed Vote of Thanks to participants and
all stakeholders for its successful conduct. The
Valedictory session concluded at 4.00 p.m
with chanting of National Anthem. All
participants relived from the institution at 4.30
p.m.
Dr. K. PRADEEP KUMAR
Dr. Lt. SUNILRAJ N.V

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

TECHNICAL SESSIONS I TO VIII

Dr. S. KEVIN
Former Professor and Pro-Vice Chancellor, University of Kerala

Technical Session I objective to provide numerical values to the

parameters of economic relationships.
Origin of Econometrics
Econometrics applies statistical methods and
Jan Tinbergen is considered by many to be
mathematical techniques to economic data to
one of the founding fathers of econometrics.
explain phenomena and create models. A
He was a famous Dutch Economist. He won
model is a simplified representation of a real
the first Nobel Prize in Economics in 1969
world process. All the variables which the
along with Ragnar Frish for developing
experimenter thinks are relevant to explain the
applied dynamic models in analysis of
phenomenon are included in the model. It is
economic processes. Ragnar Anton Kittil
"the quantitative analysis of actual
Frisch a Norwegian Economist is credited
economic phenomena”
with coining the term in the sense in which it
Econometrics and Statistics
is used today.
Econometrics differs from ordinary statistics.
What is Econometrics?
In ordinary statistics, the empirical data is
Econometrics means “economic measurement”
collected, recorded, tabulated and used in
Econometrics may be defined as the social
describing the pattern in their development
science in which the tools of economic theory,
over time. Ordinary statistics is a descriptive
mathematics, and statistical inference are
aspect of economics. It does not provide either
applied to the analysis of economic
the explanations or measurement of the
phenomena. [Arthur S. Goldberger,
parameters of the relationships. Econometrics
Econometric Theory, John Wiley & Sons,
is typically used to explain how the economy
New York, 1964, p. 1.]
works. It deals with the measurement of
Econometrics deals with the measurement of
economic relationships.
economic relationships (e.g., price and
Basic Tool in Econometrics
demand) . It is an integration of economics,
A basic tool for econometrics is the multiple
mathematical economics and statistics with an
linear regression model. In modern

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

econometrics, other statistical tools are 3. Specification of the Econometric Model of

frequently used, but linear regression is still Consumption
the most frequently used starting point for an But relationships between economic variables
analysis. are generally inexact. For example, size of
Methodology of Econometrics family, ages of the members in the family,
1. Statement of theory or hypothesis. family religion, etc., are likely to exert some
2. Specification of the mathematical model of influence on consumption
the theory To allow for the inexact relationships between
3.Specification of the statistical, or economic variables, the econometrician would
econometric, model modify the deterministic consumption function
4. Obtaining the data as follows:
5.Estimation of the parameters of the Y = β1 + β2X + u
econometric model where u is known as the disturbance, or
6. Hypothesis testing error term.
7. Forecasting or prediction It may well represent all those factors that
8. Using the model for control or policy affect consumption but are not taken into
purposes account explicitly.
1. Statement of Theory or Hypothesis 4. Obtaining Data
Keynes postulated that the marginal propensity The Y variable in this example is the aggregate
to consume (MPC), the rate of change of (for the economy as a whole) personal
consumption for a unit (say, a dollar) change consumption expenditure (PCE) and the X
in income, is greater than zero but less than 1. variable is gross domestic product (GDP), a
2. Specification of the Mathematical Model measure of aggregate income, for 1982 – 1996
of Consumption period (annual data).
Y = β1 + β2X 0 < β2 < 1 5. Estimation of the Econometric Model
where Y = consumption expenditure and X = The regression analysis is the main tool used
income, and where β1 and β2, known as the to obtain the estimates.
parameters of the model, are, respectively, the Thus, the estimated consumption function is:
intercept and slope coefficients. Y = −184.08 + 0.7064 X

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

6. Hypothesis Testing misspecification. The test has proven to be

useful in detecting model misspecification.
In our example we found the MPC to be about
The Purpose of Econometrics
0.70. Is this value statistically significant. This
The purpose of Econometric analysis is to
can be tested using inferential statistics.
produce the best model that will minimize the
7. Forecasting or Prediction
forecast errors.
We may use the model to predict the future
Structure of Econometric Data
value(s) of the dependent variable Y on the
1. Time series data
basis of known or expected future value(s) of
Time series data give information about the
the explanatory variable X. But forecast
numerical values of variables from period to
errors are inevitable given the statistical
period and are collected over time
nature of our analysis. Residuals (difference
2. Cross section data
between the predicted values and the actual
The cross section data give information on the
values) represent the forecast errors.
variables concerning individual agents (e.g.,
Model Misspecification
consumers or producers) at a given point of
Model misspecification occurs when some
time.
important variables are omitted.The model
3. Panel data
then will not account for some important
The panel data are the data from repeated
relationships or linearities. Model
survey of a single (cross-section) sample in
misspecification will cause bias in the
different periods of time.
remaining parameter estimates. An important
4. Dummy variable data
source of bias in OLS estimation is omitted
They reflect only the presence/absence of a
variables that are correlated with the included
characteristic. For example, the variable
explanatory variables.Often the reason for
`gender‟ takes two values – male or female.
omission is that these variables are
These values can be represented as „1‟ for
unobservable (e.g., human ability). In such
male and „0‟ for female.
cases, data on proxy variables can be used.
Features of Economic Data
Ramsey RESET Test
Normality of data
James B. Ramsey (1969) proposed a
Serial correlation or auto correlation
misspecification test known as Regression
Stationarity of data
Specification Error Test (RESET). The test
Cointegration of two data series
helps to find whether the model suffers from

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Causality of variables Example: Sales is dependent variable

Multicollinearity Advertisement is independent variable.
Heteroskedasticity
Regression Equation- Example
Econometrics includes a study of these
features of economic data Y – Sales (3000,3500, 4000,4500,5000)
X – Advertisement expenditure
TECHNICAL SESSION II & III (15,20,25,30,35)

Regression Analysis Y=a+bX

Association between Variables Y = 1500 + 100 X
The statistical tools used to study association/ This is an exact or deterministic relationship.
relationships between variables are Correlation
Thus Regression analysis is a set of statistical
and Regression. Correlation Studies the
methods used for the estimation of relationships
association between variables that may be
between a dependent variable and one or
related. A measure of covariation. Indicates
more independent variables. Can be utilized to
magnitude and direction of covariation. Karl
assess the strength of the relationship between
Perason‟s Coefficient of Correlation (r) is the
variables and for modeling the future
widely used measure of correlation. r may be
relationship between them.
positive or negative.r varies from (-)1 to 1.
Coefficient of determination is r square (R2). Regression analysis includes several
Measures the extent of variation explained by variations, such as linear, multiple linear, and
the relation. In research, universe parameters are nonlinear. The most common models are
inferred from sample statistics. When correlation simple linear and multiple linear.
is significant, the inference is that correlation
Multiple Linear Regression
exists in the population also. p-value indicates
Multiple independent variables are used in the
the probability of the correlation occurring by
model. The mathematical representation of
chance. If p-value is less than 0.05, correlation
multiple linear regression is:
is stated to be significant.
Y = a + b1X1 + b2X2 + b3X3 + ϵ
Regression analysis is the Study of relationship Where:Y – dependent variable, X1, X2, X3 –
between variables. Related variables are independent (explanatory) variables a –
categorised as: Dependent and independent. intercept (constant) b1, b2, b3 – slopes
(regression coefficients) ϵ – residual (error)

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Output of Regression Analysis OLS Technique

The output consists of four important pieces of Mathematically, regression uses a linear
information: function to approximate (predict) the
2
(a) the R value represents the proportion of dependent variable. Error is an inevitable part
variance in the dependent variable that can be of the prediction-making process. Regression
explained by our independent variable uses a technique known as Ordinary Least
However, R2 is based on the sample and is a Square (OLS) to reduce error to the lowest
positively biased estimate of the proportion of level. OLS technique tries to reduce the sum of
the variance of the dependent variable squared errors by finding the best possible
accounted for by the regression model (i.e., it value of regression coefficients (β0, β1, etc.)
is too large)
(b) an adjusted R2 value which corrects Regression Analysis- Linear Model
positive bias to provide a value that would be Assumptions
expected in the population There exists a linear and additive relationship
(c) the F value and its p-value indicating the between dependent (DV) and independent
statistical significance of the regression model. variables (IV). By linear, it means that the
F value is the ratio of explained variance to change in DV by 1 unit change in IV is
unexplained variance of the model constant. By additive, it means the effect of X
(d) the coefficients for the constant and on Y is independent of other variables.
independent variable (with their t-values and There must be no correlation among
p-values) which is the information you need to independent variables. Presence of correlation
predict the dependent variable, using the in independent variables lead
independent variable to Multicollinearity. If variables are correlated,
The Standard Error it becomes extremely difficult for the model to
Is a measure of the precision of the model. It determine the true effect of IVs on DV.
reflects the average error of the regression The sumof the residuals (error) is zero.
model. We want the standard error to be as The error terms must possess constant
small as possible.The standard error is used to variance. Absence of constant variance leads
get a confidence interval for your predicted to heteroskedestacity.
values.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
The error terms must be uncorrelated. Presence
of correlation in error terms is known
as Autocorrelation.
The dependent variable and the error terms
must possess a normal distribution.
TECHNICAL SESSION IV
Hetereoskedasticity
Hetero (different or unequal) is the opposite of
Homo (same or equal)…Skedastic means
spread or scatter…Homoskedasticity = equal
spread Heteroskedasticity = unequal spread.
Refers to non constant volatility.A sequence of
random variables is heteroskedastic, if the
random variables have different variances
signifying high and low volatility.A sequence
of random variables is called homoskedastic if
it has constant variance.
Volatility Clustering
Benoit Mandelbrot defined it as
observation that "large changes tend to be
followed by large changes, of either sign, and
small changes tend to be followed by small
changes”.High volatility and low volatility
occur in alternating clusters. This volatility
clustering is known as heteroskedasticity.
When heteroskedasticity is autocorrelated, it is
known as auto regressive conditional
heteroskedasticity (ARCH ).
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Homoskeasticity Vs. Heteroskedasticity
Homoscedasticity describes a situation in
which the error term is the same across all
values of the independent variables.
Heteroscedasticity (the violation of
homoscedasticity) is present when the size of
the error term differs across values of an
independent variable. The impact of violating
the assumption of homoscedasticity is a matter
of degree, increasing as heteroscedasticity
increases.
The Types of Heteroskedasticity
Unconditional: is predictable, and most often
relates to variables that are cyclical by nature.
can include higher retail sales reported during
the traditional holiday shopping period or the
increase in usage of electricity during warmer
months. future periods of high and low
the
volatility can be identified.
Conditional: is not predictable by nature.
There is no sign that leads analysts to believe
data will become more or less scattered at any
point in time. Financial products are
considered subject to conditional
heteroskedasticity as not all changes can be
attributed to specific events or seasonal
changes. future periods of high and low
volatility cannot be identified
Examples: share prices, exchange rates
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Consequences of Heteroskedasticity  Glejser test

Homoskedasticity is needed to justify the usual  Brown–Forsythe test
t tests, F tests, and confidence intervals for  Harrison–McCabe test
OLS (Ordinary Least Squares) estimation of  Breusch–Pagan test
the linear regression model, even with large  White test
sample sizes. In case of heteroskedasticity, the  Cook–Weisberg test
OLS estimators are no longer the BLUE (Best Models of Heteroskedasticity
Linear Unbiased Estimators) because they are ARCH –type models are commonly employed
no longer efficient, so the regression in modeling financial time series that exhibit
predictions will be inefficient too. time-varying volatility and volatility clustering
Importance of Heteroskedasticity (heteroskedasticity). Commonly used ARCH
Is important in interpreting linear regression models are ARCH (Auto regressive
Is the extent to which the variance of the conditional heteroskedasticity) model and
residuals depends on the predictor variable. GARCH (Generalized auto regressive
The residual in linear regression is the amount conditional heteroskedasticity) model
of difference between the actual outcome and
the outcome predicted by the model. TECHNICAL SESSION V
Heteroscedasticity (the violation of Multicollinearity
homoscedasticity) is present when the size of The Independent variables in a multiple
the error term (residual) differs across values regression model should be independent. Multi
of an independent variable. The residuals collinearity occurs when independent
represent the error of your model. If the variables in a regression model are correlated
amount of error in your model changes as the It can cause problems when you fit the model
variables change, then you do not have a very and interpret the results.
good model. Why is Multicollinearity a problem?
Tests for Heteroskedasticity A key goal of regression analysis is to estimate
There are several methods to test for the the relationship between each independent
presence of heteroscedasticity variable and the dependent variable. The
 Levene's test regression coefficient represents the mean
 Goldfeld–Quandt test change in the dependent variable for 1 unit
 Park test change in an independent variable when

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

you hold all of the other independent variables between independent variables and the
constant.It becomes difficult for the model strength of that correlation. Statistical software
to estimate the relationship between each calculates a VIF for each independent variable
independent variable and the dependent Calculation of Tolerence and VIF
variable independently because the The VIF may be calculated for each predictor
independent variables tend to change in unison by doing a linear regression of that predictor
when there is multicollinearity. on all the other predictors, and then obtaining
Types of Multicollinearity the R2 from that regression. Tolerance is (1-
Data multi collinearity: present in the data set R2). The VIF is 1/(1-R2). It is called the
itself.Structural multi collinearity: when a variance inflation factor because it estimates
new independent variable is created from the how much the variance of a coefficient is
data set (for example, a variable value is “inflated” because of linear dependence with
squared to create another variable) other predictors. Thus, a VIF of 1.8 tells us
that the variance (the square of the standard
When there is no need to reduce
error) of a particular coefficient is 80% larger
Multicollinearity?
than it would be if that predictor was
If you have only moderate multi collinearity.
completely uncorrelated with all the other
If multi collinearity is not present for the
predictors.
independent variables that you are particularly
Variance Inflation Factor (VIF)
interested in.
VIFs start at 1 and have no upper limit. A
If your primary goal is to make predictions,
value of 1 indicates that there is no correlation
and you don‟t need to understand the role of
between this independent variable and any
each independent variable.
others. VIFs between 1 and 5 suggest that
Testing for Multicollinearity
there is a moderate correlation, but it is not
Tolerance and the Variance Inflation Factor
severe enough to warrant corrective measures.
(VIF) are two collinearity diagnostic factors
VIFs greater than 5 represent critical levels of
that can help to identify multi collinearity. The
multi collinearity where the coefficients are
variable‟s tolerance is 1-R2. A small tolerance
poorly estimated, and the p-values are
value indicates multicollinearity. The Variance
questionable.If the value of tolerance is less
Inflation Factor (VIF) is the reciprocal of
than 0.1 and, simultaneously, the value of VIF
Tolerance or 1/Tolerance. The variance
inflation factor (VIF) identifies correlation

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

10 and above, then the multi collinearity is 2. Skewness method

problematic. 3. Tests of Normality
How to resolve structural multicollinearity? Histogram method is a graphical method
Structural multi collinearity can be resolved by Skewness method and Tests of Normality
centering the independent variables. Centering make use of descriptive statistics.
the variables is also known as standardizing Histogram Method
the variables by subtracting the mean. This Looks at a histogram of the data with the
process involves calculating the mean for each normal curve superimposed.
continuous independent variable and then Normal Data
subtracting the mean from all observed values
of that variable. Then, use these centered
variables in the model.
How to resolve Data Multicollinearity?
The potential solutions include the following:
Remove some of the highly correlated
independent variables. Linearly combine the
independent variables, such as adding them Non-normal Data
together. Perform an analysis designed for
highly correlated variables, such as principal
components analysis or partial least squares
regression. If you can accept less precise
coefficients, or a regression model with a
high R-squared but hardly any statistically
significant variables, then not doing anything Evaluation of Histogram Method
about the multicollinearity might be the best This method provides a sense of the normality
solution. of data. All samples deviate somewhat from
TECHNICAL SESSION VI normal, so the question is how much deviation
Normality of Data from the black line indicates “non-normality”
There are three interrelated approaches to Histogram provides no hard-and-fast rules.
determine normality of data
1. Histogram method

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Descriptive Statistics The value of skewness is 1.797. The question

Quantities computed from the data set to is “how much” skewness render the data non-
describe different characteristics of the data set normal. This is an arbitrary determination, and
(central value, variability, symmetry, sometimes difficult to interpret using the
peakedness). Mean, median, mode, Measures values of Skewness.
of variability, Minimum, maximum, range,
Tests for Normality
Quartiles, interquartile range, percentiles
Standard deviation, variance(Mean +/- 2 SD = Tests for normality take into account both
95 percent of observations) Skewness :zero Skewness (symmetry) and Kurtosis
value represents symmetry; positive value (peakedness) simultaneously. The
implies right skewed distribution; negative Kolmogorov-Smirnov (K-S) test and Shapiro-
value implies left skewed distribution. Wilk (S-W) test are designed to test normality
Measures of peakedness/flatness :Kurtosis: by comparing your data to a normal
absolute kurtosis for normal distribution is 3; distribution with the same mean and standard
relative kurtosis = absolute value – 3Positive deviation of your sample. Jarque–Bera test is
value indicates peaked curve.Negative value another test used for testing normality of data
indicates flat curve.
Interpretation of test results
Skewness measures the symmetry of the
If the test result is significant (p-value less
distribution. Skewness is 0 in a normal
than .05), then the data are non-normal. If the
distribution; so the farther away from 0, the
test is NOT significant (p-value greater than
more non-normal the distribution. A positively
0.05), then the data are normal.
skewed distribution has scores clustered to the
left, with the tail extending to the right. A Example
negatively skewed distribution has scores
clustered to the right, with the tail extending to
the left

Evaluation of Skewness Method

The histogram above for variable2 represents

positive skewness (tail extending to the right)

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Jarque Bera (JB) Test JB = [5] X [1.5625 + 0.0625]

JB = 8.125
The Jarque–Bera test is a goodness-of-fit
TECHNICAL SESSIONS VII &VIII
test of whether sample data have the skewness
and kurtosis matching a normal distribution. ANALYSIS OF FINANCIAL TIME SERIES
The test is named after Carlos Jarque and
Outline
Anil K. Bera.
Durbin-Watson test for testing serial
The test statistic JB is defined as: correlation or autocorrelation
JB = [(n – k + 1)/ 6] x [S2 + ¼(C – 3)2] Unit root test for testing stationarity of time
where series data
n is the number of observations, Cointegration of nonstationary variables
S is the sample skewness,
C is the sample kurtosis, What is a Time Series?
k is the number of regressors (being 1 outside
A series of data relating to different equally
a regression context)
spaced time intervals, such as years, months,
For Normal Distribution
days, hours, etc.
Values of the Distribution
Examples:
n = 30 S = 0 C = 3 k=1
The closing prices of the share of ICICI Bank
Formula for test statistic
for 320 consecutive days. US Dollar exchange
JB = [(n – k + 1)/ 6] x [S2 + ¼(C – 3)2]
rates recorded for 280 consecutive trading days
Computation of test statistic
Significance of Time Series Analysis
JB = [(30 – 1 + 1)/6] X [02 + ¼(3 – 3)2]
JB = [5] X [0] Time series analysis attempts to understand the
JB = 0 past and predict the future. Systematic
For Non-normal Distribution procedures and techniques, including statistical
tools and econometric models, are used for the
Values of the Distribution
purpose.The primary objective is to detect
n = 30 S = 1.5 C = 4 k=1
regularities and structures in data that will be
Formula for test statistic
helpful in forecasting future values of the
JB = [(n – k + 1)/ 6] x [S2 + ¼(C – 3)2]
variable.The forecasted future values are
Computation of test statistic
useful in planning and policy making activities
JB = [(30 – 1 + 1)/6] X [1.52 + ¼(4 – 3)2]

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
For example, the forecasted exchange rates of
foreign currencies can help the exporters and
importers in planning and managing their
foreign exchange risk.
A Financial or Economic Time Series
Contains data regarding financial and
economic variables such as interest rates, share
prices, exchange rates, etc. Data in a financial
or economic time series are expected to be
random variables as fluctuations in these data
are uncertain and unpredictable. The daily US
Dollar exchange rates are considered as
random variables and the series may be
considered as a stochastic time series (as
opposed to a deterministic time series).
Are the data in a financial time series
random variables?
Random Variables
Random variables are independent of each
other. If the data are related to each other, they
represent non-random variables.
Randomness of Data in a Financial Time
Series
An important feature to be examined.
Autocorrelation, also known as serial
correlation or serial dependence, is an
important feature of time series data. If a new
series is created by taking the daily exchange
rates with time lag of one day and is compared
with the original time series, existence of a
covariation between the original time series
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and the lagged time series indicates the
presence of autocorrelation in the original time
series. Autocorrelation may be defined as the
correlation between observations of a time
series at different distances apart.
Autocorrelation confirms non-randomness in
the data series.
Significance of Serial Correlation
The essence of serial correlation is to see how
sequential observations in a time series affect
each other. If we can find the structure in these
observations it will help us improve our
forecasts and simulation accuracy.
Durbin-Watson Test
Durbin-Watson test is popularly used to detect
the presence of autocorrelation in time series
data. A test that the residuals from a linear
regression or multiple regression are
independent. Original time series can be taken
as the independent series (Xt).Lagged time
series can be taken as the dependent series (Yt)
Regression equation: Yt = α + β Xt
The residuals from the linear regression
between the original series and the lagged
series can be used for the test
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Original and lagged time series Hypothesis for Testing

Share prices of Asian Paints

Days Spot price Spot price

(Original) (Lagged)
1 1279.8 1251.75
2 1251.75 1224.7
3 1224.7 1209.5
4 1209.5 1247.8
5 1247.8 1201.4
6 1201.4 1225.95 Residual Calculation
7 1225.95 1219.05
8 1219.05 1261.2 ei (ei - ei-1)2 ei2
9 1261.2 1250.3 4.97 - 24.67
10 1250.3 1267.6
-15.46 417.39 239.1
11 1267.6 1259
-24.28 77.73 589.48
12 1259 1235.4
17.61 1754.54 310.04
13 1235.4
-37.83 3073.46 1431.17
Regression equation:
-2.33 1260.28 5.43
Yt = α + β Xt + et
-15.02 161.13 225.73
Yt = 944.75 + 0.236 Xt + et Yt =
28.75 944.75 1916.55
+ 0.236 Xt + et 826.8

