The authors are Research Officer and Assistant Adviser in the, Department of Statistics and Information Management, Reserve Bank of India, Mumbai, India, respectively
*Corresponding author email id: asanyal@rbi.org.in
JEL Classification Codes: C01, E20, E32
Assessment of prevailing demand conditions is an important input for formulation of monetary and fiscal policies to assess the anticipated growth driven by demand. Rising demand condition puts pressures on the domestic inflation. The objective of the paper is to develop a composite indicator to assess the prevailing demand condition in India using alternative techniques. For this purpose, various economic indicators have been selected to construct the composite indicator. Empirical analysis suggests that demand in India weakened during the financial crisis year 2008–2009 and improved thereafter. Demand has remained subdued since 2013–2014. Further analysis suggests that both demand and supply play an important role in determining the inflation in India.
Demand condition, Business cycle indicator, Growth cycle, Weighted average method, Principal component analysis, Inflation, Composite indicator
