Measuring Volatility in GDP Components and Its Implications for Economic Stability

Abstract

Economic stability serves as a fundamental element for sustainable growth, with its variations often stemming from the fluctuations in the components of Gross Domestic Product (GDP), including consumption, investment, government spending, and trade. This research investigates the volatility of these components within the Indian economy from 2017 to 2023, a period marked by significant structural and external shocks such as demonetization, the implementation of the Goods and Services Tax (GST), the COVID-19 pandemic, and global trade tensions. Utilizing official data from the National Statistical Office, the study employs standard deviation and coefficient of variation to assess both absolute and relative volatility in GDP components. The findings indicate substantial variability in elements such as gross fixed capital formation, changes in inventories, and net exports, while government consumption expenditure shows a degree of stability. The analysis, conducted at both constant and current prices, reveals that inflation and nominal growth have intensified volatility in critical sectors like private consumption and investment. These results highlight the vulnerability of India’s growth path to policy changes and international disruptions. By pinpointing trends in the volatility of GDP components, this paper offers valuable insights for policymakers focused on strengthening economic resilience. The study recommends specific fiscal and trade strategies to alleviate economic uncertainty and foster balanced, inclusive growth. Ultimately, this research connects empirical findings with policy implications, enriching the broader conversation on macroeconomic stability in emerging markets.

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DOI & Citation