This equation can be used to calculate the 7.91 434.61 62.52

27.78 394.91 771.68

predicted values of the variable. The difference
15.1 160.85 227.9
between the observed values and the predicted
-6.47 465.28 41.91
values are the residuals Total 10116.74 4756.44

Days Spot price Predicted Residuals

(Lagged) prices Testing of Hypothesis
1 1251.75 1246.78 4.97 d becomes smaller as the serial correlation
2 1224.7 1240.16 -15.46
increases. Upper and lower critical values, dU
3 1209.5 1233.78 -24.28
4 1247.8 1230.19 17.61 and dL have been tabulated for different values
5 1201.4 1239.23 -37.83 of k (the number of explanatory variables) and
6 1225.95 1228.28 -2.33
n (sample size)
7 1219.05 1234.07 -15.02
8 1261.2 1232.45 28.75 If d < dL reject H0 : ρ = 0
9 1250.3 1242.39 7.91 If d > dU do not reject H0 : ρ = 0
10 1267.6 1239.82 27.78
If dL < d < dU test is inconclusive
11 1259 1243.9 15.1
12 1235.4 1241.87 -6.47

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Durbin Watson Test Statistic Stationarity

Stationarity and autocorrelation are two
important features of time series data. A time
series is an example of a stochastic process,
which is a sequence of random variables
ordered in time. A time series may be
stationary or non stationary. It is said to be
stationary if its mean and variance are constant
Critical Values of Durbin Watson Statistic
over time or are independent of time.
Sample Significance k=1 k=1 k= 2 k= 2 A stationary time series is one whose
size level
statistical properties (such as mean and
DL DU DL DU
variance) are constant over time.
30 0.05 1.35 1.49 1.28 1.57

40 0.05 1.44 1.54 1.39 1.6

Non-stationary Time Series
50 0.05 1.5 1.59 1.46 1.63

60 0.05 1.55 1.62 1.51 1.65

A time series may be subdivided into subsets
80 0.05 1.61 1.66 1.59 1.69 of different time periods within the overall
100 0.05 1.65 1.69 1.63 1.72 time period of the time series. Mean and
150 0.05 1.72 1.75 1.71 1.76
variance for the different subsets may be
200 0.05 1.76 1.78 1.75 1.79
calculated. The mean may vary for the
different subsets depending on whether the
An Example values are increasing or decreasing over time.
Time series data: Share prices of Asian Paints The variance may also vary for the different
for 497 days sub periods. A time series whose mean and
Durbin-Watson test result: variance vary across different time periods is
d = 1.9844 said to be non-stationary
dL (for α = 0.05 and k =1) = 1.76 (n = 200) Asian Paints Share Prices-Mean and Variance
Period Observations Mean Variance
dU (for α = 0.05 and k =1) = 1.78 (n = 200) 21st March 2017 - 11th
Aug. 2017 100 1122.73 1270
Since d > dU, H0 cannot be rejected; it is 14th Aug 2017 - 5th Jan.
2018 100 1168.02 1203.23
accepted. 8th Jan. 2018 - 4th June
2018 100 1176.35 4026.11
Conclusion: There is no autocorrelation in the 5th June 2018 - 30th Oct.
2018 100 1319.69 5666.42
share price series. 31th Oct 2018 - 20th
March 2018 97 1372.28 3210.71
Entire period 497 1230.97 12310.3

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Importance of Stationarity
Why should we worry whether a time series is
stationary or not? If it is nonstationary, it is not
possible to generalize it to other time periods.
If we have two independent non-stationary
series, then we may find evidence of a
relationship when none exits (i.e. spurious
Correlogram
regression problem). The relationship will be
Autocorrelation is the correlation between
genuine only if the two series are cointegrated.
observations of the original time series and the
Economic and Financial Time Series lagged time series. The lagged time series may
be created with lag of one time period or more
Examples: exchange rates, share prices, These
than one time period. ACF (Autocorrelation
are often trending and consequently non-
Function) gives the correlation coefficients
stationary. It is important to test whether the
calculated for several lagged time series with
economic or financial time series is non-
increasing lag periods. A plot of the
stationary.
correlation coefficients against the lag length is
Tests of Stationairity known as correlogram.

1. Graphical analysis ACF of Asian Paints Share Prices

2. Correlogram
3. Unit root test
Graphical Analysis
Plot the time series in an XY graph. Gives an
initial clue as to whether the time series is
stationary or not. Starting point for more
formal tests of stationarity.

Graph of Share Prices of Asian Paints

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Correlogram of Asian Paints Share Prices Null hypothesis:

There is unit root and time series in non-
stationary
Alternative hypothesis:
There is no unit root and time series is
stationary
The null hypothesis is rejected if the test
statistic is more negative than the critical value
ACF Interpretation Critical Values for DF and ADF tests
The table shows whether the correlation Significance level CV for constant CV for constant and
but no trend trend
coefficients are significant. Q-stat and its p-
value indicates if the sum of the
5 percent (-) 2.86 (-) 3.41
autocorrelation coefficients is statistically 1 percent (-) 3.43 (-) 3.96
significant. ACF has to be examined to see if
the correlation of the time series over several ADF test Result for Asian Paints Share
lags decays quickly or slowly. If it decays Prices
slowly, it is an indication that the time series is
non-stationary.

Unit Root Test

A statistical procedure used to test whether a
time series is non-stationary and possesses a
unit root. A series which has a unit root is
non-stationary. Augmented Dickey-Fuller
(ADF) test is commonly used to test the null
hypothesis that a time series has a unit root and
is non-stationary.

Dickey Fuller and Augmented Dickey Fuller Null Hypothesis: t

series has a unit root
Tests Exogenous:
Constant
Dicky-Fuller and Augmented Dicky Fuller Lag Length: 1 (Automatic Based on AIC,
MAXLAG=10)
tests for unit root. t-Statistic Prob.*

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Augmented difference of difference) to make it stationary,

Dickey-Fuller test
statistic -1.175441 0.686438
Test
it is integrated of order two, denoted as I(2).
critical 1%
values: level -3.443379 If it has to be differenced d times to make it
5%
level -2.867168 stationary, it is said to be integrated of order d,
10%
level -2.569812 denoted as I(d). A stationary time series is
integrated of order zero, denoted as I(0).
Inference
Cointegration
The ADF test statistic (tau value) is (-)
In the case of two independent non-stationary
1.17544. As this value is not more negative
series, we may find evidence of a relationship
than the critical values, the null hypothesis
when none exists (i.e. spurious regression
cannot be rejected. Null hypothesis that the
problem). The relationship will be genuine
time series has unit root and is nonstationary
only if the two series are cointegrated. It
is accepted
becomes necessary to examine the existence of
Meaning of Unit Root Test
cointegration in such cases.
In an autoregressive (AR) statistical model of a
Concept of Cointegration
time series, the AR parameter is assumed to be
An old woman and a boy are on random walk
1. In a data series Yt modelled by
in the park. Information about the boy‟s
Yt+1 = aYt + et
location tells us nothing about the old
„a‟ is an unknown constant
woman‟s location. There is no cointegration
Unit root test would be a test of the hypothesis
An old man and his dog are joined by a leash.
that a = 1, against the alternative that „a‟ is
The man and the dog are each on a random
less than 1. If the time series has unit root (a =
walk. But they cannot wander too far from
1), the series is said to be nonstationary.
each other because of the leash. The random
Integrated Time Series
processes describing their paths are
A nonstationary time series is known as an
cointegrated.
integrated time series or series with stochastic
Testing for Cointegration
trend. It could be made stationary by
To test whether two I(1) series are
differencing (that is, subtracting the preceding
cointegrated, we examine whether the
value from it current value). If a time series
residuals are stationary or I(0). In the case of
becomes stationary after differencing it once, it
two nonstationary I(1) series, Y and X, if the
is said to be integrated of order one, denoted as
residuals of the regression Yt = α + β Xt + et are
I(1). If it has to be differenced twice (i.e.,
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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

stationary, then the variables are said to be

cointegrated.
The Engle-Granger test is used for testing
cointegration between variables.
Example
Two series are considered for the analysis
Nifty values are taken as the independent
variable. Asian Paints share prices are taken as
the dependent variable
No. of observations: 497
Regression analysis is proposed for studying
the relationship between the variables.The two
series are financial time series and hence
stationarity of the series have to be examined.
If the series are nonstationary, then existence
of cointegration has to be examined before the
regression results can be relied upon.
Results of Engle-Granger Cointegration
Test

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

No. of observations: 76
Regression analysis is proposed for studying
the relationship between spot price and futures
price. The two series are financial time series
and hence stationarity of the series have to be
examined. If the series are nonstationary, then
existence of cointegration has to be examined
before the regression results can be relied
upon.
Results of Engle-Granger Cointegration
Test

Inference
The two time series of Nifty values and Asian
Paints share prices are nonstationary. The
Residual series of the regression between the
two series is also non stationary. Cointegration
exists only if the residual series is stationary.
There is no cointegration between the two
series, as the residuals series is nonstationary.
The regression results are not reliable, in the
absence of cointegration.

Another Example
Two price series are considered for the
analysis. Spot prices of Asian Paints are taken
as the independent variable. Futures prices of
Asian Paints are taken as the dependent
variable

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Inference
The two time series of Spot prices and Futures
prices of Asian Paints are nonstationary. The
Residual series of the regression between the
two series is stationary. Cointegration exists if
the residual series is stationary. There is
cointegration between the two series, as the
residuals series is stationary. The regression
results are reliable, as the variables are
cointegrated.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

TIME SERIES REGRESSION

Dr. P.N. Harikumar

Associate Professor, Catholicate College, Pathanamthitta

INTRODUCTION

Time series is a set of observations generated
sequentially in time. If the set is continuous
then the time series is continuous. If the set is
discrete then the time series is discrete.
Generally discrete time series are more
adopted in Econometric studies. “Sequential
in time” is only to mean successive
observations and hence a sequence of
observations observed over a space may also
be considered as a time series. Generally the
term „Time Series‟ is used to refer this kind
of data also. Analysis of discrete time series
is relatively easier. Usually time series are
observed over equal interval of time.
However, this is not a restriction on the
scope of time series analysis.
The usage of time series models is twofold:
1. Obtain an understanding of the underlying
forces and structure that produced the
observed data
2. Fit a model and proceed to forecasting and
monitoring.
Examples of Time series data
Business and Economics : weekly share
prices, monthly profits, sales forecasting,
budgetary analysis, stock market analysis,
yield projections
Meteorology: daily rainfall, wind speed,
temperature
Sociology : crime figures, employment
figures
DESCRIPTIVE UNDERLYING FORCES
A time series is said to be a consequent effect
of four possible forces acting at a point of
time. They are trend, seasonal variation,
oscillation and random component. A Time
series is said to be an effect of these four
components and the researcher may choose
from the two alternative models ie. Additive
or multiplicative models. In an additive
model, these forces or components are added
up to give time series. This means that at
every point of time these four forces may be
in operation and hence there may be an effect
due to Trend (T), an effect due to Seasonal
Variation (S), Oscillation (O) and Random
component (R) and the value of observation
of the variable at that point of time is taken
as the sum of these four effects. It the
variable is taken as y and its observation at
time „t‟ is denoted by yt then it is assumed to
be given by yt = Tt+St+Ot+Rt. Similarly the
alternative model will be obtained by
multiplying these effects to get yt.
A study of time series aims at identifying the
possible contributions of these effects and
after eliminating these effects the remaining
series called as „Residual Series‟ is taken up
for high end solutions using different types
of models. However, the identification of
effects due to Trend and Seasonal Variations
are highly valuable in Econometric Studies.
Definitions
Trend: A smooth movement of observations
either upwards or down wards over a

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
relatively long period of time is called a
Trend. Possible reasons for trend in
observed series may be attributed to
development of dependent factors like
technology, health and the like.
Seasonal Variation : In certain cases of time
series a systematic behavior of up and down
movement can be observed repeatedly over a
fixed period of time interval. As an example,
textile sales may be seen to vary in a
systematic manner over a year. This type of
series may provide valuable information that
may be useful in future predictions.
Oscillations: Suppose a time series is devoid
of effects due to trend and seasonal variation,
then it may be observed to oscillate around a
constant value. A look at recordings from
ECG or variation in the movement of sensex
index over a normal day may be examples.
Random Component: Above all the other
effects having a possibility of explanation,
there may be a large number of forces acting
and adding a random effect to the series.
A study of time series is directed at the
estimation of explainable effects due to
Trend and Seasonal Variation; eliminate
them from the observed series; try for
explanation of the residual series using
statistical models. In order to achieve them,
there are conventional methods having a well
built computational capability. Also, there
are high end methods involving modeling
under different assumptions.
Use of time series is an enchanting area in
Time Series Analysis. The types of analyses
vary with respect to the type of the series.
Empirical work assumes that the underlying
time series is stationary. The second concept
concerned with time series analysis is Auto
Correlation. Presence of auto correlation may
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turn a time series into Non Stationary. Using
Regresson with two time series may produce
Spurious or nonsense regression. The R-
square may be very high, yet the regression
will be meaningless.
The key concepts to be considered will be the
concepts called Stochastic Processes, which
are taken as concepts generating the time
series. Stationary Processes, Pure Random
Processes, Non-stationary Processes,
Integration Variables, Co-integrtion and Unit
Root Test are explained in sequence.
Random Process or Stochastic Process is a
collection of random variables, usually
ordered in time. Such processes can be
defined on other spaces also. They may be
further classified into discrete and continuous
depending upon the observations are in
continuum or at discrete points.
Stationary Stochastic Process: A stochastic
process is said to be stationary if its mean
and variance are constant over time and the
covariance between two time points depends
upon only the time difference and not on the
choice of the time points. A majority of time
series assumes that the underlying process is
stationary. If a time series is not stationary in
this sense, it is called as non-stationary. For
example Random Walk Model, used in the
study of stock prices comes under this head.
Random Walk Model is considered in two
ways; Random Walk Model with Drift and
Random Walk Model without Drift. Let Yt
be the variable observed at time point „t‟,
then the RWM is stated as
Yt= Yt-1 +ut
Where ut is an error term with mean 0 and
variance σ2.It can be observed that this
results in
Y1 = Y0+u1
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
Y2 = Y1+u2 = Y0+u1+u2
Y3 = Y2+u3 = Y0+u1+u2+u3
As the time goes on increasing, the mean will
remain the same but the variance will go on
increasing making the series non-stationary.
Similarly, the RWM with drift can be written
as Yt=ᵭ +Yt-1+ut where ᵭ is the drift
parameter. The difference between
Yt – Yt-1 = ᵭ+ut. drifts upwards or downwards
depending upon the value ᵭ. Here, both mean
and variance go on increasing over time,
suggesting that the series is non-stationary.
Unit Root Stochastic Process: Suppose we
write the RWM as Yt=ρYt-1 +ut where
-1 ≤ ρ ≤ 1 is the classical autoregressive
model. When ρ is 1, the model is called Unit
Root Stochastic Process. The model leads to
a non stationary series observed earlier. Thus
non-stationarity, Random Walk and Unit
Root stochastic process are equivalent
concepts . If lρl ≤1, the model leads to
stationary series.
Integrated Stochastic Process: RWM is but
a specific case of a more general class of
models called as Integrated Model. It was
claimed in the last part that the RWM
without drift is non-stationary. But its first
difference (Yt-Yt-1) = ∆Yt=ut is stationary.
Hence, we call RWM without drift as „an
Integrated Process of Order 1” Similarly, if
the difference of the first difference is
stationary process is called as Integrated
process or order 2. In general if pth order
differences of a series results in a stationary
series, the process is called as „Integrated of
order p‟ denoted as I(ρ).
Co-integration: The regression of a non-
stationary time series on another non-
stationary time series may produce a spurious
regression. Let us suppose that we consider
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the Y and X time series. Subjecting these
time series individually to unit root analysis
and suppose you find that they both are I(1);
that is they are auto-regressive of order 1
with autoregressive coefficient being 1; that
is, they contain a unit root. Suppose, then,
that we regress Y on X as follows.
Yt = β1+β2Xt+ut (1)
Let us write this as
ut = Yt-βt-β2Xt (2)
Suppose we now subject ut to unit root
analysis and find that it is stationary; that is.
It is I(0). This is an interesting situation, for
although Yt and Xt are individually I(1), that
is, they have stochastic trends, their linear
combination (2) is I(0). So to speak,the linear
combination cancels out the stochastic trends
in the two series. If you take consumption
and income as two I(1) variables, savings
defined as income – consumption could be
I(0). As a result, a regression of consumption
on income as in (1) would be meaningful. In
this case we say that the two variables are co-
integrated.
A number of methods for testing co-
integration have been proposed in the
literature. Two simple methods are the DF or
ADF unit root test on the residuals estimated
from the co,-integrating regression and the
Co-integrating regression Durbin-Watson
test. Engle and Granger have calculated the
critical significance values. Therefore, the
DF and ADF tests in the present context are
known as Engle-Granger (EG) and
Augmented Engle-Granger (AEG) tests
The Unit Root Test : A test of stationarity
that is popular is the Unit Root Test. For this
purpose Dickey and Fuller have developed a
test for δ =0. The associated statistics is
called as Tau-statistics using simulation
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
exercises and prepared extensive tables
providing critical values. This is called as DF
test for stationarity. This test assumes that the
error term ut is uncorrelated. But in the case
where ut are correlated, Dickey-Fuller
developed another test called Augmented
Dickey Fuller test (ADF test). This is done
with a modification of the considered model
by adding the lagged values of the dependent
variable. Still δ=0 is tested and the same
tables for DF test can be used here also.
Approaches to Time Series Forecasting
There are different approaches to forecasting
with time series such as Exponential
Smoothing, Single Equation Regression
Models, Simultaneous Equations Models,
ARIMA Models and VAR Models. The
ARIMA Models coming under Box-Jenkins
Methodology include Auto-Regressive(AR),
Moving Average (MA) and Auto Regressive
Integrated Moving Average (ARIMA)
Models. Here a brief view of these
techniques is given.
Auto Regressive (AR) Process: Let Yt be
the variable at time „t‟ in the process. Then in
some situation, this may linearly depend
upon its value in the preceding time point or
points. This can be written as Yt=α1Yt-1+ut,
which is called as a first order Auto
Regressive Process (AR(1)). The current
year GDP may depend upon last year GDP.
The model may be written in a modified way
as (Yt-δ)=α1(Yt-1-δ)+ut, where δ is the mean
of pth order Auto Regressive Process
(AR(p)).
Moving Average (MA) Process: In the same
way, consider that realization of a variable at
a time point „t‟ is given by a disturbance of a
value, say average of a stationary aprocess,
the model can be specified as Yt=µ+ut,
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where ut is a random variable with mean 0
and variance σ2, called an error term (with
normal distribution for the error term, it is
called as white noise). Extending this idea,
that the error at time „t‟ is a weighted average
of previous and current errors, then the
model can be written as
Yt= µ+β0ut+β1ut-1, called the first order
Moving Average process. Extending this
ideas, to „q‟ previous time points we get a
model called as qth order Moving Average
Process MA(q).
Auto Regressive Moving Average (ARMA)
Process: If there is a reason to believe that a
process Yt has the characteristics of both AR
and MA process, then another model can be
obtained with ARMA models, given by
Yt=θ+αtYt-1+β0ut+β1ut-1
Notice the presence of lag of order one only
for AR and MA components. This is called
ARMA(1,1) Process. In general, one can
define ARMA (p,q) processes, where the AR
process is of order „p‟ while that of MA of
order „q‟.
Auto Regressive Integrated Moving
Average (ARIMA) Process: It is already
stated that the analysis is comfortable when
the series is a stationary series. If the given
series is stationary, it is called I(0),
„Integrated of order 0‟. Generally, the given
series is difference for required number of
successive repetitions to get into stationarity.
If a given series is differenced for „d‟ times
before applying ARMA (p,q) model, then the
resulting model is called as ARIMA(p,d,q)
Model.
In order to estimate the model and use the
results for forecasting, Box-Jenkins method
is used. While considering ARIMA (p,d,q0
model, knowledge about p,d,q are not
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
known. Hence, the most important issue is
that of deciding these constants. Box-Jenkins
methodology consist of four steps for
analyzing a series and uses the results for
forecasting with ARIMA(p,d,q) model. They
are identification, Estimation, Diagnostic
Checking and Forecasting. This is a high end
model activity which needs expert assistance.
ARCH and GARCH Models
Auto Regressive Conditional
Heteroscedasticity (ARCH) and
Generalised Auto Regressive Conditional
Heteroscedasticity (GARCH) models are
models useful in the study of time series
exhibiting Volatality Clustering. By volatility
clustering it meant that the behavior of the
series showing wide swings for a time
interval followed by periods in which there is
relative calm. This implies that the variance
of the series varies over time. This
heteroscedasticity or unequal variance may
have an autoregressive structure, ie variance
observed over different points of time may
be auto correlated. Generally Xt2 is taken as a
measure of volatility. Accepting this, one
way of verifying such volatility clustering
will be to model the behavior using AR(1)
model, Xt2= β0+β1X2t-1+ut in the simplest
case, where ut is the usual error term. If β1 is
0, there is no volatility; hence a test is
performed for the hypothesis β1=0 with the
usual test. Depending upon need higher
order models can be used. If the hypothesis
is rejected, the presence of volatility
clustering is accepted then the series presents
an ARCH situation. What should be done in
that case? In such situations, the regression is
obtained by the Generalised Least Square
Method. There are many software providing
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comfortable computation here. It is to be
noted that a significant Durbin Watson
Statistic should be further followed to check
for ARCH effect also.
With this addition to regression models,
other improvements started to come in the
area that has resulted in a more general
format for ARCH models called as
Generalised Autoregressive Conditional
Heteroscedasticity (GARCH) model. We
consider simple GARCH(1,1) model; in fact
hese are certain principles which can be
adopted for any model. GARCH (1,1) can be
written as
σt2=α0+α1ut-12+α2σt-12
This implies that the conditional variance of
„u‟ at time‟t‟ in the model, where „u‟ is the
error term, depends upon not only on the
squred error term in the previous time‟t-1‟
(as in ARCH) but also on its conditional
variance of the previous time period. This
model can be genaralised into GARCH(p,q)
where p lagged terms of the squared error
and q lagged terms of the conditional
variances. Again, estimation of such models
are by GLS method with computation of
required matrices from the data using
software.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

