Assessing the (eco)macroeconomic performance index of India: A data envelopment analysis approach

• Published date: 01 February 2021
• Author: Ranjan Kumar Mohanty,Biresh K. Sahoo,Pradipta K. Chaudhury
• Date: 01 February 2021
• DOI: http://doi.org/10.1002/pa.2122

ACADEMIC PAPER

Assessing the (eco)macroeconomic performance index of India:

A data envelopment analysis approach

Ranjan Kumar Mohanty

1

| Biresh K. Sahoo

2

| Pradipta K. Chaudhury

3

1

National Institute of Public Finance and

Policy, New Delhi, India

2

Xavier Institute of Management, Xavier

University Bhubaneswar, Bhubaneswar, India

3

Centre for Economic Studies and Planning,

Jawaharlal Nehru University, New Delhi, India

Correspondence

Ranjan Kumar Mohanty, National Institute of

Public Finance and Policy, New Delhi, India.

Email: ranjanmohanty85@gmail.com; ranjan.

mohanty@nipfp.org.in

The prime objective of this article is to construct a robust macroeconomic

performance (MEP) index of the Indian economy using the data envelopment analysis

(DEA) approach. Seven major macro indicators, namely, economic growth, employment

rate, terms of trade, inflation rate, fiscal deficit, pollution, and climate change are used

to compute MEP and Eco-MEP indices of the Indian economy from 1980–1981 to

2018–2019. Overall, both the MEP and Eco-MEP index scores have quite similar best

performing years worst performing years, and have also captured the major events that

affected adversely the Indian economy during the past decades. The trend in the overall

performance of the Indian economy was better in the 1980s and the 1990s but has

deteriorated since 2000. The autoregressive distributed lag bounds testing approaches

to cointegration methods are used to test the robustness/utility of these indices. The

estimated results show that MEP and Eco-MEP have a positive impact on private

investment, foreign investment inflows, foreign direct investment, and a negative effect

on the current account deficit. Hence, the suggested composite MEP index is stable,

robust and truly captures the economic performance of India. The constructed MEP

composite index may be used by foreign investors, rating agencies, private investors,

and policymakers for their planning and decision-making processes.

KEYWORDS

autoregressive distributed lag, data envelopment analysis, eco-macroeconomic performance

index, India, macroeconomic performance index

JEL CLASSIFICATION

E60; C14; C32

1|INTRODUCTION

Measurement of the economic performance of a country based on a single

indicator is considered narrow, biased, inefficient, uneconomical, and

defective, which may not depict the real picture of an economy. Certainly,

a single indicator separately provides some useful information, but that

might mislead the desired policy target and develop wrong perceptions

about the overall performance of the economy. Thus, a comprehensive

multidimensional indicator, consisting of several important indicators, is

essential to provide proper signals about the progress or deterioration of

the country. This composite indicator is called the macroeconomic

performance (MEP) index, which combines several indicators into one sin-

gle succinct statistic. One simple but vital question about this index is:

How the information embedded in the MEP index will fit the overall

economy?

India, an emerging and developing economy, is one of the fastest-

growing large economies in the world with increasing potential for

investment and trade. Recently, India has fixed its medium-term target

of achieving a GDP of US$ 5 trillion by 2024–2025. It requires an

enormous investment in its various sectors such as telecommunica-

tions, power, highways, ports, airports, railways, agriculture,

manufacturing industries, financial development, and so on. Given the

Received: 25 October 2019 Revised: 7 January 2020 Accepted: 9 March 2020

DOI: 10.1002/pa.2122

J Public Affairs. 2021;21:e2122. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of15

https://doi.org/10.1002/pa.2122