DAILY NEWS ANALYSIS 8th JANUARY 2022

By Educrat IAS Academy | | 0 comment | 5 March, 2022 | 0

Reading GDP Early Estimates

Ministry of Statistics and Programme Implementation (MoSPI) has released the First Advance Estimates (FAE) for the current financial year (2021-22).
According to MoSPI, India’s Gross Domestic Product (GDP) will grow by 9.2% in 2021-22.
Last financial year the GDP contracted by 7.3%.

First Advance Estimates of GDP:

First introduced in 2016-17, they are the “first” official estimates of how GDP is expected to grow in that financial year.
It is the “advance” estimates as they are published long before the financial year (April to March) is over- soon after the end of the third quarter or Q3.
However, they do not include the formal Q3 GDP data, which is published at the end of February.

First Advance Estimates of GDP - DAILY NEWS ANALYSIS

Significance:

Union Finance Ministry uses it to decide the next financial year’s budget allocations.
It is important to estimate the nominal GDP — both absolute level and its growth rate.
This will further help in calculating Real GDP and inflation.

Calculation Method:

Advance Estimates is based on the Benchmark-Indicator method.
The estimates available for the previous year (2020-21 in this case) are extrapolated using relevant indicators reflecting the performance of sectors: MoSPI extrapolates sector-wise estimates using indicators such as previous data of Index of Industrial Production (IIP), sale of commercial vehicles data, etc.

Issues:

The pandemic has upset many such projections because of significant fluctuations during the past couple of years.
Due to this, the MoSPI has alerted that “these are early projections” are liable for subsequent revisions depending on Covid.

Major Takeways:

At 9.2%, the real GDP growth rate for FY22 is slightly lower than most expectations, including RBI’s, which pegged it at 9.5%.
For FY22, while real GDP will grow by 9.2%, nominal GDP will grow by a whopping 17.6%. The difference between the two growth rates — about 8.5 percentage points — is essentially a marker of inflation.
While investments in the economy, and government expenditures are expected to claw back to the pre-Covid level, private consumption demand typically accounts for more than 55% of all GDP.