INTRODUCTION TO GRETL
Dr. K. PRADEEP KUMAR
Associate Professor
Government College
Attingal

Introduction menu. All other menu options enables the user

GRETL (Gnu,Regression, Econometrics and
Time Series Library) is an an open source,
sophisticated, cross platform, flexible, user
friendly, accurate and extensible econometric
software package. The Gretl code base
originally derived from program ESL
(Econometrics Software Library) written by
Professor Ramu Ramanathan of the University
of California, San Diago. Gretl as an open
source software have been developed through
numerous developers of free and open source
software. Richard Stalman of Free Software
Foundation adopt it as a GNU program after
its finalization. As a cross platform software,
Gretl program is compatiable to operating
systems like Linux, MS Windows, and Mac
OSX. The installation of Gretl in MS windows
is just a matter of downloading
gretl_instal.exe and running the program.
The Main Window Menus
Reading from left to right of main window
menu bar, we can see file, Tools, Data, View,
Add, Sample, Variable, Model and Help
options. Thus one can simply start working on
Gretl by opening data or database from the file
to customize and use the database to obtain
descriptive as well as inferential results
contained in the dataset. The most frequently
used menu options for a beginner are file,
tools, variable and model options.
Data files
Gretl has its own native file formats. The basic
data format is one in which we use the suffix
.gdt a dataset that is stored in Extended
Markup Language(XML). The system data
files have the suffix .dtd which is installed in
the system data directory. In addition to this
one can import data files in spreadsheets,
SPSS, STATA files,Eviews workfiles, SAS
export files, plain text files etc. Likely, huge
databases that are available online can also be
accessed with a database handling routine.
These online databases can be accessed
through menu item File-Databases. The most
common online database is RATS-4
(Regression Analysis of Time Series). One can
also create a dataset from scratch by opening
file-Newdata Set (Cntl +N). The subsequent
windows will prompt you the steps in creating
your own dataset. While doing so the

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

programme will ask you to specify the nature Using the menu option “Data- Datastructure”,
of your dataset. On the basis of nature, the data the user can change the nature of the dataset or
set may be database.
1. Cross sectional Data Practice 1: Building a Regression model in Gretl
2. Time Series Data (using sample data files of Ramanathan)
3. Panel Data Procedure
Cross sectional Data is a collection of 1. Open Gretl (Start- All Programmes-
observations (behavior) of multiple subjects Gretl or Click Shortcut icon created in
(entities) at a single point of time. For example Desktop): Gretl Opens
maximum temperature, humidity and wind 2. Go to File- Open Data- Sample files –
(behaviours) in Thriruvananthapuram, select the tab named Ramanathan : The whole
Ernakulam and Wayanad (entities) on 1st Ramanathan data files will be listed.
January,2020.
Time Series Data is a collection of
observartions (behaviours) for a single subject
(entity) at equally spaced different time
intervals. For example maximum temperature,
humidity and wind (behaviours) in Wayanad
town (Single entity) on the first day of every
year starting from 2010 to 2020. 3. Select the dataset named disposable income
Panel Data or Longitudinal data which is also and consumption ( A double click enables
called as cross sectional time series data is a opening of the dataset): The data set opens
collection of observations (behaviours) for
multiple subjects (entities) at multiple
instances (Time). For example the maximum
temperature, humidity and wind (behaviours)
in Thriruvananthapuram city, Ernakulam town
and Wayanad town (multiple entities) on the
first day of every year starting from 2010 to
2020 (multiple time period)

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

This file contains the classic econometric

consumption function. The data window above
displays the current data file, the variable ID, the
variable name, a brief description tag and the range
of data.
4. To build a simple regression model,
select model from menu bar- from the options
in model menu click OLS (Ordinary Least
Squares) : a specify model window appears as The output window shows the model based on
given below. the data given and its various descriptive and
inferential statistics. The window also contains
menus that allow the user to inspect or graph
the residuals and fitted values and to run
various diagnostic tests on the model.

5. Select Ct (Consumption) as dependent

variable and Yt (Disposable Income) as
Repressor variable (Independent Variable)
using the arrow marks in the respective boxes.
Then click OK. The window displaying the
regression output will appear as given below.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

PERFORMANCE EVALUATION OF ENTREPRENEURSHIP

DEVELOPMENT SCHEMES OF NATIONAL HANDICAPPED AND
FINANCE DEVELOPMENT CORPORATION
Dr. SHANIMON S
Assistant Professor
Government College, Attingal

Abstract

The growth and development of all economies highly depend on entrepreneurial activity.
Entrepreneurs are the nerves of economic development as they provide a source of income and
employment for themselves. They create an atmosphere of employment generation for others;
produce new and innovative product and services. Entrepreneurial supportive environments are
essential for entrepreneurship development and are evolving all around the developing economies.
An idea of entrepreneurial environment has five metrics, such as easy access to funding,
entrepreneurial culture, entrepreneurial supportive regulatory measures, entrepreneurial supportive
mechanism and entrepreneur friendly policies. The public and private sector have an equal role
to the development of entrepreneurial eco-system. There are four factors necessary for
entrepreneurial opportunities such as factor-driven entrepreneurship, efficiency-driven
entrepreneurship, innovation-driven entrepreneurship, and necessity-driven entrepreneurship.
Entrepreneurship has been considered as the backbone of economic growth. The level of economic
activities of a country largely depends on the level of entrepreneurial activities in that country.
Entrepreneurs are not born but can be created and nurtured through appropriate interventions in the
form of entrepreneurship development programmes. In the modern competitive world a number of
opportunities emerged from the evolving Information Technology Revolution. A large part of the
population generally lags behind in taking advantage of emerging IT revolution. Therefore, there is a
need to provide skill development through entrepreneurship development to such people in order to
bring them to mainstream of economic development.

Key Words: Entrepreneurship, Economic Development.

1.1 Introduction of the socially disadvantaged groups especially

for women, persons with disabilities,
Entrepreneurship development programmes
scheduled tribes and scheduled castes.
should be designed to upgrade existing skills
Entrepreneurship development and training are
and to create new skills by organising various
the key elements of social and economic
technical training courses to the mainstream
development among socially disadvantaged
society. Specific tailor-made programmes
groups. To undertake these tasks on regular
should be designed for the skill development
basis a number of national level

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

entrepreneurship development institutes and nationalized banks and other specialised

autonomous bodies have been started in India. institutions.
These institutes are providing assistance in
The financial support, the entrepreneurial
funding, entrepreneurship development
development programmes and various
training, research and consultancy services.
entrepreneurial skill development programmes
National Handicapped Finance and
are mainly conduced for the economic and
Development Corporation is one among such
social development of differently abled
agencies that provide a number of assistance
persons. Through these programmes
and programme for the entrepreneurship
differently abled entrepreneurs are able to open
development of differently abled persons.
and operate their own ventures. NHFDC is
1.2 National Handicapped and Finance specialised institution in the field
Development Corporation - Profile entrepreneurship development especially for
disabled people with the support of
National Handicapped and Finance
Government of India. NHDFC has been
Development Corporation is the apex level
actively engaged in organising
institution promoted by Ministry of Social
entrepreneurship development training
Justice & Empowerment, Government of
programmes that are beneficial to the
India. The corporation was incorporated as a
differently abled persons in India.
Company on 1997 under Section 25 of the
Indian Companies Act, 1956 to provide 1.3 Objectives of NHFDC are as follows:
financial support to handicapped people for
1. To help and support differently abled
entrepreneurship development. It provides a
persons in carrying out training and
number of programmes for the
entrepreneurship development
entrepreneurship development among
programmes.
Differently-Aabled people. The Corporation is
2. Promoting economic growth and self-
mainly engaged in financial assistance to
employment ventures for the benefit of
differently abled person with minimum 40% of
differently abled persons.
disability under micro finance schemes.
3. Providing financial assistance for
NHFDC undertakes entrepreneurship
persons with disabilities for the
development programmes in connection with
development of their entrepreneurial
skill.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
4. Providing loan to persons with
disabilities for professional or technical
education leading to vocational
rehabilitation and self-employment.
5. Assisting self-employed persons with
disability in marketing their products
and for efficient management of self-
employment ventures.
6. To serve as the apex national level
body for accelerating the process of
entrepreneurship development
programmes among differently abled
people in India.
7. To provide financial assistance to
differently abled persons to start
business venture.
8. To share experience and expertise in
entrepreneurial development across the
national frontiers through nodal
agencies.
9. To provide scholarship assistance to
handicapped students.
1.4 Schemes offered by NHFDC
National Handicapped Finance and
Development Corporation has framed various
schemes to assist differently abled persons.
The schemes mainly involving credit based as
well as non-credit based activities for the
benefit of differently abled persons. These
schemes are mainly implemented through
Government College, Attingal
nodal agencies such as State Channelising
Agencies (SCAs).
1.4.1 Credit Based Schemes
The credit based schemes include
financial assistance to the person with
disabilities fulfilling the eligibility criteria, in
the form of concessional loans on convenient
terms for setting up of income generating
activity.
1.4.2 Non Credit Based Schemes
Non-credit based schemes are mainly
intended to increasing the entrepreneurial
talents of differently abled people. These
schemes are:
1. Grant for conducting or sponsoring the
entrepreneurial training under the
scheme of “„Financial Assistance for
Skill and Entrepreneurial
Development”.
2. Schemes for sponsoring the
entrepreneurs to conduct various
Exhibitions and Trade Fairs.
3. Conducting workshops, seminars and
conferences.
The institution extends its activities through
various programmes to uplift the socio-
economic conditions of differently abled
persons in India. The corporation is offering
two types of assistance to differently abled
persons under credit based and non-credit
based schemes. Under credit based schemes,
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

financial assistance is mainly intended for 16

2012-
6921.5 13253 6958.99 13296
2013
trading and service sector activities, 17
2013-
8018.51 13371 7581.94 13307
2014
agricultural and allied activities, small Source: NHDFC annual report 2014.
business activities, loan to the purchase of
Figure 1.1: Year Wise Achievements of
vehicle for commercial hiring, educational
Amount Disbursed
loan, and micro credit schemes.
(Credit Based Scheme) as on 31.03.2014

1.5 PERFORMANCE EVALUATION OF Amount Disbursed (in Lakhs)

VARIOUS SCHEMES OFFERED BY 8000
6000
NHFDC 4000
2000
0
Year Wise Achievements
Table 1.1: Details of Amount sanctioned,
Amount Disbursed And Number of
Beneficiaries ( Credit Based Scheme) as on
31.03.2014
Source: Annual Report NHFDC 2013-2014.
Amount Amount
Total Total
SL Sanctioned Disbursed
Years Number of Number of
NO (Rs. in (Rs. in
Lakh)
Beneficiaries
Lakh)
Beneficiaries Table (1.1) shows that the details of amount
1997-
1
1998
25.55 11 25.55 11 of loan sanctioned, amount of loan distributed
1998-
2
1999
312.6 811 93.13 230 and the total number of beneficiaries under
1999-
3
2000
458.82 801 576.02 1164 credit based schemes for a period of seventeen
2000-
4
2001
1334.23 3330 1180.88 2645 years from the period of incorporation ( 1997-
2001-
5
2002
1522.6 4075 1283.92 2933 2014). The Corporation aims at extending the
2002-
6
2003
1756.12 4702 1841.31 4498 number of beneficiaries under these schemes
2003-
7
2004
2772.93 5635 2682.04 5565 to achieve its main objectives. The number of
2004-
8
2005
2394.06 4754 1768.55 3282 beneficiaries is increased from 11 to 13307 for
2005-
9
2006
1945.18 3951 2344.17 4765 a time span of seventeen years. The amount of
2006-
10
2007
2728.17 5034 2608.77 4831 loan disbursed is increased from rupees 25.55
2007-
11 3381.62 5416 2830.37 5498 lakh to 7581.94 for a period of seventeen years
2008
2008-
12 4121.82 8159 3028.4 5950 from the inception stage of this institution.
2009
2009-
13 3801.67 6443 3079.59 6032 These results show that the corporation has
2010
2010-
14 3225.66 6007 3183.8 6356 been in a path of development to achieve its
2011
2011-
15 5537.98 10704 5085.78 10625
2012 objectives and actively engaged in organising

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

entrepreneurship development programmes schemes. The programmes are mainly intended

which have been beneficial to differently abled for promoting economic development among
persons in India. differently abled persons.
Figure (1.2) shows that the regression
Figure 1 .2: Loan Disbursed
coefficient of 177.4 with R2 value of 0.697,
(Credit Based Scheme) as on 31.03.2014
which shows that the regression coefficient is
12000
higher in terms of amount disbursed. The
y = 177.4e0.243x
10000 R² = 0.697 growth rate is very high in term of amount of
loan disbursed. The institution specialised in
8000
the field entrepreneurship with the support of
6000
Government of India and other Non-
4000 Governmental Agencies. The institution
extends its activities through various credit
2000
based schemes and non-credit based schemes.
0
0 5 10 15 20 Figure 1.3: Total Number of Beneficiaries
(Credit Based Scheme) as on 31.03.2014
Source: NHDFC annual report 2014.

National Handicapped Finance and Number of Beneficieries

20000
Development Corporation is the apex
10000
institution in entrepreneurship development 0

among differently abled people. The

corporation has specialised in credit based and
Source: Annual Report NHFDC 2013-2014
non-credit based assistance to differently abled
The Corporation aims at extending financial
people. The main aim of the institution is to
and entrepreneurial assistance to beneficiaries
provide financial support to handicapped
under credit based and non-credit based
people for entrepreneurship development. The
schemes for the achievement of its objectives.
institution provides number of programmes for
During the period of 2013-2014, the
the entrepreneurship development among
corporation attained a highest target, the
Differently-Aabled people. The financial
number of beneficiaries during the period was
support and entrepreneurial development
13307 (Table 1.1). The year wise analysis
programmes are offered through various

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

shows that the in last seven year (2007-2014) have received the amount of loan to start their
the number of beneficiaries all over India was business ventures. The above data shows that
more than 5000. In the initial period the the number of beneficiaries who have received
number of beneficiaries was negligible, during financial assistance from NFDC from the
the inception stage of this institution, the period of 1997 to 2014 was increased from 11
number of beneficiaries was very stumpy. The to 13307 with a time span of seventeen years.
corporation attained its objectives through a In the initial period the number of beneficiaries
long period in terms of coverage of was negligible. During the period of 2013-14
beneficiaries under various schemes of the the number of beneficiaries was 13307.
Corporation. During the long lasting years the STATEWISE ACHIEVEMENTS
corporation has attained a remarkable growth Table 5.2: Projects Sanctioned &
Disbursement made up to 31.03.2014
in the area of entrepreneurship development
Amount Amount
among differently abled persons both in the S
Sanctioned Number of Disbursed Number of
L State
(Rs. in Beneficiaries (Rs. in Beneficiaries
number of beneficiaries and amount of NO
Lakh) Lakh)
Andhra 3218
financial assistance (Table 1.1). 1 1429.06 4636 962.81
Pradesh
2 Assam 176.28 323 169.78 302
Figure 1.4: Year Wise Data of Total 3 Bihar 10 81 5.5 29
Number of Beneficiary 4 Chandigarh 88.38 358 88.38 358
(Credit Based Schemes) as on 31.03.2014 5 Chattisgarh 2849.34 2267 2548.77 2210
6 Delhi 250.65 881 225.60 867
20000 7 Goa 54.03 41 54.03 41
8 Gujarat 2154.01 5490 2110.88 5307
2.01
15000y = 56.30x 9 Haryana 5251.46 10079 5083.62 9815
R² = 0.855 Himachal 2414
10 2196.41 2415 2191.46
Pradesh
10000 11
Jammu &
967.69 1123 960.88
1116
Kashmir
12 Jharkhand 193.06 142 193.06 142
5000 13 Karnataka 1068.05 3491 1051.81 3360
14 Kerala 2323.41 3256 2257.21 3038
0 15
Lakshadwee
94.94 122 94.56
122
p
0 5 10 15 20 Madhya 3577
16 2702.31 4178 2085.89
Pradesh
17 Manipur 5.49 41 4.49 31
Figure (1.4) shows that the regression 18 Maharashtra 10047.55 11321 8036.18 10281

coefficient 56.30 with an R2 value of 0.855, 19 Meghalaya 307.50 530 307.50 530
20 Mizoram 50 178 50 178
which shows that the regression coefficient is 21 Nagaland 243.62 501 243.62 501
22 Orissa 1359.66 3081 1239.55 2621
higher in terms of total number of 23 Puducherry 1840.29 3259 1808.23 3209
24 Punjab 852.59 1283 829.85 1257
beneficiaries. The growth rate is very high in 25 Rajasthan 2816.14 4473 2783.89 4445
26 Sikkim 51.3 97 51.3 97
term of total number of beneficiaries, who 27 Tamil Nadu 6068.99 22967 6013.84 22593

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28 Tripura 248.31 213 247.36 212 offtake from the corporation and loan
Uttar 5404
29 2752.72 5545 2711.45
Pradesh distributed among the beneficiaries (Figure
30 Uttarakhand 1084.62 2082 1072.85 2079

31
West
721.16 2003 668.86
1634 1.5).
Bengal
Source: NHDFC annual report 2014. Table 1 .3: EDP Grant Sanctioned &
Disbursement. For the Year (2013-2014)
Table (1.2) shows that the state wise details of
projects sanctioned and the amount of
disbursement made up to 2014. The status of
the Corporation has continually improved on
project sanctioning and the disbursement of
loans to beneficiaries over the past years.
Figure 1.5: State wise list of Fund
Sanctioned to Differently Abled People

State Wise List of Fund

Saanctioned to Beneficiaries

Rajasthan
Manipur
Haryana
Andhra Pradesh
0 5000 1000015000
Axis Title

Amount Disbursed Amount Sanctioned

Source: Annual Report of NHFDC (2013-
2014).
Source: Annual Report NHFDC 2013-2014.
Table (1.3) shows that the amount of
Annual disbursement of loans for the benefit
grant sanctioned the amount of grant disbursed
of persons with disabilities in the past years
by the corporation on 2013-2014. The grant
shows that the corporation was totally focused
was sanctioned for entrepreneurship
on entrepreneurship development among
development training and skill development to
differently abled persons. The top three states
21 States in India. The state of West Bengal
in terms of loan offtake from the Corporation
utilized 50 per cent of the grant and offers
during total period were Maharashtra, Tamil
training facilities to entrepreneurship
Nadu and Haryana. Bihar, Mizoram and Goa
development. Two states namely state of
were the least performed states in terms of loan
Kerala and Tamil Nadu did not provide

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

training facilities to anyone. These two state participating in trade fairs and exhibitions at
have been sanctioned Rs: 735508.56 lakh for local, state, national and international levels
each for EDP training through various market assistance schemes.
The Corporation is mainly engaged in
Figure 1.6: EDP Grant Sanctioned &
Disbursement. For the Year (2013-2014) financial assistance to differently abled person
with minimum 40% of disability under micro
12000000
10000000 Amount…
finance schemes. NHFDC undertakes
y = 12717x
8000000 R² = -0.35 entrepreneurship development programmes in
6000000 connection with nationalized banks and other
4000000
specialised institutions. The financial support,
2000000
0 the entrepreneurial development programmes
and various entrepreneurial skill development
programmes are mainly conducted for the
economic and social development of
differently abled persons.
Source: Annual Report, NHFDC 2014.

