Forecasting Potential Impact of COVID-19 Outbreak on India's GDP Using ARIMA Model

Abstract

The outbreak of COVID-19 has brought the world economy at standstill which brings huge challenges to major affected countries. The impact of this disease on economy is highly uncertain putting policymakers in difficult situation to formulate appropriate policy in a short time. India being the second most populous country in the world after China, there is no easy way to contain the virus from spreading. Early anticipation is that, this pandemic will give a major blow to nation’s economy when the country is already experiencing continuous decline in GDP growth for the past few quarters. In order to better understand possible economic outcome, this paper attempts to model and forecast GDP growth rate of India for the next 11 quarters from Q2 of 2020 to Q4 of 2022. Using quarterly GDP data, Box-Jenkins methodology has been applied to forecast short-term GDP in ARIMA (1, 1, 4) model. The prediction made in this paper demonstrates worrying economy for India that even with contained outbreak and several stimulus measures taken by the government, the pandemic could have a significant impact on Indian economy in the short-run with no signs of recovery. The result indicates that India will continue to experience significant decline of GDP growth till the fourth quarter of 2022. However, the forecast made in this study is only indicative rather than definitive.