Conclusion Findings
1. National Handicapped Finance and
National Handicapped and Finance
Development Corporation is conscious about
Development Corporation is focusing on
quality enhancement through entrepreneurship
quality skill development on entrepreneurship
development among differently abled persons.
development for the well being of differently
2. The Corporation is focusing on quality
abled persons. It provides special emphasis to
skill development and providing special
attract person with disabilities to skill and
emphasis to attract person with disabilities to
entrepreneurship development programmes. A
skill and entrepreneurship development
number of training facilities are offered to the
programmes. An entrepreneur may not be able
target group. Till date, the Corporation has
to succeed without entrepreneurial skills and
organized a number of entrepreneurship
qualities, in the modern competitive market
development programmes and skill
environment.
development trainings in all states covering a
3. The intended training facilities are
large number of differently abled persons. The
offering to the target group. Till date, the
Corporation assists the beneficiaries in

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Corporation has organized a number of Reference

entrepreneurship development programmes 1. Noel J. Lindsay, Wendy A. & Fredric
and skill development trainings in all states Kropp, (2009). Start-up intentions and
behavior of necessity-Based entrepreneurs A
covering a large number of differently abled longitudinal study, Frontier of
persons. Entrepreneurship Research, 1-5.
2. North, (1990). A Transaction Cost
4. During the year last twenty years Theory of Politics. SAGE Journals, Vol. 2,
entrepreneurship development programmes Issue 4.
3. O‟ Brein et al (1997), Poverty and
and skill development trainings were Social Exclusion in North and South, IDS
organized in all states covering thousands of Working Paper 55. Institute of Development
Studies and Poverty Research Unit, University
persons with disabilities. of Sussex, Brighton.
5. The Corporation assists the 4. Peter F. Drucker (1970), Practice of
Management, Allied Publishers, New Delhi.
beneficiaries in participating in trade fairs and 5. Rakesh Gupta,
exhibitions at local, state, national and & Ajay Pandit (2013). Innovation and growth
of small and medium enterprises: role of
international levels through various market environmental dynamism and firm resources
assistance schemes. as moderating variables. International Journal
of Entrepreneurship and Innovation
6. The Corporation provides the space for Management, 17, (4/5/6), 284 – 295.
reimbursement cost of travelling and 6. Russell, W. Teasley., Richard, B. &
Robinson, (2005). Modeling knowledge-based
accommodation expenses and providing entrepreneurship and innovation in Japanese
carriage cost of goods and daily allowances for organizations. International Journal of
Entrepreneurship, 9, 19-144.
the beneficiary and escort for participation in 7. Saadat Saeed, Moreno Muffatto,
these fairs. Shumaila Y. Yousafzai, (2014). Exploring
intergenerational influence on entrepreneurial
7. The beneficiaries are getting the intention: the mediating role of perceived
chance of market opportunities through their desirability and perceived feasibility of
Internationaisationl Journal of
participation in these events. Such Entrepreneurship and innovation management,
participation also showcases the abilities of the 18, 2/3, 134 – 153.
8. Sahalman (1987). Value creation in
differently abled for the awareness of general place management: The relevance of Service
public. Providers. International Journal Of
Management Science and Business
research,3(11), 13-19.,

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

TRENDS IN GLOBAL AQUACULTURE PRODUCTION

Dr. ANITHA S.
Associate Professor
Government College, Attingal

Abstract
Aquaculture is the farming and husbandry of aquatic creatures under regulated or semi-regulated
environmental conditions. These organisms may be fishes, crustaceans, molluscs, aquatic plants and
animals. Global Production from capture fisheries showed a declining trend in the past few decades.
Despite the mechanism of fishing techniques, catch per unit effort declined and unit cost of
production increased. The basic reason for the declining rate of growth in fish production is
attributed to over exploitation of scarce fishery resources. This necessitated a shift on emphasis from
development of capture fisheries to development of culture fisheries. Scientific aquaculture- a bio
technology to boost fish production through fish culture has become popular in major fish producing
countries of the world. This research paper analyses the gloabal trends in aquaculture production
based on the valid database of Fisheries Global Information Systems (FIGIS).

Key Words : Aquaculture, Capture Fisheries, Global trends

1.1 Introduction security and livelihoods, the Thirty-first

Global Production from capture fisheries Session of the FAO Committee on Fisheries
showed a declining trend in the past few (COFI) endorsed the convening of the Global
decades. Despite the mechanism of fishing Conference on Inland Fisheries: Freshwater,
techniques, catch per unit effort declined and Fish and the Future (26–28 January2015). The
unit cost of production increased. The basic conference was part of a memorandum of
reason for the declining rate of growth in fish understanding between FAO and Michigan
production is attributed to over exploitation of State University, and brought together about
scarce fishery resources. This necessitated a 200 scientists, resource managers and
shift on emphasis from development of capture representatives from civil society from around
fisheries to development of culture fisheries. the globe. The Session accepted the following
Scientific aquaculture- a bio technology to Ten steps to Responsible inland aquaculture.1.
boost fish production through fish culture has Improve the assessment of biological
become popular in major fish producing production to enable science-based
countries of the world. In recognition of the management 2. Correctly valued inland
vital role inland fisheries play in global food aquatic ecosystems 3. Promote the nutritional

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

value of inland fisheries 4. Develop and are the leading importers of fish and fisheries
improve science-based approaches to fishery products.
management 5. Improve communication
1.3. Trends in Gloabal Aquaculture
among freshwater users 6. Improve
Production
governance, especially for shared water bodies
7. Develop collaborative approaches to cross- The table below shows the figures in MT

sectoral integration in development agendas 8. (Million Tons) of gloabal aquaculture

Respect equity and rights of stakeholders 9. production from 1997 to 2016

Make aquaculture an important ally and 10.

Aquaculture Production
Develop an action plan for global inland Year (World) in MTs
1997 30.23
fisheries
1998 30.25
1999 31.59
1.2. Aquaculture – Global Scenario 2000 32.41
2001 33.24
The figures from FAO FIGIS records show
2002 36.78
that 47 percent of the worlds‟ total fish 2003 38.9
2004 41.9
production (80.4 /169 Million Tons) is through
2005 44.2
aquaculture. The percent of Aquaculture to 2006 47.25
2007 49.9
Total fish production shows an increasing
2008 52.9
trend from 35 percent in 2007 to 47 percent in 2009 55.7
2010 59
2016. The figures of marine fishing shows
2011 61.8
decreasing trend from 65 percent to 53 2012 66.5
2013 70.3
percent.89.3 percent of the world aquaculture
2014 73.7
production ( 68.3/76.6 Million Tons) is from 2015 76.6
2016 80.4
the continent Asia. The average growth rate is Source : FIGIS (FAO)
4.4%. The second leading producer is America
Table shows global inland fish production
( 3.2/80.4 MT). Finfish is the major item in the
from the year 1997-98 to 2015-16. During
aquaculture product group (52 /76.6 MT). 52.5
these 20 years, the total inland fish production
% of the world export of fish and fisheries
increased to 80.4 million tons from 30.23
products is from Ten countries including India.
million tons. In every year, there is an increase
The share of China, the leading exporter is
in the production quantity is seen.
14% and that of India is 3.7%. USA and Japan

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
Figure 3.2. Global Aquaculture Production Trend
from 1997 to 2016
The world aquaculture production increased
from 30.23 million tons to 80.4 million tons
over a period of 20 years from 1997 to 2016.
The data over this period seem to show a
linear growth in global aquaculture
production. Using the function y = a+bx, the
equation estimated using regression tool,
results in b = 2.7781, a = 0.5523, which is
2 (Malayalam), Thiruvanthapuram, Kerala
valid with a significant R value = 0.978.Thus
in every year the a marginal increase in
production is 2.7781 Million Tons. The
validity of this model need to be tested for
various assumptions in the time series
modeling.
1.4. Conclusion
The simple linear regression model explained
in this paper attempts to derive the trend in
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global aquaculture production for the 20 years
under review. The regression model reveal that
the time series trend is linear and increasing
annually at the rate of 2.7781 Million tons.
Even though the model fitness indicator R2
shows higher value, the validity of the model
need to be tested for all assumptions in
Ordinary Least Squares. Thus a pure
econometric time series analysis may improve
the model through various tests of validity.
Reference
M.Krishnan and P.S.Birthal (Eds.),
(2010). Aquacultural Development of
India: Problems and Prospects, New
Delhi, National Centre for Agricultural
Economics and Policy Research.
Meade, James, W. (1998). Aquaculture
Management, New Delhi, CBS Publishers
& Distributors.
Meehan, W.E. (2002). Fish Culture in
Ponds and Other Inland Waters, Pilani,
H.R.Publishing House.
Menon, K.M. (1998). Matsyakrishi
Bhasha Institute.
Michael, B.N., Valenti,W.C., Tidewell, J.
H., D‟Abramo, L.R. &Kutty, M. N.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

PERFORMANCE EVALUATION OF SBI LIFE INSURANCE COMPANY

ANSA S.
Research Scholar, Reserach & P.G.Department of Commerce, Government College, Attingal,
University of Kerala,ansaismail@yahoo.com,9446108234

Abstract

Insurance is a protection against financial loss arising on the happening of an uncertain event and also
serves as a tool for capital formation. Bancassurance means selling the insurance products through the
banking network. While in the initial stage, the SBI Life Insurance Company act as a bancassurance
channel, now it is developing its own agency for selling insurance products. With a wide network of
908 offices span across the country SBI Life Insurance Company has a mission to emerge as the
leading insurer by offering variety of life insurance products, pension schemes, ensuring high
standards of customer service and better operational efficiency. The company shows a tremendous
growth during the last two decades with an upward trend in the net profit after tax and net worth.

Keywords: life insurance, SBI Life, premium

Introduction large number of life insurance companies

Life insurance policies are a safeguard against
the uncertainties of life. In life insurance, the
insured transfers a risk to the insurer by paying
an amount called premium in exchange.
Insurance is a protection against financial loss
arising on the happening of an uncertain event
and serves as a tool for savings and
investment. In India, the life insurance has its
origin from the oriental life insurance
company established at Kolkata. Now a day,
life insurance industry in India has a
predominant place in the economy. There are a
functioning in India. From the last two
decades, commercial banks were entered into
the insurance sector as a distribution channel
for insurance products. There are so many tie-
ups and joint ventures between banks and
insurance companies were started for
marketing the insurance products.
SBI Life Insurance Company was
incorporated on 11th October 2000 as a joint
venture between SBI and BNP Paribas Cardif.
62.1% of total capital is owned by SBI and
22% owned by BNP Paribas Cardif. The other

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

investors are Value Line Pvt..Ltd. and Mc
Rittchie Investment Pvt.Ltd. holding 1.95%
and remaining 12% with public. The company
has an authorized capital of Rs.20 billion and a
paid up capital of Rs.10 billion. It is one of the
leading private life insurance companies that
an insurance plan. The company aims to gain
its competitive advantage through customer
centric approach.
Objective of the study
The study has the following objective.
1. To analyze the performance of SBI

offer a wide range of insurance products Life Insurance Company.

through its strong distribution channel. The

Methodology
majority shares of SBI Life Insurance
The study describes the growth and
Company are owned by SBI. SBI Life has a
performance of SBI Life Insurance Company
unique multi-channel distribution network using secondary data. The required data were
comprising an expansive bancassurance collected from the annual report of SBI Life
insurance Company and other journals. For
channel with SBI, its largest bancassurance
analyzing the performance of SBI Life, data
partner in India with their individual agents were collected for a period of 12 financial
networks comprising 108261 agents as on 31st years from 2008 to 2019.
March 2018 as well as other distribution PERFORMANCE EVALUATION OF SBI
channels including brokers, corporate agents, LIFE INSURANCE COMPANY
TABLE 1: GROSS WRITTEN PREMIUM (Rs.in billion)
direct sales or other intermediaries. While in First
the initial stage, the SBI Life Insurance year
premiu Single Renewal
Company act as a bancassurance channel, now Year m premium premium
2008 33.35 14.57 8.29
it is developing its own agency for selling
2009 45.65 8.22 18.25
insurance products. SBI Life Insurance 2010 62.82 7.59 30.63
Company has a wide network of 908 offices 2011 33.9 42 53.56
2012 21.93 43.39 66.02
spread across the country with 14,961
2013 26.18 25.65 52.67
employees. It has also tie-ups with 76 2014 29.98 20.68 56.73
corporate agents, 17 bancassurance partners 2015 33.31 21.98 73.38
2016 46.31 24.76 87.19
and 99 brokers along with 184452 trained
2017 62.07 39.37 108.71
insurance personnel, catering wide range of its 2018 81.39 28.27 143.38
customers. SBI Life offers innovative and 2019 90.57 47.35 191.97
Source: Annual reports of SBI Life Insurance Company
newer technologies to provide more from2008-2019
convenient options to customers for selecting

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

figure 1: Chart showing trends in Gross Written Premium

250

200
y = 13.59x - 27295
R² = 0.862
150
Rs. In billion

100 y = 3.656x - 7315.

R² = 0.350

50
y = 2.126x - 4254.
R² = 0.320
0
2006 2008 2010 2012 2014 2016 2018 2020

-50
Year
First year premium Single premium Renewal premium

Figure one portraits Gross Written premium annual increase of Rs.13.59 billion with a good
during the period 2008–2019. The first year explanation of 86.2%. Thus all Gross written
premium increased from Rs.33.35 billion to premium shows linear trends with sufficient
Rs.90.57 billion in 2019. The trend line shows explanation to the model.
an annual linear increase of Rs.3.656 billion
TABLE 2:PROFITS AND NET WORTH
with an explanation of 35% (R2 =0.35). Likely,
(Rs.in billion)
the Single premium for 2008 raised from
Rs.14.57 billiontoRs.47.35 billion in 2019 Year Profit after tax Networth
2008 0.34 10.07
which shows an upward trend line with an
2009 -0.26 9.78
annual linear increase of Rs.2.126 billion with 2010 2.76 12.65
an explanation of 32% (R2=0.32).Similarly, 2011 3.66 16.3
2012 5.56 21.56
the renewal plan also increased from Rs.8.29
2013 6.22 27.1
billion in2008toRs.191.97 billion in 2019. The 2014 7.4 33.42
trend line clearly shows a linear trend with an 2015 8.2 40.39

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

2016 8.61 47.33 last 12 years. The company has only a profit of
2017 9.55 55.52 0.34 percent during 2008 and it increased to
2018 11.5 65.28
2019 13.27 75.76 13.27 percent during 2019. Its trend line shows
Source: Annual reports of SBI Life Insurance Company upward trend with an annual increase of
from 2008-2019
1.1519 with an explanation of 97%

Figure 2: Chart showing trends in Profit after Tax and Networth

80

70
y = 6.084x - 12216
60 R² = 0.957
50
Rs. In billion

40

30
y = 1.151x - 2313
20
R² = 0.973
10

0
2006 2008 2010 2012 2014 2016 2018 2020
-10
Year

Profit after tax Networth

Figure two portraits net profit after tax and net (R2=0.9739). The net worth also increased
worth of SBI Life insurance Company for the
from 10.07 percent on 2008 to 75.76 percent
on 2019 which shows an upward trend line

with an annual linear increase of 6.0844 with
an explanation of 95.7% ( R2=0.9572). Thus,
the profit and net worth shows a high rate
growth for the last 12 years.
Conclusion
SBI Life Insurance Company is placed as
pioneer to the development of bancassurance
in India. It offers variety of life insurance
products through its multi distribution channel.
The company shows a tremendous growth
during the last two decades. The gross written
premium of company shows an increasing
trend. The renewal premium increased at high
rate during the last 12 years.The net profit after

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

tax and net worth of the company is shows an References

upward trend. The company gets more profits
1. Agrawal.A (2004).Distribution of life
and net worth on 2019 as compared to
insurance products in India, Insurance
2008.The company attained its competitive
Chronicle, September, p.24.
advantage by offering more products and
2. Sinha (2005).Bancassurance in India,
services on customer centric. It has a large
The Insurance Times, December, p.34.
network of branches and individual agents
3. Okeahalam (2008). Success factors for
spread all over India for distributing insurance
bancassurance, Journal of Banking and
products. SBI Life attained its operational
Finance, 8,pp.22-28.
efficiency by focused more on rural customers
4. www.sbilife.co.in
and thereby increased the standard of living
5. Annual reports of sbi life insurance
and development of society as a whole.
company
6. www.irdai.gov.in

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

ARIMA MODEL IN PREDICTING NSE NIFTY50 INDEX

Dr. LAKSHMANAN M.P
Assistant Professor
PG Department of Commerce
Government College Chittur
Email:mpl77lic@gmail.com

Abstract

The prediction of stock prices and related indices is of vital importance in the field of economics and
business and many research works has been carried out over the years to develop predictive models.
The historical data on index closing price was used to develop several ARIMA (Autoregressive
Integrated Moving Average) models by using Box-Jenkins time series procedure and the adequate
model was selected according to four performance criteria: Akaike Criterion, Schwarz Bayesian
Criterion, Maximum Likelihood and Standard Error. The paper presents the process of building stock
price predictive model using ARIMA Model. Published stock data obtained from NSE (National
Stock Exchange) is used with stock predictive model developed. Therefore, Monthly data from
January 2001 up to December 2019( 228 observations) is used for this study. The results obtained
revealed that ARIMA model has high potential in short run prediction and will be helpful to investors
in stock market.

Key Words: Time series, ARIMA Model, Stock/Index Price Prediction, Short term Prediction.

INTRODUCTION difficult task in financial forecasting due to

Prediction of stock/index prices are always an varied reasons especially its complex nature,

interesting area of research because of its high amount of volatility, influence of global

peculiar characteristics like volatility distinct market forces etc. Any investor will try to

from other financial products in financial depend on a forecasting method that could

market. In the information and technology era, guarantee easy profiting and minimize

individuals and institutions are highly investment risk from the stock market. This

empowered to make investment decisions and stands as major motivating factor for

design effective strategies as to their daily and researchers in evolving and developing new

future financial requirements. The prediction predictive models. The Nifty 50 is an indicator

of stock/index prices is one of the most of the top 50 major companies on the NSE.A

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
large number of methods have been used for
NSE including AR (Autoregressive model),
ARMA (Autoregressive Moving Average
Model), ARIMA (Autoregressive Integrated
Moving Average Model) and so on. But
ARIMA is most widely used on among them.
Stock market price may be of opening price,
lowest price, highest price, adjusted closing
price and volume. The study takes into account
closing stock price (in Rs). The analysis of
stock data has been done using SPSS 20
Software and Gretl and E Views 8
LITERATURE REVIEW
The major works using ARIMA model in the study
of stock market data are reviewed .Banerjee, D.
(2014) applied ARIMA model to forecast in
Indian Stock Exchange the future stock
indices. Paulo Rotela Ju-nior et al. (2014)
described ARIMA model to obtain short-term
forecasts to minimize prediction errors for the
Bovespa Stock Index. Renhao Jin et al. (2015)
used ARIMA model to predict in Shanghai
Composite Stock Price Index . All the studies
were based on closing stock price.
OBJECTIVE OF THE STUDY
To forecast the closing stock price of NSE
NIFTY50 using time series ARIMA Model
DATA & METHODOLOGY
An ARIMA Model is a generalisation of an
ARMA model in time series analysis. These
Government College, Attingal
models are sed in time series data to predict
future points in the series. Such models are
applied in cases where data is non-stationery
wherein differencing can be done to reduce the
non-stationarity. Non-seasonal ARIMA
models are generally denoted ARIMA (p, d, q)
where parameters are non- negative integers
then p, d, q refer to the autoregressive,
differencing, and moving average terms for the
non-seasonal component of the ARIMA
model. Seasonal ARIMA models are usually
denoted ARIMA (p, d, q) (P, D, Q)m, where m
refers to the number of periods in each season,
and P,D,Q refer to the autoregressive,
differencing, and moving average terms for the
seasonal component of the ARIMA
model.Box-Jenkins method./approach has been
used for analysis and modeling the time series.
This methodology comprises the following
steps.
(a) Identification of model: -This stage
involves finding whether the time series data is
stationary or not and compare the estimated
Autocorrelation Function (ACF) and Partial
Autocorrelation Function (PACF) to find a
match.
(b) Estimation of Parameters(coefficients): -
Estimating the parameters for Box Jenkins
models is a complicated nonlinear estimation
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

problem. The main approaches for fitting Box
- Jenkins models are nonlinear least squares
and maximum likelihood estimation.
Parameter estimates are usually obtained by
maximum likelihood which is fit for time
series. Estimators are always sufficient,
efficient, and consistent for Normal
distribution.
(c) Diagnostic checking (verification): -The
diagnostic checking is pre-requisite to ensure
the appropriateness of the selected model.
Selection of particular model can be done
based on the values of certain criteria like log
likelihood, Akaike Information Criteria (AIC)/
Bayesian Information Criteria (BIC)/ Schwarz-
Bayesian Information Criteria (SBC). After
model selection, its o be verified that whether
estimated model is satisfactory or not by
studying the pattern among the residuals if
there any. The values of ACF may be checked
to see that whether the series of residuals is
white-noise. After fitting tentative model to
data, diagnostic checks are done and overall
adequacy of the model selected can be known
by examining a quantity Q known as Ljung-
Box statistic that follows chi-square
variable or other associated variables.
Forecasting may also be based on expert
judgments, which in turn are based on
chronological data and experience. When
model selected is found satisfactory during the
analysis, it can be used for forecasting
purpose.
ARIMA model uses the historic data and
decomposes it into AR ( Auto Regressive) –
indicates weighted moving average over past
observations, Integrated (I) –indicates linear
trends or polynomial trend and moving
average (MA) –Indicates weighted moving
average over past errors. As such it has three
model parameters AR (p), I(d) and MA(q) all
combined to forming ARIMA (p,d,q) model
where p represents order of auto correlation, d
represents order of integration (differencing)
and q represents order of moving averages.
RESULTS & DISCUSSION
The descriptive statistics of the NSE Nifty Fifty
data for the analysis period is tabled below.
Summary statistics, using the observations 2001:01
- 2019:12 for the variable 'Price' (228 valid
observations)
Table 1 Descriptive Statistics-Price

Std.
distribution. Mini Maxi Deviatio
N Range mum mum Mean n Skewness Kurtosis
St
d.
Stati Stati Statis Statisti Stati Std. Stati Er
stic Statistic stic tic c Statistic stic Error stic ror
228 11254.6 913.8 12168 5366.96 3210.25 .365 .161 -.869 .32
(d) Forecast. It means prediction of values of a 000 500 .4500 5570 36370 1

variable based on identified past values of that

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Figure (1) depicts the original pattern of the

series to have general overview whether the
time series is stationary or not and it can be
seen that time series is not stationary( i.e. has
random walk pattern).
PRICE
14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 Figure (2) The correlogram of NSE

2002 2004 2006 2008 2010 2012 2014 2016 2018
Nifty 50 Stock Price Index
Figure (1)Graphical presentation of the NSE Nifty
50 Price Index

X axis represents trading years and Y axis

represents stock index price. Figure (2) is the
correlogram of NSE Nifty 50 time series. The ACF
the graph , it is seen that ACF dies down slowly
which simply means that the time series is non-
station to stationery. When series is not stationery, Figure (3) The ACF diagram of NSE
it is converted to a stationery series by Nifty 50 Stock Price Index
differencing. After the first difference, the series
Differenced PRICE of NSE Nifty 50 becomes
stationery as given infigure3 and figure 4 of the
line graph and correlogram respectively.

Figure (4) The PACF diagram of NSE Nifty

50 Stock Price Index

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Differenced PRICE
Figure 8and figure9 of modified series of
1,200

correlation coefficients figures of ACF and

800
PACF shows that there is stationarity in the
400
data series and most of the values lie within
0
the confidence interval which is validated by
-400
ADF Unit root test result as given in figure 7.
-800
The value of Durbin –Watson (DW) was
-1,200
2002 2004 2006 2008 2010 2012 2014 2016 2018 0.009075 for the sample data of NSE Nifty 50
Figure 5 Graphical presentation of the NSE
NIFTY 50 stock price index after first and same was 2.026736 (for first difference).
differencing. The data first differenced is having d value
greater than Du (1.78) as such the null
hypothesis is not rejected and assumed that
there is no auto correlation.

The basic idea of ARIMA model is to view the

data sequence as formed by a Stochastic
Process on time. When the model has been
identified, it model can be used to estimate the
future value based on the past and present
Figure 6 The correlogram of NSE Nifty 50 stock
value of the time series. Based on the
price index after first differencing.
identification rules on time series, the
corresponding model can be established. If a
partial correlation function of a stationary
sequence is truncated, and auto-correlation
function is tailed, it can be concluded the
sequences for AR model; if partial correlation
function of a stationary sequence is tailed, and
the auto-correlation function is truncated, it
can be strong that the MA model can be fitted
Figure 7ADFUnit root of NSE NIFTY 50 stock
for the sequence. If the partial correlation
price index after first differencing
function of a stationary sequence and the

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

autocorrelation function are tailed, then the

ARMA model is appropriate for the sequence.

Figure 9 The PACF diagram of first order

differencing of NSE Nifty 50 closing stock
Figure 8 The ACF of NSE Nifty 50 stock
price
price index after first differencing.

For the various correlations up to 24 lags are Partial Autocorrelations

computed and the same along with their Series: DIFF(Price,1)

significance which is tested by Box-Ljung (Q) Lag Partial Autocorrelation Std. Error
test are provided in Table 1 and 2. 1 -.453 .067
2 -.421 .067
AutocorrelationsSeries: DIFF(Price,1) 3 -.275 .067
a
Lag Autocorrelation Std. Error Box-Ljung Statistic 4 -.174 .067
b
Value df Sig. 5 -.159 .067
1 -.453 .066 47.041 1 .000 6 -.180 .067
2 -.129 .066 50.897 2 .000
7 -.064 .067
3 .094 .066 52.960 3 .000
8 -.179 .067
4 .026 .066 53.112 4 .000
5 -.049 .065 53.670 5 .000 9 -.151 .067
6 -.019 .065 53.756 6 .000 10 -.014 .067
7 .085 .065 55.465 7 .000 11 .032 .067
8 -.113 .065 58.467 8 .000
12 -.017 .067
9 .046 .065 58.980 9 .000
13 .007 .067
10 .091 .065 60.965 10 .000
11 -.055 .065 61.688 11 .000 14 -.138 .067
12 -.064 .064 62.678 12 .000 15 -.131 .067
13 .058 .064 63.500 13 .000 16 -.024 .067
14 -.069 .064 64.673 14 .000 Table 2 The PACF value of first order
15 .034 .064 64.950 15 .000
differencing of NSE Nifty 50 closing stock
16 .077 .064 66.387 16 .000
price

Table 1 The ACF value of first order Table 3 shows the different parameters of
differencing of NSE Nifty 50 closing stock
autoregressive (p) and moving average (q)
price
among the several ARIMA Model

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

experimented upon, ARIMA (0, 1,1 ) is (1,1,1) (5,1,0)

ARIMA(1,1,2) 11.539 ARIMA 11.614
considered the best for NSE Nifty 50 closing (5,1,1)
ARIMA 11.564 ARIMA 11.642
stock price. The model gives the smallest BIC (0,1,2) (6,1,0)
11.484. . ARIMA 11.558 ARIMA 11.738
(3,1,1) (6,1,0)
The model verification is done by checking the
residuals of the model to observe whether they
contain any systematic pattern which still can
be removed to get better on the chosen
ARIMA. This is done through examining the
autocorrelations and partial autocorrelations of
the residuals of various orders.

Table no 4 Model Statistics of Nifty 50 closing

Figure 10Correlogram of Residuals of NSE
stock price
Nifty 50 closing stock price
Model Model Ljung-Box Q(18) Numbe
Figure 10 is the residual of the series. If the Fit r of
model is good, the residuals (difference statistic Outlier
s s
between actual and predicted values) of the
R- Statistic D Sig
model are series of random errors. Since there squared s F .
are no significant spikes of ACFs and PACFs, Price-
.25
it means that the residual of the selected Model_ 0.991 20.303 17 0
9
1
ARIMA model are white noise, no other
significant patterns left in the time series.
Therefore, there is no need to consider any Table no 5 ARIMA Model Parameters
AR(p) and MA(q) further. Esti SE t Si
mat g.
Table 3 Normalized BIC Values of Nifty 50 e
closing stock price 20. 2. .0
ARIMA Normalized ARIMA Normalized Pric Const 47.5
Pr No 09 36 1
(p,d,q) BIC (p,d,q) BIC e- ant 63
ARIMA(0,1,0) 12.161 ARIMA 11.740 ic Transfor 5 7 9
Mod
(3,1,0) e mation Diffe
ARIMA(1,1,0) 11.959 ARIMA 11.738 el_1 1
(4,1,0) rence
ARIMA 11.484 ARIMA 11.586
(0,1,1) (4,1,1)
ARIMA 11.516 ARIMA 11.742

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

SPSS Forecasting is used. Table 6 and Figure

12 present the results of the NSE Nifty 50
share price obtained by applying ARIMA
Model (0,1,1) for the next 7 months from
January 2020to July 2020.
Figure 11 Residual ACF and PACF diagram of
actual Nifty 50
CONCLUSION
The ACF and PACF of the residuals (Figure
11) indicate `good fit' of the model. Forecasting Share price index is of vital
importance and utility to stock market
investors. The investment decision depends on
the future share prices. In this context , an
ARIMA model to NIFTY 50 index is index is
developed by using Box-Jenkins Time series
Table no 6 Forecast NSE Nifty 50 share price
index January 2020 to July 2020 approach. The historical share price data were
Forecast used to develop several models and the
Mod
el 229 230 231 232 233 234 235 adequate one was selected according to
For 122 122 123 123 124 124 125
ecas 16.0 63.5 11.1 58.7 06.2 53.8 01.3
t 1 8 4 0 6 3 9
performance criteria SBC,AIC, Standard Error
Pric
UC 128 131 133 135 137 139 140
e-
L 12.6 07.3 44.5 51.9 40.3 15.2 79.8 and Maximum Likelihood. In the process of
Mod
2 1 0 2 2 2 7
el_1 model building , the original Nifty 50 data is found
LC 116 114 112 111 110 109 109
L 19.4 19.8 77.7 65.4 72.2 92.4 22.9
0 4 8 8 0 4 1 to be Non stationary. But the first order
differencing of Original Nifty 50 is stationery. In
the study ARIMA (0,1,1) model is developed for
analyzing and forecasting Nifty 50 closing
stock price among all of various tentative
models having lowest BIC values. The study
highlights that influence R square is 99% high
Figure 12 NSE Nifty 50 share price and mean absolute percentage error is very
index, Fit,LCL,UCL and forecasting small for the fitted model. Thus it can be seen
Forecast : After defining the most appropriate that the prediction accuracy is more in fitting
model of share price , forecasting is to be done of Nifty 50.
and to predict trends and develop forecast IBM

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Acknowledgment: The author expresses Series ARIMA Models, International

heartfelt gratitude to the authors of articles
cited in references(2,3,9,10) for depending to
great extent on the literature and methodology
framework in analyzing and forecasting the
Nifty Fifty share price.
REFERENCES
Journal of Engineering Research &
Technology (IJERT) Vol. 4 Issue 03,
March-2015.
9.Mohammed Ashik& S Kannan K (2017),
“Forecasting National stock price ARIMA
Model”,Global and Stochastic analysis,

1.D. Banerjee, “Forecasting of Indian stock Vol 4, No 1, January 2017,77-81

market using time-series ARIMA model,” in

Proc. Conference Paper, ICBIM-14, 2014. 10.A A Adebiyi and Charles Ayo (2014),

2.BanhiGuha and Gautam Bandyopadhyay,” Stock Price prediction using the ARIMA

Gold Price Forecasting Using ARIMA Model,2014 UKSim-AMSS 16th

Model”, Journal of Advanced Management International Conference on Computer

Science Vol. 4, No. 2, March 2016, p117- Modelling and Simulation Research Gate

121
3.Jamal Fattah, et al , Forecasting of demand
using ARIMA model, International Journal
of Engineering Business Management,
Volume 10: 1–9
4.Shen S and Shen Y. ARIMA model in the
application of Shanghai and Shenzhen stock
index. Appl Math 2016; 7:171–176.
5. Hanke JE and Reitsch AG.Business
forecasting, 5th ed. Englewood Cliffs. 1995.
6.Brockwell PJ and Davis RA. Time series:
theory and method. Berlin: Springer-Verlag,
1987
7.Hamilton JD. Time series analysis.
Princeton: Princeton University Press, 1994.
8. Dr. (Ms.) ShaliniBhawanaMasih, et al ,
Modeling and Forecasting by using Time

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

FINANCIAL DEEPENING AND ECONOMIC DEVELOPMENT OF INDIA

Dr. PRADEEP KUMAR.N

Assistant Professor of Commerce,
Mahatma Gandhi College, Thiruvananthapuram

Abstract

A high level of financial deepening is a necessary condition for accelerating growth in an

economy. This is because of the central role of the financial system in mobilizing savings and
allocating same for the development process. This study examined financial deepening and
economic development in India between 1995 and 2017. The study made use of secondary data,
sourced for a period of 22 years. The two stages least squares analytical framework was used in
the analysis. The study found that financial deepening index is low in India over the
years. It was also found that the nine explanatory variables, as a whole were useful and had a
statistical relationship with financial deepening. But four of the variables; lending rates,
financial savings ratio, cheques cleared/GDP ratio and the deposit money banks/ GDP
ratio had a significant relationship with financial deepening. The study concluded that the
financial system has not sustained an effective financial intermediation, especially credit
allocation and a high level of monetization of the economy. Thus the regulatory
framework should be restructured to ensure good risk management and corporate
governance in the system.

Key Words; Financial Sector, Corporate Governance, Financial Reforms, Financial Savings,
Financial Market, Gross Domestic Product, Financial Deepening

Introduction According to the Reserve Bank of India

The reforms in the financial system in
India which heightened with the 1991
deregulation, affected the level of financial
deepening of the country and the level
relevance of the financial system to economic
development. However, the rapid
globalization of the financial markets since
then and the increased level of integration of
the Indian financial system to the global
system have generated interest on the level of
financial deepening that has occurred.
The financial system comprises various
institutions, instruments and regulators.
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the financial system refers to the set of
rules and regulations and the aggregation
of financial arrangements, institutions,
agents, that interact with each other and
the rest of the world to foster economic
growth and development of a nation. The
financial system serve as a catalyst to
economic development through various
institutional structures. The system
vigorously seek out and attract the reservoir
of savings and idle funds and allocate same
to entrepreneurs, businesses, households
and government for investments projects
and other purposes with a view of returns.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
This forms the basis for economic
development.
The financial system play a key role in the
mobilization and allocation of savings for
productive, use provide structures for
monetary management, the basis for
managing liquidity in the system. It also
assists in the reduction of risks faced by
firms and businesses in their productive
processes, improvement of portfolio
diversification and the insulation of the
economy from the international economic
changes. The system provides the necessary
environment for the implementation of
various economic policies of the government
which is intended to achieve non-
inflationary growth, exchange rate stability,
balance of payments equilibrium foreign
exchange management and high levels of
employment.
The Indian financial system can
be broadly divided into two sub-sectors, the
informal and formal sectors. The informal
sector has no formalized institutional
framework, no formal structure of rates and
comprises the local money lenders, thrifts,
savingsand loans associations.This sector is
poorly developed, limited in reach and not
integrated into the formal financial system.
Its exact size and effect on the economy
remain unknown and a matter of
speculation. The formal sector, on the
other hand, could be clearly distinguished
into the money and capital market
institutions. The money market is the
short-term end of the market and
institutions here deal on short term
instruments and funds. The capital market
encompasses the institutions that deal on
long-term funds and securities.
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The regulatory institutions in the
financial system are the Ministry of
Finance, the Reserve Bank of India as the
apex institution in the money market and
the SEBI as the apex institution in the
capital market
The process of financial sector
reform consists of the movement from an
initial situation of controlled interest rates,
poorly developed money and securities
market and under-developed banking system,
towards a situation of flexible interest
rates, an expanded role for market forces in
resource allocation, increased autonomy for
the central bank and a deepening of the
money and capital markets. The link
between financial sector stability and growth
is, explained by increased market depth,
which potentially increases market efficiency.
It also reduces risks through the elimination
of weak institutions.
Need and Significance of the study
Financial sector reforms seek to
develop an efficient framework for monetary
management. This encompasses efforts to
strengthen operational capacities of the banking
system, foster efficiency in the money and
securities markets, over-haul the payments system
and ensure greater autonomy to the central bank
in formulating and implementing macroeconomic
policies. Thus, there is the need to deepen the
financial sector and reposition it for growth and
integration into the global financial system in
conformity with international best practices.
This study is important at this level of
economic development when efforts are being
made to reposition the financial system to enable
it play key roles in economic development of
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
India. The study essentially seeks to examine in
an empirical manner, the nature of financial
deepening in India since the onset of financial
reforms in 1995up to 2017 when the banking
consolidation took root in India. The study seek
to ascertain the critical factors that have affected
the level of financial deepening in India and to
ascertain if there is observable growth in the
financial deepening index (money supply to
GDP) ratio in India.
The MODEL Specification
A model is identified if it is in a unique
statistical form enabling unique estimates of
the parameters to be subsequently estimated
from a sample data. In this study, the model
used by Gosselin and Parent in their study of
the financial deepening function in pre and
post financial reform periods in India. In
their specifications, six explanatory variables
were used in investigating financial
deepening. In this study, ninevariables were
used. In this model Financial
Deepening(M/GDP)depends on,Financial
Savings/GDP ratio (FS/GDP) Private Sector
Credit/GDP (PSC/GDP) value of Cheques
Cleared to GDP ratio (CHQ/GDP), value of
Cheques Cleared to Money Supply (CHQ/M)
the Rate of Inflation (INFLAT), Prime
lending rates(PLR) the intermediation ratio
i.e. Currency outside Banks to Money Supply
(COB/M) and the Dummy.
This model is given as
M/GDPit =f(PLR it ),FS/GDPit,CHQ/GDPit ,C
HQ/MINFLATit ,PSC/GDPit, DMBA/GDPit,
COB/MS2 + DUM.
Methodology
The data used in this study were
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sourced from the Reserve Bank of India
publications and those of the Bureau of
statistics. The data was for the period1995–
2017. The period chosen for the study
encompasses the phases of the major
reforms in the financial system and the
period of consolidation of the banking and
insurance systems in India.
In the present study, financial
deepening defined as the ratio of money
supply to GDP, is a function of the value of
cheques cleared to GDP, value of cheques
to money supply, ratio of private sector
credit to GDP, financial savings to GDP,
rate of inflation, real lending rates, deposit
money bank assets to GDP, Currency
outside Banks to money supply .and the
Dummy.
The equation specified for the study
was estimated using the stepwise least
squares regression method. The model
assists us to determine the T values and
theFvalueswhichwereusedtotestthesignifica
nceoftheequationspecified.
The data used in the regression runs
are as shown in Tables 1.Theseareabsolute
aggregates for each variable obtained for
theperiod1995–2017 (22years). The
inflation rates are expressed in percentages,
while the savings rates are used as a proxy
for interest rates. These rates are also in
percentages. The private sector
credits(PSC) are aggregate values and so to
financial savings (FS). The introduction of
the dummy variable seeks to capture the
influence of political instability on the
operations of financial institutions and this
to a large extent influences financial
deepening. Values of 0 to 1 are assigned to
the various years: 0 representing mild
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
instability, while 1 represent high levels of
instability. The data were subsequently
converted to the relevant ratios as shown in
table 1.
To test for stationarity and co-
integration, the Durbin – Watson (SBDW)
test was adopted. It is important to note that
the present of co-integration in a model
means that long-run equilibrium
relationship exists among the non-
stationery variables.
Results
Regression Results
The summary of financial deepening result
from the Two stage regression analysis is
shown in the model summary below.
Model Summary
R = 0.972
2
R = 0.946
2
Adj R =0.906
Std error of estimate = 0.88808
Durbin-Watson = 1.551
F value = 23.62
d.f. = 22
The coefficient of correlation R and
Coefficient of determination R2 measure the
explanatory power of multiple regression
models. From the results, there is a high
coefficient of correlation (97.2percent).
The implication is that the variables in the
equation are useful for explaining the level
of financial deepening that has occurred
between 1995 and 2017. There is also a
highly significant coefficient of determination
(94.6 percent). The standard error of the
estimates also known as residual standard
deviation has a value of 1.77708. The F-
statistic value is found to be 23.62. The F
value is significant at the 5 percent level.
Government College, Attingal
The overall fit of the regression model
measured by the F- statistic, is statistically
significant at this level. The Durbin Watson
(DW) statistic of 1.551 indicates that there is no
problem of serial correlation in the regression
model. This is a case of positive serial
correlation. Also, multicolinearity which often
present in cross-sectional data seems to be non
existent in the model.
In Table 2 the estimation results using
the nine explanatory variables are presented at
alpha equal to 0.05 level of significance and
also at 0.10. It was found that the financial
savings ratio, interest rates, cheques
cleared to GDP ratio and, Deposit Money
Banks Assets to GDP ratio are very useful
explanatory variables. Political instability is
not significant at both the 5 percent and 10
percent levels.
The implication of the findings is that although
the financial structure had enhanced the level
of financial savings and thus affected the level
of financial deepening positively, the financial
system has not been efficient in resource
allocation evidently. Here, the process of
intermediation in the system is not efficiently
done. Although the financial system has not
grown tremendously in size and structure this
has not been translated in the provision of
loans and credits especially to the real
sector of the economy.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

management in the financial system. Finally

Table2: the supervision and regulation of banks
EstimationResults should be strengthened, with a focus on risk
Variable Means Std T Stat Remarks
management. These shall be very useful in
Dev.
V1 COB/M 24.97 5.154 .668 Not Sig
enhancing the level of financial deepening in
V2 RO1 22.82 19.942 .330 Not Sig India.
V3 PLA 20.38 5.502 2.076* Sig
V4 FS/EDO 12.47 7.439 3.453** Sig References:
V5 57.33 47.764 2.107** Sig
CHQ/GDP
V6 CHQ/MS2 216.53 192.268 (2.492) Not Sig 1. Apergis, Nicholas; Filippidis, Ioannis;
V7 PSC/GDP 17.30 8.008 (2.232) Not Sig Economidou, Claire (1 April 2007).
V8 DMBA 37.07 12.425 6.565** Sig "Financial Deepening and Economic
/EDP Growth Linkages: A Panel Data
V9 DUM .27 .456 .606 Not Sig Analysis". Review of World Economics
*Significant at 10 per cent level
2. Raghuram G. Rajan; Luigi Zingales
**Significant at % per cent level (2003). "The great reversals: the politics of
financial development in the twentieth
Conclusion century" (PDF). Journal of Financial
Economics.
The study was concluded that the level of 3. (King and Levine, 1993; Levine and
Zervos, 1998)
financial deepening in India has remained
4. Raghuram G. Rajan; Luigi Zingales (June
relatively low in spite of the various reforms 2016). "Financial Dependence and
and institutional changes put in place by the: Growth"(PDF). The American Economic
monetary authorities. It is also evident that the Review.
low level of monetization of the economy, 5. "Deepening Rural Financial Markets:
the high rate of inflation and the level of Macroeconomic, Policy and Political
private sector credits have negatively affected Dimensions"(PDF). Researchgate.net.
the level of financial deepening in India. Retrieved 5 November 2017.
6. Mohan, Rakesh (2006-11-03). "Economic
Although the level of interest rates have
Growth, Financial Deepening and
remained very high, the level of private sector Financial Inclusion". Retrieved 6
credits have not sustained the desired level November 2017.
of new investments necessary to facilitate 7. Reserve Bank of India-Various
growth in the economy. However, there is an Publications
urgent need to sustain a higher level of 8. www.rbi.ac.in
macroeconomic stability in India, reduce the
high incidence of non performing credits
ensure that private sector credits are channeled
to the real sector of the economy, enhance
the level of corporate governance in the
financial system and also strengthen risk

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

ANALYSIS OF TRENDS AND GROWTH OF DIGITAL RETAIL

PAYMENTS SYSTEM IN INDIA

SUNIL S.
Assistant Professor
Government College, Attingal

Abstract

India with its unique rich payment ecosystem is now emerging as a global one in innovative digital
payment systems. The Reserve Bank of India and the Government have expressed a vision of a less
cash civilization and guided its evolution with feet stick on the ground. The growth of financial
services in India has largely been driven by the banks. The regulator as well as the banks has led the
initial push, development and support of digital payments infrastructure. Non-banks have entered the
market and expanded the range of payment services available to the Indian consumer backed by their
strength in technology and customer oriented innovation. Banks and non-banks are partnering to
offer the combination of trust and innovation to the Indian consumer. This will resulted in a recent
growth in the number of digital payments, should continue.
Keywords: Digital Banking, Digital Payments, Retail Banking,

Introduction the middle class, the businesses and the nation.

India is significantly behind peers on digital
India remains a largely cash based
transactions, and digitization will create a
economy with cash accounting for more than
multiplier effect on efficiency of capital and
78% of all retail payments before 2014-15.
resource allocation through greater
Compared to some other countries, like China,
transparency, traceability of transactions,
Mexico and Brazil, India ranks very low
enforce ability of law and significantly buoyed
relating to Non-cash transactions by non-banks
tax revenues which will make bigger State‟s
per capita per annum as well as number of pay
resources for social welfare.
points (for digital payments) per million
Why this study is important?
people. The cash dependence, in turn, has
With a view to encouraging digital
impacted government‟s ability to widen tax
payments and enhancing financial inclusion
compliance and increase tax revenue.
through digitalization, the Reserve Bank of
Digitisations of transactions become an
India decided to constitute a High-Level
obligation for India; it will benefit the poor,
Committee on Deepening of Digital Payments
Government College, Attingal
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
to assess the existing status of digital payments
and level of digital payments in financial
inclusion, identify best practices that can be
adopted, recommend initiatives to strengthen
safety and security of digital payments, lay
down a plan of action to increase customer
confidence in digital financial services, and
suggest a Medium-Term strategy for
deepening of digital payments.
Objectives of the Study
1.To study the retail payment systems existing
in India
2.To analyse the performance evaluation of
growth and trend of digital retail payments in
India
Digital Payment Payments Systems in India
The RBI Ombudsman scheme for
digital transactions defines a „Digital
Transaction‟ as “Digital Transaction‟ means a
payment transaction in a seamless system
affected without the need for cash at least in
one of the two legs, if not in both. This
includes transactions made through digital /
electronic modes wherein both the originator
and the beneficiary use digital / electronic
medium to send or receive money.”
The Payment and Settlement Act, 2007
has defined Digital Payments, as any
"electronic funds transfer" that is any transfer
of funds which is initiated by a person by way
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of instruction, authorization or order to a bank
to debit or credit an account maintained with
that bank through electronic means and
includes point of sale transfers; automated
teller machine transactions, direct deposits or
withdrawal of funds, transfers initiated by
telephone, internet and, card payment.
Digital Payment Systems
The payment system in India is classified into
two main segments:
1. Instruments which are covered under
Systemically Important Financial Market
Infrastructure (SIFMIs), and
2. Retail Payments.
1. Systemically Important Financial
Market Infrastructure (SI-FMI):
Financial Market Infrastructure (FMI): It is
defined as a multilateral system among
participating institutions, consist of the
operator of the system, used for the purposes
of clearing, settling, or recording payments,
securities, derivatives, or other financial
dealings. Under SIFMI, new standards or
principles are intended to ensure that the vital
financial market infrastructure (FMI)
sustaining global financial markets is even
more dynamic and thus even better suited to
endure financial shocks than at present.
Under this segment (SIFMI) there are four
instruments of payments:
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
RTGS: Real Time Gross Settlement is defined
as the continuous, real-time settlement of fund
transfers individually on an order by order
basis without netting. 'Real Time‟ means the
processing of instructions at the time they are
acknowledged rather than at some later time;
'Gross Settlement' means the settlement of
fund transfer instructions occurs individually
on an instruction by instruction basis. This
system is primarily intended to large value
transactions. The minimum amount to be
remitted through RTGS is ` 2 lakh. For inter-
bank fund transfer there is no minimum.
CBLO: Collateralised Borrowing and Lending
Obligation (CBLO) is a money market
instrument introduced by Clearing Corporation
of India Ltd. (CCIL), in 2003. This represents
an obligation between a borrower and a lender
to the terms and conditions of a loan. It also
does not entail physical transfer of respective
securities from borrower to lender or vice
versa.
Government Securities: A Government
Security (G-Sec) is a tradable instrument
issued by the Central Government or the State
Governments.
Forex Clearing: The term „Forex‟ stands for
Foreign Exchange. In simple terms it is the
trading in currencies from different countries
against each other. In India the settlement of
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Forex transactions is done by CCIL which was
started in 2002.
2. Digital Retail Payments:
Under the Retail Payments segment which has
a large user base, there are three broad
categories of instruments. They are Paper
Clearing, Retail Electronic Clearing, and Card
Payments. The instruments under these three
categories are described below:
Cheque Truncation System (CTS): CTS or
online image-based cheque clearing system is
a cheque clearing system undertaken by the
Reserve Bank of India (RBI) for faster clearing
of cheques. It eliminates the cost associated
with the movement of physical cheques.
Non-MICR: The Non-MICR (Non-Magnetic
Ink Character Recognition) clearing refers to
the process of manual clearing of cheques
where the cheque is physically moved between
the bank branches/banks for clearing. MICR is
a technology used to verify the legitimacy or
originality of paper documents, especially
checks.
ECS DR/CR: ECS (Electronic Clearing
System) is an electronic mode of payment /
receipt for transactions that are repetitive and
periodic in nature. DR/CR is „Debit Record or
Credit Record‟. ECS facilitates bulk transfer of
monies from one bank account to many bank
accounts or vice versa. ECS includes
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
transactions processed under National
Automated Clearing House (NACH) operated
by National Payments Corporation of India
(NPCI).
NEFT: National Electronic Funds Transfer
(NEFT) is a nation-wide payment system
facilitating one-to-one funds transfer. Under
this scheme, individuals, firms and corporate
can electronically transfer funds from any bank
branch to any individual, firm or corporate
having an account with any other bank branch
in the country participating in the scheme.
IMPS: Immediate Payment Service (IMPS)
offers an instant 24X7 interbank electronic
fund transfer service through mobile phones.
IMPS are an emphatic tool to transfer money
instantly within banks across India through
mobile, internet and ATM. It is offered by
National Payments Corporation of India
(NPCI).
UPI: Unified Payments Interface (UPI) is a
system that powers multiple bank accounts
into a single mobile application (of any
participating bank), merging several banking
features, seamless fund routing & merchant
payments into one hood.
*99#: USSD based mobile banking service of
NPCI was initially launched in November
2012. The service had limited reach and only
two TSPs (Telecom Service Provider) were
offering this service i.e. MTNL & BSNL.
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Understanding the importance of mobile
banking in financial inclusion, *99# was
dedicated to the nation by Hon‟ble Prime
minister on 28th August 2014, as part of
„Pradhan Manti Jan Dhan Yojna‟.
USSD (Unstructured Supplementary Service
Data) is a Global System for Mobile (GSM)
communication technology that is used to send
text between a mobile phone and an
application program in the network.
NACH: “National Automated Clearing House
(NACH)” is a service offered by NPCI to
banks which aims at facilitating interbank high
volume, low value debit/credit transactions,
which are repetitive and electronic in nature. It
allows participating banks for centralized
posting of inward debit/credit transactions and
is run by NPCI.
Credit Card: A credit card is a card issued by
a financial company which enables the
cardholder to borrow funds. The issuer pre-sets
borrowing limits which have a basis on the
individual's credit rating. These cards can be
used domestically and internationally and can
also be used to withdraw cash from an ATM
and for transferring funds to bank accounts,
debit cards and prepaid cards within the
country.
Debit Cards: A debit card is a payment card
that deducts money directly from a consumer‟s
bank account to pay for a purchase and
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

eliminate the need to carry cash or physical Banks issuing such PPIs shall also facilitate
checks to make purchases. In addition, they cash withdrawal at ATMs/Point of Sale
offer the convenience of credit cards for small (PoS)/Business Correspondents (BCs).
negative balances that might be incurred if the Analysis and Discussion
account holder has signed up for overdraft India‟s payment system - particularly,
coverage. However, debit cards usually have its digital payments system - has been evolving
daily purchase limits. impotently for the past many years, due to the
Pre-Paid Instruments (PPIs): PPIs are developments in information and
payment instruments that facilitate purchase of communication technology (ICT), and fostered
goods and services, including financial and in line with the path envisaged by the
services, remittance facilities, etc., against the Reserve Bank of India. The National Payments
value stored on such instruments. PPIs are Corporation of India (NPCI) was established
classified under three types: in 2008 with the aim of achieving the vision by
Closed System PPIs: These PPIs are issued by the RBI and Government of India. Important
an entity for facilitating the purchase of goods milestones attained in this overall process of
and services from that entity only and do not development of the payments system
permit cash withdrawal. comprises:
Semi-closed System PPIs: These PPIs are a. The introduction of MICR clearing in
used for purchase of goods and services, the early 1980s,
including financial services, remittance b. Electronic Clearing Service and
facilities, etc., at a group of clearly identified Electronic Funds Transfer in the 1990s,
merchant locations/establishments which have c. Issuance of credit and debit cards by
a specific contract with the issuer (or contract banks in the 1990s,
through a payment aggregator/payment d. The National Financial Switch in 2003
gateway) to accept the PPIs as payment that brought about interconnectivity of
instruments. These instruments do not ATMs across the country,
permit cash withdrawal. e. The RTGS and NEFT in 2004,
Open System PPIs: These PPIs are issued only f. The Cheque Truncation System (CTS)
by banks and are used at any merchant for in 2008,
purchase of goods and services, including
financial services, remittance facilities, etc.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

g. The second factor authentication for 1.1. Overall Growth Performance of digital
the „card not present‟ transaction in retail payments (Volume)
2009, and Table: 1.1. Overall Growth Performance of
h. The new RTGS with enhanced digital retail payments (Volume)
facilities and features in 2013 [Mundra Volume Growth in
Year
(2015)]. (in Millions) Volume (%)
2003-04 166.95 0
Moreover, non-bank entities have been
2004-05 228.9 37.11
permitted to issue of pre-paid instruments 2005-06 285.03 24.52
(PPI), including mobile and digital wallets. 2006-07 378.72 32.87
2007-08 535.32 41.35
These have been supported by significant
2008-09 667.81 24.75
initiatives of the NPCI including the launching 2009-10 718.16 7.54
of grid-wise operations of CTS, 2010-11 908.58 26.51
2011-12 2532.5 178.73
interoperability on NACH, IMPS, NFS, RuPay
2012-13 2939.5 16.07
(a domestic card payment network), APBS and 2013-14 3627.7 23.41
AEPS (which are an important part of the 2014-15 4620.9 27.38
2015-16 6945.2 50.3
financial inclusion process), National Unified
2016-17 10879.7 56.65
USSD. 2017-18 15760.6 44.86
Source: Reserve Bank of India (2019)
Here, the growth trends in Digital
Retail Payments over the past years are Graph: 1.1. Trend in Retail Digital
discussed. The narrative on the growth trends Payments – Volume
which covers the period from 2003-04 to
18000 200
2017-18 is presented. The analysis covers the 16000
14000 150
trends over the years 2003-04 to 2015-16 ie., 12000
10000
the years preceding demonetization and 100
8000
6000
compares the growth trends over the last two 4000 50
years ie. 2016-17 and 2017-18 this is the post 2000
0 0
demonetization period. The analysis of trend
and growth of digital retail payment is made
on the basis of data provided by reserve Bank
Volume (in Millions)
of India during the respective periods. Growth in Volume (%)
1.Overall Growth Trend of Retail Payment:

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

The values of volume of overall digital retail 2016-17 220634 24.12

payment are measured in the primary axis and 2017-18 285612 29.45
Source: Reserve Bank of India (2019)
growth of volume on the secondary axis. From
the above table and figure the volume of Graph: 1.2. Trend of Overall Growth
overall retail payments steadily increased over Performance of Retail Payments – Value

the period from 2011-12 to 2017-18, recording

300000 900
a compound average annual growth rate 800
250000 700
(CAGR) of over 39.47 per cent. The rate of 600
200000
500
growth in volume of overall retail payments
150000 400
further accelerated to 44.86% per cent in 2017- 300
100000 200
18. Graph 1 indicates the trends in Retail 50000 100
0
Digital Payments over the period of 2003-04 to 0 -100
2017-18. The growth in 2011-12 is spectacular
and could be attributed to development of
innovative digital payments platform. But Value (in Billion) Growth in Value (%)
during 2017 -18 the growth rate is declining Source: Reserve Bank of India (2019)

from 56.65% (2016-17) to 44.86% (2017-18). The values of value of overall digital retail

1.1. Overall Growth Performance of Retail payment are measured in the primary axis and

Payments (Value): growth of value on the secondary axis. The

Table: 1.2. Overall Growth Performance of above figure shows that the nominal value of

Retail Payments (Value) retail payments has a cyclical movement over

Year Value (in Billion) Growth in Value( %) 2003-04 to 2014-15, though it has a steady
2003-04 521.44 0 growth of 825.74% in the year 2011-12, and
2004-05 1087.49 108.56
2005-06 1463.81 34.6 a decline in the growth from 2012-13 to 2014-
2006-07 2356.93 61.01 15. Thereafter, an increase in value of retail
2007-08 10419.91 342.1
payments records a CAGR of 102.8 per cent.
2008-09 5003.22 -51.98
2009-10 6848.86 36.89 But the annual growth has increased to 29.45%
2010-11 13086.88 91.08 in 2017-18 due to demonetization.
2011-12 121149.9 825.74
2. Instrument Wise Growth Trends of
2012-13 134114.4 10.7
2013-14 143447.4 6.96 Retail Payments:
2014-15 154129.3 7.45 2.1. ECS Debit (Volume and Value):
2015-16 177753 15.33

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

The following table (table 2.1) and graph

(graph 2.1) shows the trend of both volume
and value of ECS Debit transactions during the Graph: 2.1. ECS Debit (Volume and Value)
period from 2003-04 to 2017-18.
250 2000
From the Graph 2.1 below, the values of 1800
200 1600
volume of ECS Debit is measured in the 1400
primary axis and value of ECS Debit on the 150 1200
1000
secondary axis. It is observed that both the 100 800
600
volume and value of ECS Debit increases from
50 400
2003-04 to 2008-09 at an increasing rate. From 200
0 0
2009-10 onwards up to 2014-15 there is a
linear rate of increase. During the period 2014-
15 and 2015-16 it get stabilizes and start
declining at a higher rate during 2016-17 and Volume (in…
Source: Reserve Bank of India (2019)
2017-18. 1.1. ECS Credit (Volume and Value)

Table: 2.1. ECS Debit (Volume and Value) Table: 2.2. ECS Credit (Volume and Value)
Volume Value
Year
Volume Value (in Millions) (in Billions)
Year
(in Millions) (in Billions) 2003-04 20.32 102.28
2003-04 7.87 22.54 2004-05 40.05 201.80
2004-05 15.30 29.21 2005-06 44.22 323.24
2005-06 35.96 129.86 2006-07 69.02 832.73
2006-07 75.20 254.41 2007-08 78.37 7822.22
2007-08 127.12 489.37 2008-09 88.39 974.87
2008-09 160.05 669.76 2009-10 98.13 1176.13
2009-10 149.28 695.24 2010-11 117.30 1816.86
2010-11 156.74 736.46 2011-12 121.50 1837.80
2011-12 164.70 833.60 2012-13 122.20 1771.30
2012-13 176.50 1083.10 2013-14 152.50 2492.20
2013-14 192.90 1268.00 2014-15 115.30 2019.10
2014-15 226.00 1739.80 2015-16 39.00 1059.00
2015-16 224.80 1652.00 2016-17 10.10 144.00
2016-17 8.80 39.00 2017-18 6.10 115.00
Source: Reserve Bank of India (2019)
2017-18 1.50 10.00
Source: Reserve Bank of India (2019)

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

2010-11 132.34 9391.49

2011-12 226.10 17903.50
Graph: 2.2. Trend in ECS Credit Volume 2012-13 394.10 29022.40
and Value 2013-14 661.00 43785.50
2014-15 927.60 59803.80
180 9000
160 8000 2015-16 1252.90 83273.00
140 7000 2016-17 1622.10 120040.00
120 6000 2017-18 1946.40 172229.00
100 5000 Source: Reserve Bank of India (2019)
80 4000
60 3000 Graph: 2.3. EFT/NEFT volume and Value
40 2000
20 1000 2500 200000
0 0 180000
2000 160000
140000
1500 120000
100000
1000 80000
Volume (in Millions) Value (in Billions) 60000
500 40000
Source: Reserve Bank of India (2019) 20000
0 0
The value of volume of ECS Credit is measured
in the primary axis and value of ECS Credit on
the secondary axis. From the above, both
Volume (in Millions) Value (in Billions)
volume and value of ECS credit increase from
2003-04 to 2013-14 with an exceptional increase Source: Reserve Bank of India (2019)

The following table and graph describe the

in the value of ECS credit during the year 2007-
trend and growth of volume and value of
08. From 2014-15 to 2017-18 it shows that both
EFT/NEFT for the period from 2003-04 to
the volume and value declining at an increasing
2017-18. Both volume and value move on the
rate.
same direction at an increasing rate especially
1.1.EFT/NEFT volume and Value:
after 2009-10 up to 2017-18. The value of
Table: 2.3. EFT/NEFT volume and Value
volume of EFT/NEFT is measured in the
Volume Value
Year
(in Millions) (in Billions) primary axis and value of EFT/NEFT on the
2003-04 0.82 171.25 secondary axis. From the chart and graph
2004-05 2.55 546.01
below, the volume and value of EFT/NEFT
2005-06 3.07 612.88
2006-07 4.78 774.46 from 2003-04 to 2009-10 shows stagnation
2007-08 13.32 1403.26 and afterwards an increase in both up to 2014-
2008-09 32.16 2519.56
15. The rate of growth increases from 2015-16
2009-10 66.34 4095.07

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

to 2017-18, due to increased penetration of

digital payments and demonetisation.
1.1. Credit (CR) Card Graph: 2.4. Credit (CR) Card
The value of volume of credit card transactions 1600 5000
is measured in the primary axis and value of 1400 4500
4000
credit card transactions on the secondary axis. 1200
3500
1000 3000
From the following graph, the volume and
800 2500
value of credit card transactions shows a 2000
600
constant growth from 2003-04 to 2008-09. 1500
400
1000
During the year the there is a negative growth 200 500
in both volume and value on 2009-10. From 0 0

2010-11 onwards the rate of growth in credit

cards declining up to 2014-15 and thereafter an
increase in growth rate of credit card Volume (in Millions) Value (in Billions)

transactions from 2015-16 to 2017-18. Source: Reserve Bank of India (2019)

1.1.Debit (DR) Card

Table: 2.4. Credit (CR) Card Table: 2.5. Debit (DR) Card
Volume Value
Year
(in Millions) (in Billions)
Volume Value
Year 2003-04 37.76 48.74
(in Millions) (in Billions)
2004-05 41.53 53.61
2003-04 100.18 176.63
2005-06 45.69 58.97
2004-05 129.47 256.86
2006-07 60.18 81.72
2005-06 156.09 338.86
2007-08 88.31 125.21
2006-07 169.54 413.61
2008-09 127.65 185.47
2007-08 228.20 579.85
2009-10 170.17 264.18
2008-09 259.56 653.56
2010-11 237.06 386.91
2009-10 234.24 618.24
2011-12 327.50 534.30
2010-11 265.14 755.16
2012-13 469.10 743.40
2011-12 320.00 966.10
2013-14 619.10 954.10
2012-13 396.60 1229.50
2014-15 808.10 1213.40
2013-14 509.10 1539.90
2015-16 1173.50 1589.00
2014-15 615.10 1899.20
2016-17 2399.30 3299.00
2015-16 785.70 2407.00
2017-18 3343.40 4601.00
2016-17 1087.10 3284.00 Source: Reserve Bank of India (2019)
2017-18 1405.20 4590.00
Source: Reserve Bank of India (2019)

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

2017-18, recording the rate of growth in

Graph: 2.5. Debit (DR) Card volume of overall retail payments further
accelerated to 44.86% per cent in 2017-18.
4000 5000
3500 c. The growth in 2011-12 is spectacular and
3000 4000
2500 3000 could be attributed to development of
2000
1500 2000 innovative digital payments platform. But
1000 1000 during 2017 -18 the growth rate is
500
0 0 declining from 56.65% (2016-17) to
44.86% (2017-18).
2. Value of Overall Digital Retail Payments
Volume (in Millions) Value (in Billions) a. The value of retail payments has a cyclical

Source: Reserve Bank of India (2019)

movement over 2003-04 to 2014-15,

The value of volume of debit card transactions though it has a steady growth of 825.74%

is measured in the primary axis and value of in the year 2011-12,

debit card transactions on the secondary axis. b. There was a decline in the growth of value

Graph 2.5 above states that the growth of from 2012-13 to 2014-15.

volume and value of debit card transactions c. An increase in value of retail payments

increases from 2003-04 to 2009-10, but the records a CAGR of 102.8 per cent between

pace of growth is less. From 2011-12 to 2014- 2003-04 to 2017-18, but the annual growth

15 the growth of debit card transactions in has increased to 29.45% in 2017-18 due to

terms of volume and value decreases and then demonetization.

shows a steep increase in both in 2016-17 and 3. It is observed that both the volume and
it shows a slow pace during 2017-18. value of ECS Debit increases from 2003-

Results 04 to 2008-09 at an increasing rate. From

1. Volume of Overall Digital Retail 2009-10 onwards up to 2014-15 there is a

payments linear rate of increase. During the period

a. In India, compound average annual growth 2014-15 and 2015-16 it get stabilizes and

rate (CAGR) of total digital retail start declining at a higher rate during 2016-

payments (in volume) is 39.47 per cent. 17 and 2017-18.

b. Volume of overall retail payments steadily 4. Both volume and value of ECS credit

increased over the period from 2011-12 to increase from 2003-04 to 2013-14 with an

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
exceptional increase in the value of ECS
credit during the year 2007-08. From 2014-
15 to 2017-18 it shows that both the
volume and value declining at
increasing rate.
5. The volume and value of EFT/NEFT from
2003-04 to 2009-10 shows stagnation and
afterwards an increase in both up to 2014-
15. The rate of growth increases from
2015-16 to 2017-18, due to increased
penetration of digital payments
demonetisation.
6. The volume and value of credit card
transactions shows a constant growth from
2003-04 to 2008-09. During the year the
there is a negative growth in both volume
and value on 2009-10. From 2010-11
onwards the rate of growth in credit cards
declining up to 2014-15 and thereafter an
increase in growth rate of credit card
transactions from 2015-16 to 2017-18.
7. The growth of volume and value of debit
card transactions increases from 2003-04
to 2009-10, but the pace of growth is less.
From 2011-12 to 2014-15 the growth of
debit card transactions in terms of volume
and value decreases and then shows a steep
increase in both in 2016-17 and it shows a
slow pace during 2017-18.
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Reference:
1. Digital payment: Trends, Issues, and
Opportunities, NITI Aayog, July, 2018
an 2. Aarti Sharma and Nidhi Piplani,
2017, International Research Journal
of Management Science & Technology,
IRJMST Vol 8 Issue 1 [Year 2017] ISSN
2250 – 1959, http://www.irjmst.com
3. RBI Report on Trend And Progress of
Banking In India 2009-10, 2010-11,
2011-12, 2012-13, 2013-14, 2014-15,
2015-16, 2016-17, 2017-18.
4. RBI Monthly Bulletin March 2013,
2014,2015, 2016,2017, & 2018
and
5. CURRENT STATISTICS: Money &
Banking, No. 9A: Retail Electronic
Payment Systems, RBI Monthly
Bulletin, November, 2012
6. BCG Google Digital Payments 2020:
The Making of a $500 Billion
ecosystem in India, July, 2016_tcm21-
39245 http://image-src.bcg.com/Indian-
Banking-2020-Sep-2010_tcm21-
28897.
7. NITI Aayog, Government of India,
Interim Report of the Committee of
Chief Ministers on #Digital Payments,
January, 2017
8. Rajasekhara v Maiya, 2017 6
Technology Trends That Will
Transform Banking In 2017. (2017,
January 2). Retrieved from
Huffington Post India website:
https://www.huffingtonpost.in/rajas
hekara-v-maiya/6-technology-
trends-that-will-transform-banking-
in-2017_a_21645614/
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

KILLING THE GOLDEN GOOSE- THE CASE OF PRIVATE BUSES

IN KERALA

PRAGEETH.P Dr. ANZER R.N

Research Scholar Assistant Professor
Government College, Attingal Government College, Nedumangad

ABSTRACT

Public Transportation services are integral to societies and are vital for civic life. Recently,
many countries have twisted their attention towards emerging and refining their public transport
system. But, here in our country especially in the state of Kerala, the government is doing all the
obligatory procedures towards Public transport system (KSRTC) and Private transport services.
Frequently changing laws and implementing strict rules which are against the industry. This study
tries to find out the problems been faced by the Private bus sector in the State of Kerala. This study is
an innovative one and will help to understand the reason for the downfall of the industry during the
recent times.

Key Words: Public Transportation, Private Bus

Introduction: population, and hence the growth of the sector

in India requires major requirements.
Transportation has been the key to
mobility. Transportation helps to move Public Transportation services are
peoples and goods from one place to another. integral to societies. Countries need effective
Realising the huge potential of public public transport services for transit users, who
transport, countries around the world have need and value different modes of public
been investing huge amounts of money into transport. Public Transportation is defined as
the transportation sector every year. transportation by means of conveyance that
Transportation is essentially a derived demand provides continuing general or specific
depending upon the size and structure of the transportation to the public, which includes
economy and the demographic profile of the school buses, Charter and sightseeing services

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
which includes various modes such as buses,
subways, rails, trolleys and `ferry boats [ Train
and Weiner]. In an urbanized society, an
efficient transportation system is one of the
basic components of the social, economic and
physical structure.
Development of public transportation
system is costly. Thus, private investment is
often critical and considered effective in
delivering the required products and services.
For instance, incentives and competition have
enabled private players to provide highly
efficient transport systems. Private sector
involvement in building and facilitating public
transportation has generated positive outcome
around the world.
Kerala is one of the highly urbanised
states in India (47.72 per cent as per census
2011) and has a significant number of people
covering long distances between 20 and 300
kilometres. Cities in Kerala rank high in Public
Transport Accessibility Index and City Bus
Transport Supply Index with a high
penetration of public transportation buses. The
composition of public bus system is one of the
highest in the country. Kerala is unique for its
high public transport model share, Thanks to
the role played by private-operated buses. The
major share being held by private sector but
now being captured by KSRTC.
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Private Bus Operation in Kerala- A
Present Scenario
Private –Operated buses are efficient
and add value to government‟s exchequer
saving it from the liability of providing
transport. The Government is earning high
through taxes on private-operated buses, with
estimated earnings of ₹ 120000 from each
private bus annually by way of road tax. The
government earns around ₹750 crores from
private bus operators every year.
Nowadays, private bus operations are
in a state of roadblock. Government are
imposing and changing laws regularly, which
affects the proper functioning of this sector.
Earlier private buses were seen as a dignity of
power, but now this sector is finding difficult
to earn its working capital.
As the government is focusing to bring
KSRTC in the way of making profit, more
restriction isbeing imposed on the opponents.
Renewal of permit are not being made,
takeover of route permit by KSRTC, heavy
road tax and Insurance etc. made this sector in
the state of diminishing. Many owners are
surrendering their permit to the RTO because
on the heavy loss in this sector. As per reports,
non-renewal or shutting down of private bus
sector would affect five to six employees of
private bus adversely.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Assessing, rural to urban trips, we can
see that people rely more on private operated
bus. However, now KSRTC took over major
permits and after few operations, they are
stopping their services, now people are finding
difficult for their journey. Increase in use of
two-wheelers, private owned cars paved the
way for collapse of this private bus sector.
Driving private bus operations out of
the market will lead thousands jobless. A huge
part of income from private bus goes to low-
income and self-employed populations.
Government policies not only disrupt a normal
and healthy market mechanism but also kill the
incentive for private and public operators to
provide better service to passengers
Objectives of the Study:
1.To study the performance Evaluation of
private buses
2.To understand the trend in
differentexpenditures related
Research Methodology:
Primary data was essential
understand the performance of private buses.
The hike in fuel price, increase in tax
and insurance hasbrought in various challenges
for the private bus sector. Drastic changes
were proposed by private bus owners to
overcome this challenge. Government had
responded to the demands of the bus industry
and agreed for a fare hike. The implications of
the above mentioned changes are to be
analysed in depth. Therefore, the present study
is entitled as “Killing the Golden Goose- the
Case of Private Buses in Kerala”
Limitation of the Study:
The study is limited to only 14 private buses in
the state
Only buses from Kollam district were taken as
part of this study
Analysis and Interpretation
1. To study the performance
Evaluation of private buses in Kerala
Comparison of Receipt and Payment of 14 Private
Buses
Collection of Total Profit
Year The Year Expenses
to
2008-09 2,51,59,576 2,27,73,294 23,86,282

The Primary information was collected from 2009-10 2,44,31,584 2,20,58,246 23,73,338
trip sheet of various private bus operations. 2,58,40,422 2,37,25,331 21,15,091
2010-11

Research Problem: 2011-12 2,82,50,601 2,58,61,492 23,89,109

2012-13 2,99,65,419 2,76,37,177 23,28,242

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 Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

2,86,00,144 2,72,83,723 13,16,421 11 years. From the table it is clear that the
2013-14
collection is increasing, the collection
2014-15 3,00,99,594 2,77,20,652 23,78,942
increased due to the increase in the minimum
2015-16 3,26,30,614 3,00,43,151 25,87,463
fare charge from year to year. At the same time
2016-17 3,16,29,985 2,99,54,633 16,75,352
the total expenses are increasing at a higher
2017-18 3,18,66,460 3,12,83,367 5,83,093 rate. This resulted in decrease of profit during
2018-19 3,27,74,294 3,22,81,533 4,92,761 the recent years from 2016 to 2019. To analyse
Source: Compiled from Bus owners
the trend in these three variables graphical
The above table shows the collection, total presentation by fitting trend line is used. The
expense and the profit of 14 private buses over results are given below.

Receipt and Payment

40,000,000

35,000,000
y = 85523x + 2E+07
R² = 0.888
30,000,000

y = 1E+06x + 2E+07
25,000,000 R² = 0.956

20,000,000

15,000,000

10,000,000

5,000,000 y = -15909x + 3E+06

R² = 0.485

0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Collection Total Expenditure Profit

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

From the line chart for the time series
of collection, total expenses and profit of
selected private transport companies during the
last 11 years, it can be seen that both collection
and total expenses are increasing over the
years. But a slight decrease in trend is seen in
the profit. An observation of linear regression
line fitted to all data gives a detailed
explanation of rate of change over time in all
variables. Thus of collections, an annual linear
increase of Rs.85523 is observed with an
explanation of 88.8 per cent (R2 =88.8). That is
collections are increasing at the rate of
Rs.85523 every year. Likely, for total
expenditures also, an annual linear increase of
Rs1000000 is seen with an explanation of 95.6
per cent (R2 =95.6). Thus it can be observed
that total expenditures are increasing at a
higher rate than the total receipts i.e.
Collections. As a result of this, the profit
seems to have an annual decrease of Rs15909
with an explanation of 48.5 per cent (R2
=48.5). Thus the profit per year is decreasing
at the rate of Rs.15909 every year.
2. To understand the trend in different
expenditures related

Various Expenditure Table

Year Accident Diesel and Oil Insurance Repairs and Wages and
Damage and Tax Maintenance allowances
2008-09 26,528 1,34,70,033 15,60,186 29,56,665 47,59,882
2009-10 97,677 1,27,62,053 15,85,486 28,71,151 47,41,879
2010-11 35,677 1,35,85,084 16,84,060 29,54,793 54,65,717
2011-12 44,557 1,38,57,964 16,95,378 37,41,739 65,21,854
2012-13 38,495 1,45,14,292 20,80,382 37,13,337 72,90,671
2013-14 25,351 1,48,39,427 19,77,974 31,00,252 73,40,719
2014-15 24,341 1,50,29,056 20,12,376 30,98,689 75,56,190
2015-16 34,221 1,52,28,576 20,86,661 33,55,268 93,38,425
2016-17 10,199 1,59,12,819 18,38,745 25,79,373 96,13,497
2017-18 27,598 1,65,32,926 20,17,572 29,43,823 97,61,448
2018-19 3,740 1,84,86,763 19,76,757 29,77,682 88,36,591
Source : Compiled data from bus owners

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

The above table indicates the various table that expenses under each head during the
expenditure incurred by private bus during the past few years are increasing.
course of its operations. It is clear from the

Various Expenditure
20,000,000
18,000,000
y = 45823x + 1E+07
16,000,000 R² = 0.879
accident damage
14,000,000
Diesel and Oil
12,000,000
Axis Title

Insurance and Tax

10,000,000 y = 53458x + 4E+06
R² = 0.901 Repairs and maintenance
8,000,000
Wages and Allowances
6,000,000 y = -19255x + 3E+06
4,000,000 R² = 0.032

2,000,000 y = 45362x + 2E+06 y = -4595.6x + 61063

R² = 0.5673 R² = 0.3915
0

Axis Title

From the line chart for the time series
of various expenditure of selected private
transport companies during the last 11 years, it
can be seen that the diesel and oil expenses are
increasing over the years and a slight increase
in Insurance and Tax expense can also be seen.
But a decrease in trend is seen in other
expenses such as repairs and maintenance.,
wages and allowances can also have been seen.
However, accident expense shows a steady
trend over the years. An observation of linear
regression line fitted to all data gives a detailed
explanation of rate of change over time in all
variables. Thus for Diesel and oil expenditure,
an annual linear increase of Rs 458239 is
observed with an explanation of 87.97per cent
(R2 =87.97). That is collections are increasing
at the rate of Rs.458239 every year. Likely, for
Wages and Allowances also, an annual linear
increase of Rs 534580 is seen with an
explanation of 90.12 per cent (R2 =90.12).
Similarly, for Repairs and Maintenance also,

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
an annual linear decrease of Rs 19255is seen
with an explanation of 3.12 per cent (R2
=3.12). Likely,for Insurance and Tax also, an
annual linear increase of Rs 445362 is seen
with an explanation of 56.73 per cent (R2
=56.7). Like Wise, for Accident Damage also,
an annual linear decrease of Rs 4595.6is seen
with an explanation of 39.15 per cent (R2
=39.15).
Findings
The major findings drawn from the
study are as follows
 Profits of the private bus industry
during the past eleven years i.e. from
[2008-09 to 2018-19] is decreasing
over the years i.e. in 2008-09 profit
was Rs 23,86,282 and in 2018-19 it
came down to Rs 4,92,761, a  Subsidies
diminution of Rs 18,93,521 occurred
during the years
 While analysing the per unit profit of
fourteen buses over the past eleven
years four buses are facing losses
during the last three years
 Increase in various expenditure related
with the industry such as diesel and oil,
Spare parts, Road Tax and Insurance
over the past few years are the major
reason for the doleful condition of the
industry
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 During 2018-19 (Rs. 88,36,591) wages
and allowances has decreased
comparing 2017-18 (Rs. 97,61,448).
This decrease occurred as the owners
were forced to abridged down the
number of employees
Suggestions
 To overcome the decline in profit the
government should rise the minimum
bus fare and should increase the
concession rate
 Reducing tax rates and insurance
amount by the government will be a lift
to the economy
 Instead of collecting tax in quarter the
government should collect taxes half
yearly
for fuel for public
transportation should be made
 Strict laws should be framed by the
government to use public
transportation for e.g.: as made in
Delhi Single and Double number
permit should be implemented. If such
laws are made this will boost the
industry and also helps in reduces
pollution.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Conclusion: 2. Kadam B. S. (2012): “Work Life

Balance: Dilemma of Modern Society-
The private bus industry in the state is
A Special Reference to Women Bus
in the doldrums with the number of the buses
Conductors in MSRTC”, Zenith
on the road coming down from 34000 in 2011
International Journal of Business
to 12500 by September 2018. Earlier, in the
Economics & Management Research,
state of Kerala, private buses were seen as a
Vol.2, Issue 2, Feb. 2012.
symbol of status. This industry provides more
3. V. Vijay and Durga Prasad (2011):
revenue to the government directly and
“Passenger Amenities of Andhra
indirectly and also creates more employment
Pradesh State Road Transport
opportunities. But now this industry has
Corporation (APSRTC)” Asian Journal
become a headache to the owners and some are
of Business Management Studies 2(2),
still continuing services as part of
Pp76-83.
commitment. In September 25 2018 RTA
4. Mane K. H. (2010): “Commuters
Kollam has faced surrendering of 14 route
Satisfaction with Reference to
permit in a single day. If this scenario
ServiceProvide by MSRTC”,
continues Kerala economy as well as the state
International Referred Research
will be facing many problems from this sector.
Journal,Vol. II, Issue 18, July, 2010.
Therefore, steps should be taken by the
5. Bishnoi N. K. Sujarat (2010), “An
government and the authorities to find
Analysis of Profitability
solutions in this sector.
andProductivity of Haryana State Road
References: Transport Undertaking(HSRTU)”,
ENVISION – Apeejay‟s Commerce
1. Gawali S.N. and Waghere Y.M.
and ManagementJournal, Pp. 32-41
(2013): “Life Line of Maharashtra –
6. Jadav Chandra and Amar (2010),
Maharashtra State Road Transport
“Towards Sustainable
Corporation (MSRTC)” Online
Competitions”,Indian Economic
International Interdisciplinary Research
Review (Special Number) Vol.18.
Journal, (Bi-Monthly), ISSN2249-
9598, Volume-III,Issue-II, Mar-Apr
2013

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TRENDS AND GROWTH OF TOURISM IN KERALA

THANSIYA N
Research scholar (full time)
Government college Attingal

Abstract

Tourism is a globally accepted industry because of its economic- social and cultural contributions.
Kerala, the green gateway of India, has today found a niche for herself in the international tourism
map, from the point of view of tourist inflow as well as investments in tourism related sectors. In the
state of Kerala, both the domestic and foreign tourist arrivals are increasing day by day. There is an
influence of changing season of Kerala towards the number of arrivals of tourists. Tourism industry
of Kerala is an indicator of economic growth in terms of foreign exchange earnings; employment and
infrastructure. Here, an attempt is made to analyze the trends and growth in this sector.

Introduction

Tourism is considered as one of the tourists from all over the world, especially
driving elements to the progress of economy. from the UK, USA, France and Australia.
Tourism is a globally accepted industry Kerala Tourism is to position itself as a global
because of its economic- social and cultural destination for tourism, based on the advantage
contributions. Tourism contributes towards of the local resources, thereby attracting
complete growth and development of a investment and resulting in sustainable
country: one, by bringing numerous economic development for the people of Kerala. An
value & benefits; and, second, helping in build equable climate, a long shoreline with serene
country's brand value, image & identity. beaches, tranquil stretches of emerald
Tourism industry goes beyond attractive backwaters, lush green hill stations and exotic
destinations, to being an important economic wildlife, waterfalls, sprawling plantations and
growth contributor. Kerala has a noticeable paddy fields, Ayurvedic health holidays,
role in the world tourism map and the enchanting art forms, magical festivals,
opportunities are opened wider. Kerala historic and cultural monuments, and exotic
Tourism is having a global presence and with cuisines, make Kerala a unique experience.
its clear strategy for growth and sheer
marketing activities, it has gained a lot of

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Objective Results and discussions

To understand the trends and growth of Table 1.1 TOURIST ARRIVALS 2007 –
tourism industry of Kerala for the last ten 2018 Tourist arrival in Kerala for the last
12 years
years.

Methodology No. of No. of

Domestic % Foreign % Total no. %
Yea Tourist Incre Tourist Incre of Incre
The study is based on secondary data. r Visits ase Visits ase tourists ase
2007 6642941 5.92 515808 20.37 7158749 6.84
The data is collected from the annual 2008 7591250 14.28 598929 16.11 8190179 14.41

publication of Department of Tourism, Kerala. 2009 7913537 4.25 557258 -6.96 8470795 3.43
2010 8595075 8.61 659265 18.31 9254340 9.25
2011 9381455 9.15 732985 11.18 10114440 9.29
2012 10076854 7.41 793696 8.28 10870550 7.48
2013 10857811 7.75 858143 8.12 11715954 7.78
2014 11695411 7.71 923366 7.6 12618777 7.71
2015 12465571 6.59 977479 5.86 13443050 6.53
2016 13172535 5.67 1038419 6.23 14210954 5.71
2017 14673520 11.39 1091870 5.15 15765390 10.94
2018 15604661 6.35 1096407 0.42 16701068 5.94
Source tourism statistics 2018, Department of Tourism, Gvt of Kerala

Figure 1.1 TOURIST ARRIVALS 2007 – 2018 Tourist arrival in Kerala for the last 12 years

Toursist Arrivals in Kerala (2007-2018)

18000000
16000000 y = 84834x - 2E+09
R² = 0.989
14000000
12000000
y = 79093x - 2E+09
Axis Title

10000000 R² = 0.988
No. of Domestic Tourist Visits
8000000
No. of Foreign Tourist Visits
6000000
Total no. of tourists
4000000 y = 57405x - 1E+08
R² = 0.982
2000000
0
2006 2008 2010 2012 2014 2016 2018 2020
Axis Title

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

It is clear from the table; the number of
domestic tourist arrivals in Kerala in 2007 is
6642941 which show 5.92 per cent of increase
from that of 2006. Number of foreign tourist
arrivals in 2007 shows 20.37 percent increase
from that of 2006. In 2008 there is a notable
increase in tourist arrivals of both domestic
and foreign 14.28 per cent and 16.11 per cent
respectively. Domestic tourist arrivals are
greater than the number of foreign tourists
visit. It is evident from the table that each year
shows an increase in the number of domestic
and foreign tourists visiting the state of Kerala.
In 2017, domestic tourist arrival is 11.39 per
cent and the foreign tourist arrivals are 5.15
per cent more than the year 2016. For the latest
year 2018, domestic tourist arrivals are 6.35
per cent and .42 per cent increase in foreign
tourist arrivals compared to 2017.
TABLE 1.2 - FOREIGN TOURISTS QUARTERLY COMPARISON – 2014, 2015, 2016, 2017
& 2018
The total number of tourist arrivals increased
from 7158749 in 2007 to 16701068 in 2018. It
seems to be a linear trend with an annual linear
growth of 84834 tourists. The R2 value is .989
which gives a good explanation to the model.
The number of foreign tourist arrivals
increased from 515808 in 2007 to 1096407
in 2018. It seems to be a linear trend with an
annual linear growth of 57405 tourists. The
R2 value is .982 which gives a good
explanation to the model. The number of
domestic tourist arrivals increased from
6642941 in 2007 to 15604661 in 2018. It
seems to be a linear trend with an annual linear
growth of 79093 tourists. The R2 value is .988
which gives a good explanation to the model.

FOREIGN 2014 2015 2016 2017 2018

I – Quarter 340193 363492 384719 393038 440694

II – Quarter 142641 151774 153461 175746 167666

III – Quarter 172731 184005 200335 200988 173758

IV – Quarter 267801 278208 299904 322098 314289

Total 923366 977479 1038419 1091870 109

Source tourism statistics 2018, Department of Tourism, Gvt of Kerala

Foreign tourist arrivals generate foreign
exchange earnings of India.Kerala Tourism
aiming to change Kerala into a 365 days
tourist destination. During 2018, the maximum
number of foreign tourists arrived in January
followed by February. The maximum number
of foreign tourists arrived during the 1st
quarter of the year 2018, constituting 40.19%
with 440694 tourists, followed by 4th quarter
constituting 28.67% with 314289 tourists, the
3rd quarter constituting 15.85% with 173758
tourists, and the 2nd quarter constituting
15.29% with 167666 tourists.

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Figure- 1.2 FOREIGN TOURISTS QUARTERLY COMPARISON – 2014, 2015, 2016, 2017 &
2018

1200000

1000000

800000
Series1
600000 Series2

400000 Series3
Series4
200000

0
FOREIGN I – Quarter II – Quarter III – Quarter IV – Quarter Total

Table 1.3 DOMESTIC TOURISTS QUARTERLY COMPARISON – 2014, 2015, 2016, 2017 &
2018

DOMESTIC 2014 2015 2016 2017 2018

I – Quarter 2685048 2878897 3043809 3270514 3877712

II – Quarter 2776042 2976682 3110808 3578943 4149122

III – Quarter 2647557 2861813 3086508 3410654 3292016

IV – Quarter 3586764 3748179 3931410 4413409 4285811

Total 11695411 12465571 13172535 14673520 15604661

Source tourism statistics 2018, Department of Tourism, Gvt of Kerala

Figure 1.3 DOMESTIC TOURISTS QUARTERLY COMPARISON – 2014, 2015, 2016, 2017 &
2018

Total
IV – Quarter Series5
III – Quarter Series4
II – Quarter Series3
I – Quarter Series2
DOMESTIC
Series1
0 5000000 10000000 15000000 20000000

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

From the table it is clear that during the year Figure 1.4 FOREIGN EXCHANGE
2014, domestic tourist arrival is higher in the EARNINGS FROM TOURISM FOR LAST
4th quarter. In 2015, 2016, 2017 and 2018 12 YEARS (` In Crores)
show the same trend of increase for the 4th
quarter which consists of October November
and December. Foreign Exchange Earnings from
For the year 2014 domestic tourist arrival is Tourists from 2007 to 2018
lower in the third quarter; in 2015 also the 10000
minimum is in the third quarter; for the year 9000
2016 and 2017 it is in the first quarter and for 8000
the year 2018 lowest domestic tourist arrival is y = 604.3x + 1485.
7000 R² = 0.978
in the third quarter.
6000

Axis Title
During 2018, the maximum number of
5000
domestic tourists arrived during the 4th quarter
4000
constituting 27.46% with 4285811 tourists
3000
followed by 2nd quarter constituting 26.59 %
2000
with 4149122 tourists, the 1st quarter
1000
constituting 24.85% with 3877712 tourists and
0
the 3rd quarter constituting 21.10% with
3292016 tourists. 0 5 10 15
Axis Title
Table 1.4 FOREIGN EXCHANGE
EARNINGS FROM TOURISM FOR LAST
12 YEARS (` In Crores)
From the graphical inference, it is clear that
Year Earnings % of variation over the amount of foreign exchange earnings
previous year increases from 2640.94 crore in 2007 to
8764.46 crore in 2018. It seems to be a linear
2007 2640.94 32.82
trend with an annual linear growth of 604.3
2008 3066.52 16.11
crore. The R2 value is .978 which gives a good
2009 2853.16 -6.96
explanation to the model.
2010 3797.37 33.09
2011 4221.99 11.18 Foreign exchange earnings from tourism have
2012 4571.69 8.28 shown a steady growth over the years. In 2018,
2013 5560.77 21.63 Kerala has earned ` 8764.46 crores as foreign
2014 6398.93 15.07
exchange earnings from tourism against `
2015 6949.88 8.61
8392.11 crores in the year 2017 showing a
2016 7749.51 11.51
growth of 4.44%. Table 3.7 and Graph 3.7
2017 8392.11 8.29
2018 8764.46 4.44 shows the estimates of earnings from foreign
Source tourism statistics 2018, Department of Tourism, Gvt of Kerala tourists in the last ten years.

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 Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Table 1.5 MONTH WISE ARRIVAL DETAILS OF FOREIGN TOURISTS

Month 2012 2013 2014 2015 2016 2017 2018 % of

variation
January 106314 113627 119865 130463 136539 150808 167980 11.39
February 103220 115403 127153 132873 141143 135089 152003 12.52
March 75544 85953 93175 100156 107037 107141 120711 12.67
April 61335 66371 72441 76734 78099 82633 85493 3.46
May 30470 32600 36302 39583 37994 49073 45427 -7.43
June 28280 29758 33898 35457 37368 44040 36746 -16.56

July 42977 45786 48577 51722 56666 72552 68868 -5.08

August 59904 64518 69909 74710 81070 73736 60121 -18.46
Sep 47440 51032 54245 57573 62599 54700 44769 -18.16
Oct 63690 67702 71598 76119 82551 79957 73263 -8.37
Nov 78833 83484 87720 89883 96155 107028 99271 -7.25
Dec 95689 101909 108483 112206 121198 135113 141755 4.92
Total 7,93,696 8,58,143 9,23,366 9,77,479 10,38,419 10,91,870 10,96,407 0.42
Source: tourism statistics 2018, Department of Tourism, Gvt of Kerala

Figure 1.5 MONTH WISE ARRIVAL development of the State. Kerala is

DETAILS OF FOREIGN TOURISTS
1200000
1000000
800000
600000
400000
200000
0 tourism promotion activities post-floods.
-200000
Conclusion
Kerala Tourism attracting international and
domestic tourists plays a significant role in
the economy of the State by contributing to
10% of the GDP and providing employment
to 1.5 million people in the State. With its
potential in creating employment and
enhancing production and productivity,
Kerala Tourism contributes to the
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showing an increasing trend in foreign
tourist arrivals during the last few years.
According to the statistics for calendar year
2018, 0.42% growth in foreign tourist
arrivals and 6.35% growth in domestic
tourist arrivals was registered Inspite of the
great flood of 2018. We could back the
negative trend of tourist arrivals growth in
just 4 months with sustained innovative
During 2018, the foreign exchange earnings
from tourism in the State were `8764.46
crores, which shows an increase of 4.44%
over the last year. The total revenue Kerala
generated from tourism in the year 2018 is
worked out as `36258.01 crores.
Reference
1. „Kerala Tourism Statistics 2018‟,
prepared by the Research and Statistics
division of the Department of Tourism,
2. https://www.keralatourism.org/tourismst
atistics/tourist_statistics_2018_book201
91211065455.pdf
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

A CROSS-SECTIONAL ANALYSIS ON THE INFLUENCE OF

VARIOUS COSTS OF AQUACULTURE ACTIVITIES ON
REVENUE FROM AQUACULTURE
Dr. K. PRADEEP KUMAR
Associate Professor
Government College, Attingal

Kollam, Ernakulam and Palakkad of Kerala,

INTRODUCTION
seelcted at random. The collection of quantitative

Commercial aquaculture refers to fish farming data regarding revenue details was highly

operations, whose goal is to maximise profits, complicated due to the lack of availability of

where profits are defined as revenue minus costs. records. The data regarding cost and revenue have

Aquaculture is an economic activity that can been collected in different stages of aquaculture

generate better returns to the farmers. Scientific practice from stocking to harvesting. Cross-

aquaculture ensures better business with higher evaluation has been done to ensure the reliability

growth opportunities. The role of aquaculture in of the quantitative data.

producing high-grade animal protein for human

TOOLS FOR DATA ANALYSIS
consumption is widely known. An economic
analysis into various aquaculture practices will be This study explores the extent of
useful in understanding the viability of this variations in revenue due to the increased
practice. This paper attempts to analyse the activities related to aquaculture. Regression
influence of various costs of aquaculture on anlaysis is used to analyse the influence of
revenue from aquaculture. various cost of aquaculture activities on revenue
from aquaculture. Ordinary Least Squares (OLS)
OBJECTIVE
modelling using Gretl software is attempted to

1. To analyse the influence of various attain the objective of the study.

costs of aquaculture on revenue from THE VARIABLES USED

aquaculture.
METHODOLOGY
Since the study is based on the sample
survey, the data has been collected from 300 fish
and crustacean farmers located in the districts of
The various aquaculture activities are
quantified through Labour involved, Seeds
stocked, Feeds used, and Fertiliser application.
Also, there are extraneous features associated
with aquaculture included in the category of'
„other expenses‟ like insurance premium, fuel

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Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019
and electricity, lease rentals, interest on loan
taken, etc. A small description of features
specific to aquaculture is very useful in
understanding subsequent analysis.
Labour: Labour is essential to aquaculture from
stocking to harvesting. Small-sized farms use
family labour in all stages. Large-sized farms
depend on hired labour for aquaculture
activities. Regular labour is required for
activities like stocking, feeding, sampling, etc.
Likewise, at the time of harvesting also, hired
labour is used in many farms. The intensity of
culture in farms is also measured in terms of
human involvement. In most of the farms in
Kerala, farmers are following extensive to semi-
intensive culture. For extensive culture, more
labour is required, while, in semi-intensive
culture, labour involvement is comparatively
less. Thus, labour cost is the most important
element of cost incurred for generating revenue
from aquaculture.
Seed: The seed of the species to be cultured is
important in practising aquaculture. Farmers
depend on wild seeds and/or hatchery produced
seeds for farming. Now, due to a fall in natural
availability of wild seeds, the farmers basically
depend on hatchery-produced seeds. The quality
of the seeds is very important for success in
aquaculture. The governmental agencies,
through their own hatcheries, provide seeds at
subsidised rates to the farmers, to encourage
aquaculture in Kerala. So the second major cost
incurred for aquaculture is the seed cost.
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Feed: Regular feeding ensures rapid growth of
species across the culture period. Some farmers
practising modified traditional culture depend
only on wild feeds to ensure species growth. But
scientific aquaculture calls for regular feeding
using nutritional feeds available through
governmental agencies like Matsyafed and feeds
manufactured by corporate organisations. There
is a wide variation in the use of feeds by the
farmers. Thus, feeding is another activity
considered here for measuring its impact on
revenue.
Fertilisers: Fertilisation of pond is important
for natural growth of planktons in the water
body. Planktons are the natural feeds for the
species cultured. Natural fertilisers like cow
dung, coconut husks, etc., are used by farmers
practising aquaculture in Kerala. Some farmers
even use manufactured fertilisers in the ponds to
ensure plankton growth. The use of fertilisers
helps the farmers to reduce the feed cost, as
natural feed is available in the pond after
fertilisation.
Other Expenses: Other expenses involved in
aquaculture activities include fuel and power,
lease rentals, if any, insurance premium, interest
on the loan taken for practising aquaculture,
transportation cost, etc. The cost of these
expenses varies in different farms. Thus, the
total of these costs, titled as other expenses, is
considered for the purpose of anlysis to measure
its impact on revenue from aquaculture.
Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

RESULTS AND DISCUSSION Labour −0.146181 0.107945 −1.354 0.1779

Seed 0.143723 0.0585259 2.456 0.0153 **
It may be noted that in a particular case, it Feed 0.364909 0.0642427 5.680 <0.0001 ***
Fertiliser −0.105608 0.0868359 −1.216 0.2260
is not necessary for all these factors (cost of OtherExpenses 0.250893 0.0444776 5.641 <0.0001 ***
aquaculture activities) to exist together. From Source: Primary Data
the data on these variables, it may be noted that From the primary model it is inferred
these activities vary widely and only 142 cases that the variables labour and fertiliser with
are reporting all the factors stated above. negative coefficients are found to be
insignificant in predicting the dependent
Table 1 Descriptive Statistics
variable revenue. All other variables like
Variables N
seed, feed and other expenses are found to
Revenue 300
Labour 300 be significant with positive coefficients
Seed 300 showing the marginal effect of each variable
Feed 249 on revenue from aquaculture. The
Fertiliser 242
specification of the model is proved through
Other expenses 200
the following table
Valid N (list wise) 142
Source: Primary Data Table 3: Model Specification Summary
Mean dependent 11.79056 S.D. dependent
Ordinary Least Squares for Cross- var var 0.761716
sectional Data (Using Gretl Software) Sum squared 41.61905 S.E. of regression
resid 0.553193
R-squared 0.491270 Adjusted R-
To analyse the influence of various costs of squared 0.472567
F(5, 136) 26.26651 P-value(F) 1.68e-18
aquaculture to revenue from aquaculture a Log-likelihood −114.3532 Akaike criterion
240.7063
model of Ordinary Least Squares is fitted for Schwarz criterion 258.4413 Hannan-Quinn
247.9131
the valid cases using Gretl software for cross
Source: Primary Data
sectional data collected from sample. The The R2 and adjusted R2 are found to be
results after analysis are given below. 49.127 and 47.2567 respectively. The F
Model 6: OLS, using observations 1-300 (n value for the model is found as 26.26651
= 142)
with a p value less than .001. Thus the
Missing or incomplete observations
dropped: 158 model suggests that the explanatory
Dependent variable: Revenue variables are sufficiently explaining the
Table 2. Regression Coefficients and its
variance in total revenue. Ramsey RESET
signifiance
gives the following results
Coefficient Std. Error t-ratio p-value
const 7.65741 0.655990 11.67 <0.0001 ***

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

RESET test for specification - Reference

Null hypothesis: specification is adequate
Test statistic: F(2, 134) = 2.57791 1. Field, Andy, Discovering Statistics
with p-value = P(F(2, 134) > 2.57791) = using SPSS, SAGE Publications,
0.0796949
2009 pp 187-263
Source: Primary Data
From the RESET test for specification, the 2. Raju M.S., Economic Analysis of
Different Aquaculture Systems in
null hypothesis is accepted since the Kerala – A Production Function
significance value is greater than 0.05. Thus Approach,Unpublished Ph.D thesis,
Cochin University of Science and
the fitted model‟s specification is seems to Technology (CUSAT),1997.
be adequate. 3. Pradeep Kumar K., Production and
Marketing of Aquaculture Products
CONCLUSION in Kerala, Ph.D thesis published by
Abhijeet Publications, New
Delhi,2014
The special feature of aquaculture that
discriminates itself from capture fisheries is that
harvesting can be organised according to market
demand in terms of quantity, size, etc. To
explore the influence of various activities on
revenue from aquaculture, OLS model using
Gretl software was developed for the five
important cost variables. The models provide
significant R2 value in all cases with positive
coefficients. From the regression coefficients the
three most important variables determining
revenue are identified as Seed, Feed and other
expenses.

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

LIST OF PARTICIPANTS

Sl. No. Name, Designation and Institutional Address

1 Dr. LAKSHMANAN M.P
Assistant Professor of Commerce
Government College
CHITTOOR Phone No. 9249214643
2 Dr. MOHANADASAN T
Assistant Professor of Commerce
Victoria Government College
Palakkad Phone No.9249758697
3 Dr. JAYARAJU V.
Associate Professor of Commerce
Iqbal College, Peringamala Phone No. 9447958248
4 AJEESH A.
Assistant Professor of Commerce
G.P.M. Government College
Manjeswaram Phone No.9422441007
5 LEKSHMI PRAKASH
Assistant Professor of Commerce
G.P.M. Government College
Manjeswarm
6 VIJAYAN K
Assistant Professor of Commerce
Government College,
Nedumangad Phone No. 9496101019
7 BINOY S.
Assistant Professor of Commerce
S.N. College,
Chathannoor Phone No. 9846151302
8 SIMU RAJENDRAN
Assistant Professor of Commerce
S.N. College,
Kollam Phone No 9074491741
9 Dr. SUMESH G.S
Assistant Professor of Commerce
M.G. College,
Thiruvananthapuram Phone No.9447855544
10 Dr. PRADEEP KUMAR N.
Assistant Professor of Commerce
M.G. College,
Thiruvananthapuram Phone No. 9847888777
11 Dr. SREEDEVI S.R.
Assistant Professor of Commerce
Government Arts College
Thiruvananthapuram

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Sl.No Name, Designation and Institutional Address

12 Dr. LEKSHMI P
Assistant Professor of Commerce
V.T.M. N.S.S. College
Dhanuvachapuram
13 REJANI R. NAIR
Assistant Professor of Commerce
Government College
Nedumangad
14 INDURAJANI R
Assistant Professor of Commerce
Government College
Nedumangad
15 SARITHA G.S.
Assistant Professor of Commerce
N.S.S. College,
Niamel
16 Dr. ASWATHY P.
Assistant Professor of Commerce
N.S.S. College,
Neeramankara
17 Dr. S. KRISHNAVENI,
Assistant Professor of Commerce
Government College for Women
Thiruvananthapuram
18 Dr. KALARANI T.G
Assistant Professor of Commerce
V.T.M. N.S.S. College
Dhanuvachapuram
19 SALINI R.S
Assistant Professor of Commerce
UIT, Vakkom
20 ANEETA VICTOR
Assistant Professor of Commerce
UIT, Vakkom
21 ARCHANA S
Assistant Professor of Commerce
TKM Institute of Management, Kollam
22 SUMAN S.
Research Scholar
Department of Commerce, University of Kerala

23 DEVI KRISHNA
Research Scholar
S.N.College, Kollam
24 SEREENA A
Research Scholar
M.G. College
Thiruvananthapuram

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Sl.No Name, Designation and Institutional Address

25 ANCY JOHN
Research Scholar
M.G. College
Thiruvananthapuram
26 MAYA BABU B.P
Research Scholar
M.G. College
Thiruvananthapuram
27 ATHENA PRINCE
Research Scholar
M.G. College
Thiruvananthapuram
28 SHIYAS I.S
Research Scholar
IMG, Thiruvananthapuram
29 REJITHA Y.S
Research Scholar
KSMDB College
Sasthamkotta
30 ANU G.S
Research Scholar
University of Kerala
31 ILYAS P.C
Research Scholar
Department of Commerce
University of Kerala
32 ANN MARY ALEXANDER
Research Scholar
Department of Commerce
University of Kerala
33 VISHNU S. KUMAR
Research Scholar
Department of Commerce
University of Kerala
34 RAHUL R. KURUP
Research Scholar
Department of Commerce
University of Kerala
35 SRUTHI S.G
Research Scholar
Department of Commerce University of Kerala

36 ASEEM R.
Research Scholar
Govt. Arts College, Thiruvananthapuram
37 IRSHAD V.
Research Scholar
S.N. College, Kollam

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Sl.No Name, Designation and Institutional Address

38 VINITHA V.K
Research Scholar
M.G. College
Thiruvananthapuram
39 SREEJI S.L
Research Scholar
Institute of Management in Government (IMG)
Thiruvananthapuram
40 AFRA NAHAN M.T
Research Scholar
Department of Commerce and Management Studies
University of Calicut
41 NAFEESATHUL THANSILA BEEVI
Research Scholar
Department of Commerce and Management Studies
University of Calicut
42 RESMI R.
Research Scholar
M.G. College,
Thiruvananthapuram
43 JINU L
Research Scholar
Institute of Management in Government (IMG)
Thiruvananthapuram
44 GOPISH G.
M.Phil. Scholar
Department of Commerce
University of Kerala
45 ANN MARY VARGHESE
M.Phil. Scholar
University College,
Thiruvananthapuram

LIST OF PARTICIPANTS FROM GOVERNMENT COLLEGE, ATTINGAL

Sl. No Name, Designation and Institution
46 SUNIL S, Head of the Department
Assistant Professor of Commerce
Government College, Attingal
47 Dr. K.PRADEEP KUMAR (Coordinator)
Associate Professor of Commerce
Government College,
Attingal
48 Dr. SUNILRAJ N.V (Co-coordinator)
Assistant Professor of Commerce
Government College
Attingal

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Name, Designation and Institutional Address

49 Dr. ANITHA S
Assistnat Professor of Commerce
Government College, Attingal
50 Dr. SAJEEV H
Assistant Professor of Commerce
Government College, Attingal
51 Dr. SARUN S.G
Assistant Professor
Government College, Attingal
52 MANIKANTAN G.
Assistant Professor
Government College, Attingal
53 SHANIMON S
Assistant Professor
Government College, Attingal
54 Dr. BINU R
Assistant Professor of Commerce,
Government College, Attingal
55 KRIPA M DAS
Research Scholar
Department of Commerce,
Govt.College, Attingal
56 PRAGEETH P
Research Scholar
Department of Commerce,
Govt. College, Attingal
57 ANSA S
Research Scholar
Department of Commerce,
Govt. College, Attingal
58 KAVITHA S
Research Scholar
Department of Commerce,
Govt. College, Attingal
59 JENCY S
Research Scholar
Department of Commerce,
Govt. College, Attingal

60 ABHIRAMI S.R
M.Com III Semester
Govt. College, Attingal
61 AKHIL A.U.
M.Com III Semester
Govt. College, Attingal

62 AKHIL S.K
M.Com III Semester
Govt. College, Attingal

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

63 ANJALI RAJAN M.R.

M.Com III Semester
Govt. College, Attingal
64 ANOOP R. NAIR
M.Com III Semester
Govt. College, Attingal
65 ARYA KRISHNANA R.S
M.Com III Semester
Govt. College, Attingal
66 ATHIRA P.R
M.Com III Semester
Govt. College, Attingal
67 FATHIMA M. ASHRAF
M.Com III Semester
Govt. College, Attingal
68 KARTHIKA S.R.
M.Com III Semester
Govt. College, Attingal
69 MAHITHA M.S.
M.Com III Semester
Govt. College, Attingal
70 SANDHYA S.
M.Com III Semester
Govt. College, Attingal

71 SHEFNA S.
M.Com III Semester
Govt. College, Attingal

72 SREEJA M.N
M.Com III Semester
Govt. College, Attingal
73 SUBIMOL B.S
M.Com III Semester
Govt. College, Attingal
74 SWATHY K.S
M.Com III Semester
Govt. College, Attingal

75 VAISHNAVI V.S
M.Com III Semester
Govt. College, Attingal

76 G.S. SACHIN
M.Com III Semester
Govt. College, Attingal
77 GREESHMA G.P
M.Com III Semester
Govt. College, Attingal

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

78 ABHILA M. DAS
M.Com I Semester
Govt. College, Attingal

79 AMRITHA G.M.
M.Com I Semester
Govt. College, Attingal

80 ARYA A.J.
M.Com I Semester
Govt. College, Attingal

81 ARYA ASHOK
M.Com I Semester
Govt. College, Attingal

82 ASHA B
M.Com I Semester
Govt. College, Attingal

83 BHAVYA VIJAYAN
M.Com I Semester
Govt. College, Attingal

84 FATHIMA KALAM
M.Com I Semester
Govt. College, Attingal

85 FATHIMA S.
M.Com I Semester
Govt. College, Attingal

86 SHANI B.
M.Com I Semester
Govt. College, Attingal

87 SILPAMOL P.M
M.Com I Semester
Govt. College, Attingal

88 SNEHA K.N
M.Com I Semester
Govt. College, Attingal

89 THASNIM S.
M.Com I Semester
Govt. College, Attingal

Government College, Attingal

Proceedings of Five day Workshop on Financial Econometrics from 15th to 19th October, 2019

Research and Post Graduate Department of Commerce

Government College, Attingal

Government College, Attingal